The Rules of Investing Hedge fund managers never name their shorts. This one does...
Short sellers have had a tough time of it over the past decade. The era of free money lifted all boats, including companies that would perhaps otherwise be candidates for short selling.
Today's market is radically different. Central banks have lifted rates in a desperate attempt to control inflation. Global equity markets have performed well, but much of that performance can be attributed to the tech titans of the Nasdaq.
Consumers have less money to spend, while costs are up and top line revenue is down.
This is fertile hunting ground for short sellers.
Short selling is risky, and beyond the capacity of most normal investors. But that doesn't mean that normal investors can't take on board short seller's methods and positions, and steer clear of certain companies accordingly.
I speak to a lot of hedge fund managers about their methods, however most aren't willing or able to expose their actual short positions.
Dr David Allen, who manages Plato's Global Alpha Fund, has no such qualms.
In this episode of The Rules of Investing, hosted by David Thornton, Allen explains his red flag system for identifying shorts and some of the companies it's identified. He also discusses his his long process, which draws on elements of growth, value and quality. And it wouldn't be an episode of ROI without Allen naming some of the companies he has conviction in right now.
Note: This episode was recorded on Tuesday September 19, 2023.Timestamps
0:00 - START
2:00 - Life as a professional athlete
3:20 - JP Morgan (and surviving the GFC)
8:00 - Combining growth, value and quality
16:00 - A red flag system for finding shorts
20:40 - The most common red flag in today's market
21:55 - Two high conviction shorts on the ASX
26:00 - Access to the C-suite isn't what it used to be
27:00 - Is Qantas (ASX: QAN) a bargain or value trap?
34:55 - Does nVidia deserve its valuation?
37:57 - You don't need to be concentrated to generate returns
39:17 - A humbling experience
43:30 - This drug will change the face of healthcare
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