by James Brumley | May 21, 2012 8:59 am
They might collectively manage billions of dollars of other people’s money, but that doesn’t mean they always get it right. Here’s a look at five big-time money managers’ moves from Q1 that had me scratching my head. See if you agree with my assessment, or theirs.
I hope the irony doesn’t escape you. The bulk of George Soros’ recent (since 2010) shtick has been that gold’s rally was pushing the commodity into a terrifying bubble. Fair enough — everyone’s entitled to an opinion. On the other hand, he still has not answered the question: If gold’s in a bubble that’s ready to pop, why did he buy triple his exposure to the commodity in Q1 by buying 319,550 more shares of the SPDR Gold Trust ETF (NYSE:GLD)?
Here’s the irony: The bubble that Soros has been warning about but betting against finally did pop. Though we don’t know at what point he bought those new GLD shares, we do know the fund is just a tad above its low point for the year, and has likely developed a bigger downtrend … the very one he’s been talking about for a while.
To be fair, Chesapeake Energy (NYSE:CHK) has been under fire for a while, and it’s just prudent to cut loose of losers. In that regard, Carl Icahn technically made the right call by dumping the majority of his $475 million stake in the oil and gas company.
What was errant was the timing. Chesapeake struggled for most of last year and didn’t have a great 2010 either. If anything, Icahn should have sold it earlier, or not at all. To shed it now — perhaps within reach of a bottom — just locks in a loss that he should have cut bait on long ago. The best choice as of Q1 might have been to just stick with it and wait for the rebound (which might well be unfurling now).
John Paulson also made a new acquisition of Sara Lee (NYSE:SLE), with the ultimate intent of spinning off its coffee and tea division, and subsequently listing that unit on the Amsterdam exchange. The remaining part of Sara Lee — which both Soros and John Paulson likely recognize is struggling — will pay a special dividend of $3 as part of the rather complicated breakup. Perhaps Paulson is trying to get in on Soros’ action.
The thing is (and it seems fewer and fewer money managers get this anymore), there’s still a struggling pastry maker being left behind, and the stock was overvalued — with a P/E in the 20s — even before the spinoff talk started and the struggle became clear. Though the split might well unlock the unrealized value of both divisions, those theoretical “value unlocks” don’t always pan out, and I doubt Paulson or Soros know how to bake a cake any better than Sara Lee.
I can’t help but wonder if Pershing founder Bill Ackman’s idea with J.C. Penney (NYSE:JCP) was a play borrowed from Edward Lampert’s effort to rebuild Sears Holdings (NASDAQ:SHLD), which got off to an apparent great start, but has since fallen flat.
Here’s a little secret about retailing: From the outside looking in, it looks easy. From the inside, though, it’s anything but easy — things are not as simple as they seem. Lampert is learning that the hard way, and I suspect Bill Ackman is starting to see the same light. He now owns 39.1 million shares of Penney (about 18% of the company), or a $1.39 billion stake that started being built in 2010. Though he has poked and prodded, including picking a new CEO, little has changed for the struggling retailer. In fact, things are getting worse.
Finally, call me an age-ist if you want, but I have to wonder if George Soros sold his entire $170 million stake in Google (NASDAQ:GOOG) because the 81-year-old investor just can’t/doesn’t want to embrace the digital era. I’m just sayin’.
In his defense, GOOG shares have gone practically nowhere since the beginning of 2010, and the company even posted a rare earnings miss a couple of quarters ago. So, why bother, right? Yet Google is an earnings-growth juggernaut and has continued to consistently crank up the bottom line since 2004 no matter what curveballs are thrown its way. Sooner or later, that 20%-ish growth rate is going to make that forward-looking P/E of 13.8 look too good to pass up.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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