I wanted to call the blog “Frenzied Pursuit” because I thought it was not only a great name for a rock band but an excellent title.
Alas, Greg Zuckerman at the Wall Street Journal had already used it. I’ve long recommended Greg’s book “The Man Who Solved the Market,” about Jim Simons, founder of Renaissance Technologies. Essential reading for the well-informed.
Maybe it was Greg’s editor who penned “Frenzied Pursuit.” At any rate, if you missed it, there’s a great article in the WSJ by Greg and colleague Peter Rudegeair from June 13 (subscription required) on a battle at hedge funds to get the best traders.
Aside: I’d lined up Greg to speak to the New York NIRI chapter at Baruch College in March 2020. ModernIR was buying the books, Greg would sign them, and we’d talk about what he learned from Jim Simons.
Then the Pandemic hit. We never made it back around.
Let me give you another tidbit as part of the setup. Karen and I were at Carl’s in Steamboat Springs (it’s now called Cypress, owned by local celebrity chef Collin Kelley) and we met Ted Wachtell.
A big wig at Millennium, the hedge fund. I don’t know if he’s still there, though I have his number in my phone. He connected us to Emilio Masci, one of those “low-profile” high-value people that hedge funds want.
I learned from Millennium that they made two-thirds of their returns betting directionally around earnings, using all data available.
That idea was reinforced by people we got to know at Point72, Steve Cohen’s firm and the subject of the HBO show “Billions.” A good friend in electronic trading at State Street told me he did a fireside chat for a traders’ association session with actor Kelly Aucoin – Dollar Bill from Billions.
I digress.
Greg and Peter wrote in the WSJ how some people we all have never heard of are given huge sums — $100 million or more – at hedge funds to deliver returns. Read the article. It’s riveting.
And it’s a serious battle. Point72 is duking it out with Millennium or Marshall Wace (I wrote about them two weeks ago), or Balyasny and so on.
That’s not the point. This excerpt is:
Much of the investment profits among stock pickers at the firms come from predicting corporate earnings results and market reaction to them. That means pressure mounts in the lead-up to quarterly announcements, when portfolio managers and their teams are known for logging days of 14 hours or more and sleeping with cellphones under their pillows. The goal is to deliver regular returns while taking a lot of idiosyncratic—or “idio”—risk that isn’t tied to factors that drive broad baskets of stocks.
You get that, public companies? Much of the investment profits come from predicting corporate earnings and market reaction to them. And getting stocks to move idiosyncratically – that is, not like other stuff.
Has that happened to you? It’s not if you beat or miss consensus. It’s oh-so-much bigger than that. People don’t work 14 hours and sleep with cell phones under pillows for consensus.
And we’re seeing it in patterns. And you’re seeing it, public companies, in erupting volatility. I traded notes with a company yesterday that gyrated more than 20% each of the past two quarters with earnings.
It’s bad enough if your market capitalization is $800 million and you lose 20% — $160 million. What if you’re CRM and you jump 11% with earnings, as salesforce did Dec 4, 2024?
It’s great, right? Market cap is $352 billion.
No, it’s terrible. CRM never got it back. They’re down $90 BILLION from December earnings. At the nadir Apr 21 – during options-expirations – CRM was down $125 billion. CRM lost as much market cap as all of it for the hundredth largest stock in the US market, Applovin (APP).
Hedge funds are not the only cause. There are machines (as we wrote last week). There are derivatives. But bets paid hand-over-fist by giant hedge funds banking on a disconnect between your data and some other data is a BIG reason.
Somewhere behind the scenes, somebody like Emilio Masci (not to pick on delightful Emilio) is leveraging giant, data-informed juice on which way your stock moves when you spew information into the marketplace.
So. What should you do? Well, not that! (Ask us for help.)
You need to know what’s happening in your data before you report earnings. And you need to move some chess pieces. A lot of money is on the line. Belonging to your shareholders. Up or down big is bad. You want to be low-profile.
Like those hedge-fund folks getting paid $100 million to bet on what you’ll report.
Epilogue: We’re seeing Lake Street Dive tonight in Denver because Jay Powell speaks today with Demand peaked and Supply crazy and VIX and index options expirations today and the market closed tomorrow and then Friday is a quad witch and S&P quarterly rebalances and new options trade Monday. Breath. Wild. Stuff could…break. Or not.
