Insights from Ira Sohn

Following the annual Ira Sohn conference for hedge fund titans, Matthew Wu brings you some of the interesting insights presented.

Every year thousands of people flock to the annual Ira Sohn conference to hear the titans of the hedge fund industry speak about their latest stock and investment ideas.

For those, including myself, who didn’t know this conference existed until last week, or who couldn’t afford the tickets either to New York or to the conference, here are some interesting tidbits and insights from the speakers (via Google).

Stanley Druckenmiller – Duquense Family Office

Druckenmiller is forecasting a significant crash in commodity prices. He argues that commodity prices should trend downwards over time as improving technology reduces the costs of mining. However, this trend was interrupted between 2002 and 2011 by the emergence of China.

He believes Chinese demand is not sustainable due to a possible financial crisis. China is currently experiencing rapid growth in credit and shadow banking which also happened in the US before the GFC.

He is also concerned about the US Fed’s quantitative easing program. He argued that when it stops it could lead to an abrupt halt to the current bull market.

Jim Chanos – Kynikos Associates

Chanos’s idea was to short hard drive makers, in particular Seagate Technologies. While these companies look cheap on price-earnings ratios of around five or six, he says, they are in fact ‘value traps’. He argued that the recent strong share price performance couldn't be justified, given improving cloud efficiency and decreasing PC sales

David Einhon—Greenlight Capital

Einhorn was bullish on Oil States International (OIS). Oil States is a provider or oil rigs and housing on oil fields. Even though it is trading at an enterprise value to earnings before interest, tax, depreciation and amortisation multiple of about seven, compared to its peers’ average of about four, he thinks this is more than justified by OIS’s higher profit margins and the fact that half its fleet is proprietary and patent protected. There would also be further value if the company spun out its housing into a REIT which could lead to OIS having a $155 per share valuation.

A note of caution, however. While the conference’s minimum US$1500 entry fee is going to the worthy cause of paediatric cancer research, you may want to take the investment ideas at your own risk. The Financial Times found that last year’s ideas underperformed the US index by 3%.

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