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Bubble unravel post-mortem


n.r98
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https://www.wsj.com/articles/aravt-global-shutting-down-as-hedge-funds-get-hit-by-unraveling-of-growth-trade-11646908200?mod=markets_lead_pos11

Anyone knows why this fund performed so badly even prior to Covid?

 

"From its start through 2018, Aravt averaged gains of less than 2% a year compared with more than 9% for the S&P 500, including dividends. Mr. Liow by early 2019 had “streamlined” his investment team, a change he told investors would improve returns. Indeed, the hedge fund gained 31% and 36% in 2019 and 2020, respectively, but its assets by mid-2020 had dwindled to $500 million as investors stung by earlier losses defected."

 

https://sec.report/CIK/0001601160

 

Just a brief look at the 13Fs, they had all the names that were the winners of the decade, Alphabet, o reilly, paypal, visa, transdigm, charter, you name it. Surely, these would have been adequate to generate market beating performance.

 

Anyone with more intimate knowledge on this? Was it too high turnover? There looks to have been a lot more turnover than other growth oriented funds etc.

 

Also, once again another reminder to be wary of "investment gurus" with their impressive talks, conferences and podcasts.

 

No axe to grind here, just genuinely curious and hoping to get some interesting perspectives.

 

 

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Sounds like he just decided to quit:

 

Quote

“When we launched in 2014, I made a promise to return capital if I ever lost conviction in our ability to deliver superior absolute returns sustainably. I believe our flagship long/short equity strategy has reached that point,” Mr. Liow, 50, wrote in a letter to investors dated Feb. 28 that was viewed by The Wall Street Journal. He wrote that “structural shifts in the market” would require Aravt to change how it manages its portfolio in ways he wasn’t sure would position the fund for strong performance. He didn’t say what the market shifts were.

 

 

Aravt's holdings were on average of very high quality TDG, CHTR, V, GOOGL, NOW, MSFT, etc.

 

I watched his webinar a couple of weeks ago and thought it was interesting:

 

 

I wish Yen Liow good luck with his next endeavor.

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I wonder if the issues were on the long or the short side. The short sides seem to get quite tricky, because at times all the junk and suspect stock frauds become correlated and can run against you, leading to risk management issues.

 

On the long side, we have seen very quick and sudden factor shifts. If you invest with a longer time frame, the you can look at very severe underperformance at times.

Edited by Spekulatius
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On 3/12/2022 at 3:41 AM, Spekulatius said:

I wonder if the issues were on the long or the short side. The short sides seem to get quite tricky, because at times all the junk and suspect stock frauds become correlated and can run against you, leading to risk management issues.

 

On the long side, we have seen very quick and sudden factor shifts. If you invest with a longer time frame, the you can look at very severe underperformance at times.

 

He was pitching Github at 60x revenue at the latest Sohn conference as the next Atlassian. At that sort of multiple, you're really asking for it imo.

His book got a little too momo lately but I'm just perplexed why he didnt do well from 2015 to 2019 despite owning all the best names and seems like it's due to turnover maybe - that's really what I'm trying to pin - how to lose even when you own winning stocks.

 

And with regards to the "severe underperformance at times", barring any easing, I really doubt many of the high flyer names will see their shares return to their former glory in many many years. Easy to say in hindsight but why weren't the various overblown stocks a "sell"? Buffett bemoaned not selling Coke at the height of the dotcom bubble; a lot of this fundies were around during the dotcom, YL included, what got into their heads? Why wasn't $CVNA a sell when it ran from $10 to $380 or smt?

Really exposes a lot of dogma in the industry and all the more the importance of not classifying anyone with a silky speech, supranormal tech returns during COVID and beautiful ppt slides as a "guru" whatsoever.

 

 

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A few in my family are beginning to feel the gravitational pull in to the SAAS arena.  They are especially aware of the family history where a some (not me) made nearly 100 times their money with EMC stock back in the mid 1990's through early 2000.

 

I politely reminded them that these EMC investors had bought the stock at a PE ratio of 18 and watched earnings grow 35-50% annual for 6 years while the PE ratio went to nearly 200.  Today you are buying entities in the SAAS world with either little or no earnings and 40-60 price-to-sales.

 

With inevitable compressing valuations laced with super-duper hyper growth the game gets very addicting.  Random intermittent outcomes are the most intense suck-in of all.

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1 hour ago, dealraker said:

A few in my family are beginning to feel the gravitational pull in to the SAAS arena.  They are especially aware of the family history where a some (not me) made nearly 100 times their money with EMC stock back in the mid 1990's through early 2000.

 

I politely reminded them that these EMC investors had bought the stock at a PE ratio of 18 and watched earnings grow 35-50% annual for 6 years while the PE ratio went to nearly 200.  Today you are buying entities in the SAAS world with either little or no earnings and 40-60 price-to-sales.

 

With inevitable compressing valuations laced with super-duper hyper growth the game gets very addicting.  Random intermittent outcomes are the most intense suck-in of all.

 

FOMO is a powerful drug...

 

The recent meme/crypto gainz have been the most amazing thing I have seen in my lifetime with regard to the markets...no no I didnt make any money off them (I guess I did have one stock that I had held for years that had an elevated short interest and by association spiked to a 5 year high at which time I was ecstatic to exit immediately that morning, better to be lucky than good) but just the "discussions" among coworkers, many of whom IMO should just index...putting serious amounts of cash into names they see in the news..those discussions have quieted significantly...

 

Alot of these guys should just go down to the gas station and buy a powerball ticket...at least they'll likely only "invest" $20 in that gamble...the markets and hysteria entice people to use real/significant dollar amounts at the chance for perceived life changing returns...the irony of this is, I do know a couple guys who did get in relatively early in the meme stonks...but then rode it all the way up...and then all the way back down below their CB...because when you dont understand what is going on they all think "it will come back, just have to ride it out, its all part of the game" so even when they do catch a lucky break, their understanding of what is going on is so elementary that they dont know when to exit and ultimately STILL end up in the red. 

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7 hours ago, Blugolds11 said:

 

FOMO is a powerful drug...

 

The recent meme/crypto gainz have been the most amazing thing I have seen in my lifetime with regard to the markets...no no I didnt make any money off them (I guess I did have one stock that I had held for years that had an elevated short interest and by association spiked to a 5 year high at which time I was ecstatic to exit immediately that morning, better to be lucky than good) but just the "discussions" among coworkers, many of whom IMO should just index...putting serious amounts of cash into names they see in the news..those discussions have quieted significantly...

 

Alot of these guys should just go down to the gas station and buy a powerball ticket...at least they'll likely only "invest" $20 in that gamble...the markets and hysteria entice people to use real/significant dollar amounts at the chance for perceived life changing returns...the irony of this is, I do know a couple guys who did get in relatively early in the meme stonks...but then rode it all the way up...and then all the way back down below their CB...because when you dont understand what is going on they all think "it will come back, just have to ride it out, its all part of the game" so even when they do catch a lucky break, their understanding of what is going on is so elementary that they dont know when to exit and ultimately STILL end up in the red. 

Well to be fair, some growth investors did ride the likes of PYPL from $100 to $300 and then all the way down as well. That was when #neversell was trending and that's really no better. Maybe that happened to the Aravt fund as well. I guess the lesson is that if Mr Market gives you a gift, you should just take the bid and cash in the chips. I think the long bull market in some names made them forget this and that is the different market structure they are referring to.

 

I guess as  value investor you never get to ride the likes of PYPL to $300 though, so there are tradeoffs either way.

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