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3 NEGIBO TTM — The Search Engine That Complains About Everything
Hedge Fund Research vs. Traditional Research
Table 2: Search Results From NEGIBOT™ on “Kindle”
Tynan on Technology (beta) " Blog Archive " Amazon's wonderful terrible
... The Kindle is amazing and awful, grand and terrible. ... Two stupid
things that really pleased me. The RIAA vs. the mothers of prevention
Investing Insights Buy Amazon - Kindle is the iPod of books - Business
Week That creates terrible chicken-and-egg dilemmas between the devices
and the ... take out this basic and stupid restriction, the Kindle, so loving
gifted to me,
Blogrunner: Amazon Kindle vs. Sony Reader, New eBooks and iPhone:
First ... ... important observation about Amazon's new electronic book reader:
It's terrible. ... eBook readers are stupid. Related " Nikhil Pahwa |
In case you were wondering, there is also POSIBOT™, the optimistic
search engine. In short, vertical search engines, such as deepVertical™,
which “search topics an inch wide and a mile deep™” may be of greater
value to hedge fund managers and analysts than traditional search
2.4 Google Alerts
The major financial portals, such as Yahoo! Finance, Microsoft Investor,
Google Finance, and SmartMoney.com do an excellent job of
aggregating national news sources, such as Reuters, Associated Press
(AP), PR Newswire and many others. However, in many cases the most
comprehensive and valuable information about a firm is uncovered by
local news sources, as well as in blogs and user groups. Fortunately,
Google Alerts allows you to track companies or phrases “as-it-happens”
with emails sent directly to your inbox. Not only does Google Alerts
track national and international news articles, but also local articles,
blogs, video, and user groups.
The service costs nothing and works best with a Gmail account since
the emails on a specific search term (e.g. Goldman Sachs) are aggregated
under a single heading despite the fact that one hundred alerts may have
occurred on your search string in the past twenty-four hours. Table 3
shows a sample list of Google Alerts.
Table 3: Google Alerts on Selected Finance Terms
Your Google Alerts
Google Alert - UBS - Google Blogs Alert for: UBS Re: Discussion on Dillon Read Capital Management (UBS) Author: Hedge …
Google Alert - Morgan Stanley - Google News Alert for: Morgan Stanley, Bank of America Cuts Goldman Sachs (GS) and Morgan Stanley …
Google Alert - Lehman Brothers - Google News Alert for: Lehman Brothers, Market Snapshots: US Stocks Turn Mostly Higher As …
Google Alert - Citigroup - Google Blogs Alert for: Citigroup, Citigroup - too big to fail By rss@LiveVideo.com (StocksAtBottom …
2.5 Network of Experts to Help Generate Alpha
One or more highly competent investment professionals manage most
hedge funds and a team of analysts often backs the larger ones as well.
Regardless of size, hedge funds can and should also tap into the
resources of others that can add value to their investment processes —
what we shall term as a “network of experts.” Let’s look at several
examples of how many hedge funds tap experts beyond their own walls
in their quest for alpha.
One former Head of Research at a bulge bracket sell-side research
firm told me one method he used for uncovering experts in a specific
industry. During the course of his meetings with people working in a
particular field, he would ask, “Who is the smartest person you know in
this industry?” He would get a name and then proceed to call the person,
stating to the effect, “I heard you are the smartest person in the
industry…” Most individuals would be flattered to hear that comment
and give you at least a few minutes of their time. To obtain a substantial
amount of an expert’s time it will likely cost you significant consulting
Hedge Fund Research vs. Traditional Research
fees (and perhaps be well worth it). At least the initial conversation may
tell you enough about whether you would like to proceed further.
There are several specific sources for finding experts in even the
narrowest of fields. Let’s briefly mention three virtual research firms
used widely by hedge fund managers. Gerson Lehrman Group (GLG)
(http://www.glgroup.com/) provides a platform to access more than
200,000 subject matter experts on a worldwide basis. According
to an article posted on GLG’s website, the experts charge their
clients anywhere from $50 to $2,000 per hour while GLG earns
money by providing clients with access to its database of experts.3
GLG’s fees are $70,000 and up for six months of access to
their platform. Other well-known firms that provide access to a
virtual network of experts (for a fee) include Standard and Poor’s
Vista Research (http://www.vistaresearch.com/) and Reuters Insight
It is not a secret that hedge fund managers often share information
with other managers about their positions. In fact, many managers are
eager to share (primarily long) positions, once they have been established
with the expectation that further buying will push up the price of their
holdings. For example, David Einhorn of Greenlight Capital in his recent
book, Fooling Some of the People All of the Time: A Long Short Story,
notes the following tense exchange he had with the SEC when they
probed his short position in Allied Capital:
“Have you ever met regularly or irregularly with a
group of fund managers that would include Whitney
Tilson [of Tilson Capital Partners] and Bill Ackman
[of Gotham Partners]?” he asked. ‘Well, Bill Ackman
was in the Richard Shuster group for a period of time,’ I
said, referring to an informal quarterly ‘idea dinner’ of
money managers, which I sometimes attend. Richard
Shuster ran a small hedge fund called Arbor Partners and
organized the dinners. Idea dinners are commonplace.
