Experience Doesn’t Count Much, Extreme Confidence Might Be Fatal
Is a large breakdown about to hit the market?
Singer’s latest assessment of the market (SPY) is stark and bold. He said that “Everyone is in the dark, experience doesn’t count much, and extreme confidence may be fatal.” Trading is particularly difficult in such markets. Singer expects an ultimate breakdown or a series of breakdowns to follow, which will likely be “surprising, sudden, intense, and large.”
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What can investors expect in the future?
In his letter, Singer also sheds light on the:
- possibility of uncontrollable inflation
- importance of hedging as we move ahead
Singer’s fund is up 8% so far this year through July 2016 thanks to a 392% return his fund reaped on the principal of Argentina’s sovereign bonds. His fund also benefited from commodities and performing debt (LQD). This helped cushion the pull down from his event arbitrage strategy.
His fund’s prominent strategy has been to build up significant stakes in merger targets and push for higher bids. Evidently, the fund’s United Kingdom business, Elliott Advisors has been instrumental in driving up the acquisition price of deals such as Anheuser-Busch InBev’s (BUD) offer for SABMiller (SBMRY) and Steinhoff’s bid for Poundland. Singer also likes distressed credit, private equity, and arbitrage strategies.
Where does opportunity lie?
According to hedge fund billionaire Paul Singer, opportunity continues to lie in the distressed energy sector (XLE), despite the rebound in energy prices. The fund has also been stocking up its position on gold (GLD) with a hedged approach.
Singer also likes to build a case for alternative investments. In his letter, he stated that “It seems to us that investments and trading strategies which make money in a value-added way, in a different manner than the returns obtainable from the passive ownership of stocks and bonds, are especially good additions to institutional portfolios in the world going forward.”