Maverick Capital's Lee Ainslie: Decline In Price Of Risk = Opportunity For Shorts (Investor Letter) ~ market folly

Thursday, February 18, 2010

Maverick Capital's Lee Ainslie: Decline In Price Of Risk = Opportunity For Shorts (Investor Letter)

Big shoutout to Dealbreaker for posting up this letter. Below you will find the commentary from Lee Ainslie's hedge fund Maverick Capital. We've heard a lot of investment insight from Maverick's manager as of late, in particular at Ainslie's recent hedge fund panel appearance.

Ainslie begins his letter with a series of quotations from Thomas Jefferson, including two very applicable observations: "Never spend your money before you have it" and "Never buy what you don't want, because it is cheap; it will be dear to you." Definitely words to invest by.

One of Ainslie's main assertions was that fundamental stockpicking was difficult in 2009 as the year opened with a large decline and subsequently rallied ferociously. He highlights how high growth stocks typically trade at higher premiums, but the whacky markets of 2008 and 2009 made the valuation differences negligible. Additionally, risk premiums expanded rapidly in 2008 and seemingly evaporated in 2009. He rattles off a list of many economic concerns and events that have taken place and essentially wonders how the markets are where they are. Ainslie notes, "Despite these uncertainties, virtually any measure of risk implies that today's investment environment is rather benign."

As such, the Maverick hedge fund manager is looking for success on the short side of the portfolio going forward. Many stocks are "discounting economic nirvana for 2011" and he says that "risk is not dear enough and that we may face a jolt to the price of risk, which would induce more rational valuations for many of our short investments." It's hard to argue with that given the vast snapback we saw in equity markets last year. Risk levels have seemingly reverted to pre-crisis levels and yet the economy is by no means out of the woods.

To learn more about Maverick, check out our profile/biography on Lee Ainslie & Maverick. Embedded below is their fourth quarter 2009 investor letter:

You can now directly download a copy via .pdf here.

Very interesting to hear Ainslie's thoughts on a range of topics. Unfortunately, while we received a nice macro overview, we didn't get too much insight into Maverick's portfolio positions. As such, we'll have to just rely on our upcoming coverage of their 13F filing in our hedge fund portfolio tracking series.

We've detailed numerous other investor letters and just discussed Conatus Capital's commentary (alliteration much?), global macro hedge fund Woodbine Capital's thoughts, the Perry Partners' letter, and in the past have looked at David Einhorn & Greenlight Capital's as well. Definitely check those resources out as they're chalk full of insight.

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