Some, including Richard Shuster’s, are self-formed,
while institutional salesmen or the investment banks
sponsor others. Generally, at an idea dinner each
participant presents one or two investment ideas and gets
grilled by the group. ‘He hasn’t come for a while, maybe
several years,’ …
While it is true that I share investment ideas with other
fund managers, this works best as a two-way street. No
one likes a freeloader. So as a general matter, I share
more ideas with others who share back. I don’t keep
score about who shares what with me, and the practice is
Sharing ideas with hedge fund managers is somewhat of a “Catch 22”
situation. Star managers might not give a new manager the time of the
day. Perhaps one solution is that emerging managers are likely to be able
to network with other emerging managers, while larger, more established
managers have a high likelihood of networking with most funds.
2.6 Obtaining Alpha Generating Ideas From Websites and Books
Occasionally, it is possible to obtain alpha generating ideas through
websites at zero to nominal cost. We distinguish these websites, which
present a clear argument for buying or selling a security, relative to the
resources that provide specific pieces of an investment mosaic.
ValueInvestorsClub.com provides high quality, value oriented ideas to its
250 members, but admission is selective and obtained through an
application process. The website, founded by Joel Greenblatt of Gotham
Capital, awards $5,000 a week to the member with the best investment
SeekingAlpha.com is open to the general public and provides a list of
long and short ideas on a daily basis, as well as highlighting investment
related articles from other publications. Mark Cuban is majority owner of
ShareSlueth.com, a website that primarily uncovers short picks. It
has an impressive track record, but the volume of investment ideas is
far less than those in ValueInvestorsClub.com and SeekingAlpha.com. A
comprehensive, but not exhaustive, list of websites for hedge fund
Hedge Fund Research vs. Traditional Research
managers and analysts is located in Appendix A. Additionally, an
annotated reading list is located in Appendix B. Hedge fund managers
often obtain investment ideas after reading about the thoughts and
strategies of successful managers in the industry. The reading list also
contains core books in investments, financial statement analysts, short
selling, investor psychology, and technical analysis.
3. Putting It All Together In a Hedge Fund Dashboard
This chapter noted how hedge fund research is distinct in many respects
from long only research and discussed various resources and techniques
that may help a manager deliver sustainable alpha. Disparate information
sources and concepts are often best presented in an investment mosaic
or dashboard. The CFA Institute promotes the Mosaic Theory, which
suggests analysts weave together bits and pieces of public (and
sometimes proprietary) information into a unique picture that generates
alpha. A sample hedge fund dashboard is shown in Figure 3. The
dashboard lists macro variables, industry contacts, valuation parameters,
watch lists, and so forth. In practice, hedge fund managers may wish to
create several dashboards pertaining to different time horizons and
securities and have them updated on a real-time basis.
Long / Short Equity
Equity Market Neutral
Fund of Funds Composite
Hedge Fund Category Performance in % (7/31/08)
Current Interest Rates and Spreads (8/21/08)
List of Industry / Sector / Country Experts
S&P 500 - Fundamental Analysis (8/21/08)
Jose Maradona (212) 000-2001
Ivan Yukos (212) 000-2002
Sunny Patel (212) 000-2003
Carolyn Xie (212) 000-2004
Bjorn Andersen (212) 000-2005
Investor Psychology - VIX Index (8/21/08)
10 Year Treasury
Nymex Crude Oil $ 114.59 $ 69.48
$ 822.70 $ 656.70
Dollar / Euro
Dollar / Yen
New Positions of "Star" Hedge Fund Managers
FOIA Research List
Source: Yahoo! Finance
Figure 3: Sample Hedge Fund Dashboard
John Morgan (212) 000-1000
Brian Lynch (212) 000-1001
Karen Sachs (212) 000-1002
Mark Stanley (212) 000-1003
Eva Lehman (212) 000-1004
Tom Pickens (212) 000-1005
Erica Jeffries (212) 000-1006
Hedge Fund Research vs. Traditional Research
Hedge Fund Alpha Tear Sheet — Chapter 2
Sustainable alpha is not possible without high quality research.
Hedge fund research is often distinct from traditional long only
research. Some of these differences are listed below:
o Hedge fund research generally has a shorter-term orientation.
o Hedge fund research has a greater focus on short selling.
o Hedge fund research is more dynamic in nature.
o Hedge fund research often involves combinations of
There are many ways a hedge fund manager can utilize research
in order to generate alpha. The following techniques were
discussed in this chapter:
o The Freedom of Information Act (FOIA).
o Channel checks.
o Negibot™ — the search engine that complains about
o Google Alerts.
o Network of internal and external experts.
o Financial websites.
o Creating hedge fund mosaics or dashboards.
