Interview with Senior Wall Street Fund Manager (4)

December. 02,2023
Interview with Senior Wall Street Fund Manager (4)

The Risun incident generated a major media reaction mainly because Risun itself is a very high-profile company that cheats. The approach and degree of boldness was also unusually bold. What is not reported in the media is that many U.S. and Asian hedge funds, including us, actually saw the potential problems with Rexroth and The stock was shorted. After all, this is not a case of "unexpected Wall Street" fraud.

 

My advice to investors in Chinese stocks is, first, carefully understand the background of the company's major shareholders, executives and sponsors (venture capital and PE), like the Risun team with a bad track record is best not to touch.

 

Second, stay away from businesses with severely divergent cash flows and revenues, no matter how high its growth rate and how dazzling the aura of a unicorn.

 

2, crude oil prices have fallen dramatically recently, talk about your views?

 

May WTI futures fell into negative territory, mainly due to the short-term impact of running out of storage capacity. The 12-fold spike in tanker quotes in the last two weeks (through the third week of April) suggests that there is simply no excess storage capacity on the market, and the WFI crude differs from Brent crude in that it is a spot trade, in other words, you have to take delivery of the trade. Physical crude oil. That way, you can't store it after you buy it, and you can't burn it (the U.S. is very strict about environmental protection, and there are huge fines for burning it without permission). So a fall to negative numbers is justified.

 

But the market is not really that pessimistic about medium-term demand for oil, and November-December futures are very stable above $30, indicating that the market doesn't think oil demand will collapse in 2020.

 

3: What is the impact of the contagion on you? What's your coping strategy?

 

My investment strategy is different from most hedge funds, especially quantitative funds that rely on machines and algorithms.

 

First, investing for the long term (more than two or three years) and less concerned with short-term fluctuations.

 

Second, focus on capturing inflection points in fundamental changes that are not yet reflected in the data, i.e., opportunities that cannot be captured by machines.

 

Third, focus on active participation in management/shareholder communications and use rights investments as a share price catalyst.

 

Since the outbreak of the Italian epidemic in late February in the US and Europe, there has been a lot of indiscriminate selling in machine-dominated markets, including even some potential gains from the epidemic.

 

As a simple example, Costo supermarkets saw sales jump during the epidemic as consumers panicked and stocked up, yet the stock was not sold at all. You can see that this stock fell (~12%) in the first two weeks of the outbreak in Europe and the US (from mid-February to early March) roughly in line with the The U.S. broader indexes match, suggesting that the sell-off in Costo came solely from the broader ETFs. It was a very clear mispricing and buying opportunity created by the machine. Two weeks later, the market gradually reacted, so Costo has been outperforming the broader market substantially since early March.

 

Opportunities like this were plentiful during the epidemic: a lot of good companies were hit in the short term and machine ETFs sold off, but the market was not able to take advantage of them. Long-term profitability has not been impacted and the balance sheet is healthy, resulting in excellent buying opportunities, such as Kornit, Cloudflare, Xilinx, Booking, Dufry, Wynn In short, with machines accounting for 90% of the market today, fundamental investors should not be bayoneting machines to catch short-term Instead of trading opportunities where efficient high-frequency data exists, the focus should be on capturing opportunities that machines can't eat - opportunities that haven't been eaten by hard data. reflecting inflection points in qualitative fundamental changes, thus beating the market and machine trading in the long run.

 

Three epidemic-related factors that I'm actually more worried about over the long term: first, whether there will be a Singapore-like epidemic backlash after the gradual opening in the summer, as the US is far less rigorous in its implementation than China.