The Bloomberg article by Cho and Heiskanen (2007) discusses
iSuppli’s approach to estimating the profit margins on the iPhone.
The Huberty report analyzing Steve Jobs’ airline expenditures is
discussed in Richards (2008).
An estimate of GLG’s fees is discussed in Baird (2008).
Baird, Roger, “Investment Matchmaking: A New Industry That Is
Beating The Crunch,” City A.M., July 21, 2008.
Cho, Kevin and Ville Heiskanen, “Apple’s IPhone Sells for Double
Costs, ISuppli Says,” Bloomberg, July 3, 2007.
Einhorn, David, Fooling Some of the People All of the Time: A Long
Short Story, Wiley, 2008.
Richards, Jonathan, “Apple gears up for June launch of 3G iPhone,”
Times Online, February 29, 2008.
ACHIEVING HEDGE FUND ALPHA IN BRAZIL
Jorge Barreiro and John M. Longo, PhD, CFA
Duff and Phelps; Rutgers Business School & The MDE Group
The purpose of this chapter is to provide a basic overview of the
Brazilian (or Brasilian) financial markets and its dynamics, with the
ultimate goal of identifying hedge fund strategies that are most likely to
generate alpha in this region. Accordingly, it is necessary to discuss
some of the common financial instruments that exist in Brazilian
markets, regulation, and investor behavior. The global bear market of
2008 has wreaked havoc on nearly all financial markets. However, the
enormous foreign exchange reserves of the Brazil, Russia, India, and
China (BRIC) countries as of late 2008 puts them in much better position
to rebound from the large losses, relative to prior crises in their
respective countries. The nascent and rapidly evolving nature of the
Brazilian financial markets, as well as with the other (BRIC) countries,
may make it a fertile source of alpha in the decades ahead.
Table 1 lists current (2007) GDP and 2050 projected GDP for the
BRIC countries and those of other large economies.1 The projected
results, if realized, are simply breathtaking. Brazil’s economy, currently
ranked (by GDP) 10th in the world, is projected to move to 4th. Russia,
currently ranked 11th by GDP is projected to move to 6th. India, currently
ranked 12th, is projected to move to 3rd. Incredibly, China’s economy in
2050 is projected to be nearly twice the size of the United States’, while
J. Barreiro and J. Longo
it currently has less than one quarter of the United States’ $13.8 trillion
GDP. China, with its $1.8 trillion in reserves is likely to emerge from the
global stock market crash of 2008 in a stronger than ever position. We
discuss hedge fund strategies for China in Chapter 6.
Table 1: 2007 GDP and Projected 2050 GDP
Source: Wilson and Stupnytska (2007)
2. Brazilian Economy
Brazil’s economy, with 2007 GDP of approximately $1.5 trillion, is the
second largest in the Americas, and among the ten largest in the world.
Since 2000, GDP has grown at an astounding 11.7% annual rate. Growth
was fueled primarily by a rise in commodities, a decrease in inflation,
and expansion of international trade. Although China and India get most
of the publicity related to the BRIC countries, it is interesting to note that
Brazil’s GDP exceeds India’s by more than 10%, despite having less
than 20% of India’s population.
Brazil is well known for its rich natural resources, but surprisingly its
largest exports are in the transportation industry. Embraer is Brazil’s
leading aerospace company, amassing approximately $6 billion in sales
in 2007. Table 2 shows Brazil’s leading export industries and markets.
Achieving Hedge Fund Alpha in Brazil
Brazil, rich in sugarcane crops due in part to its warm climate, is the
world’s leading producer of ethanol. Its petroleum-based exports are
certain to increase over the long term after Petrobras’ recent discovery of
the massive Tupi and Jupiter oil fields in the Santos Basin. Brazilian
President Luiz Inacio Lula de Silva, said the country would consider
membership in the Organization of Petroleum Exporting Countries
(OPEC) once the new oil field discoveries are capable of substantial
Table 2: Leading Brazilian Export Industries and Markets
Biggest Exports, 2007
Transport Equipment & Parts
Soybeans, Meal & Oils
Leading Export Markets, 2007
3. Overview of Brazilian Financial Markets
3.1 Brazilian Stock Market
Brazil’s only current stock exchange is the Bolsa de Valores de Sao
Paulo (BOVESPA), which has roots dating back to 1890. According to
De Medeiros (2005), Bovespa and other Brazilian exchanges were at one
time official entities linked to finance departments of state governments.
The Securities Act of 1965 ushered in the modern era of the stock
exchange that exists at present. In 2000, BOVESPA emerged as the
monopolistic stock exchange of Brazil after it merged with its primary
competitor, Bolsa de Valores do Rio de Janeiro (BVRJ). In May, 2008,
BOVESPA merged with Brazil’s largest derivatives exchange, Bolsa de
Mercadorias & Futuros (BM&F), creating the world’s third largest
exchange. The combined firm is now known as BM&FBOVESPA.