Quitting the Hedge Fund Game - Mark Sellers
Felix Salmon
About this author:
This I can understand:
For some, the volatile market has been too much. Such is the case for Mark Sellers, who runs a small energy fund Sellers Capital.
After posting eye-popping returns of 65 percent in the first half of the year, the 40-year-old Sellers alerted investors last month he was closing shop and retiring from the profession.
"I truly love the art of investing, but managing people's money has taken a large toll on my demeanor and psyche," Sellers said in a letter obtained by The Post. "I feel downright miserable."
Managing a hedge fund is a high-stress activity at the best of times. And given the quantum leap in stress that all hedge-fund managers have experienced in recent weeks, it's hardly surprising that at least one energy hedge-fund manager has decided to call it quits.
The next sentence, however, makes less sense to me:
Sellers, who put a lock on redemptions, plans to liquidate the fund over the next year or two.
The only reason to spend a year or two liquidating your fund is if it has very illiquid investments. I'm not sure that the NYP's characterization of Sellers Capital as an "energy fund" is correct, but if it is, then energy investments are nearly always very liquid.
I suspect that in reality Sellers Capital has lost a lot of money in the second half of this year, and he's decided to hold and pray rather than liquidate at a loss. Here's a Sellers Capital presentation from May. It says that the fund likes to "make big bets", and it says that its guiding philosophy is Warren Buffett's: "Rule #1: Don't lose money. Rule #2: see Rule #1".
I do believe Mark Sellers when he says that he feels downright miserable. But I think the reason is simple: he violated his Rule #1. And, for that matter, his Rule #2.
"We buy two types of companies," says the presentation. The first type is out-of-favor large-caps: it cites Johnson & Johnson (JNJ), Wrigley (WWY), and Pepsico (PEP). Wrigley had already been bought at the time of the presentation; the other two companies are down about 17% since the beginning of May.
Most of the presentation is about an example of the other kind of company Sellers likes: small-caps selling near liquidation value. He picked Vulcan Materials (VMC), which was selling at $70 per share. If he was unlucky, he said, VMC would go to $60. Most likely, it would go to $90. If he was lucky, it would go to $105.
Within two months, VMC was at $50. It then rebounded, but it still closed today at $54.50.
Elsewhere online, TickerSpy has a list of what it says are Sellers Capital's holdings, which include VMC and which generally look like a pretty standard value-investor portfolio -- Berkshire Hathaway (BRK.A), UPS, American Express (AXP), that kind of thing. Over the past six months, one of the 15 stocks is up: FX Energy (FXEN). The rest are down, with Premier Exhibitions (PRXI) doing particularly badly, off 77%.
Now I'm not saying that the hold-and-pray decision was the wrong one to take. Investors in hedge funds have a lot of money, they don't need to liquidate now. So if you're holding companies which are worth more than anybody's willing to pay right now, it makes sense to unwind slowly, rather than throwing up your hands and taking large losses.
But I do think that Sellers is underwater. It's clearly not a position he's used to, and not one he likes, either.
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This article has 14 comments:
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roger maxims
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25 Comments
Oct 11 10:01 AM1. Seller is getting redemption requests flooding in right this minute, and like all his hedgie peers, is using the one-to-two year period to sell down gradually rather than capitulate. At least he can collect another two years of management fees. Possibly some performance fee @20% of a meagre return.
2. Seller could not figure out the bankruptcy risk of the investment-bank-holdin... he is using as broker dealer and leverage provider. Nor could he identify a reliable one out there. Without leverage, his hedge fund cannot return 65% p.a. or the 20% performance fee for him. Someone who gets paid in billions will be aghast at having to accept paychecks that has only eight zeros after the first digit.
Either way no fund manager, real estate agent or financial planner ever loses out when prices rise or fall. Nor do incompetent civil servants either.
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testguy
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8 Comments
Oct 11 10:16 AMURL:
1. online.wsj.com/article...
2. online.wsj.com/article...
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raising4daughters
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107 Comments
My Website
Oct 11 10:19 AMIf we aren't there yet, anger will turn into apathy and indifference. Then and only then will we have a bottom, but we need WAY more blood returned from the bloodsuckers like Sellers.
As for the corrupt civil servants, anyone that votes for a single incumbent is a fool and deserves whatever comes to them.
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Cesar
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24 Comments
Oct 11 11:55 AM-
Getridofthemnow
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25 Comments
Oct 11 12:00 PMoversight.house.gov/st...
The "Regulation of Hedge Funds" hearing scheduled for October 16th ought to be very interesting, especially given recent "talking head fodder" that the "hedge funds" are to blame for the wild intra-day swings....
....first it was the short-sellers....now we are again on hedge funds....next it is the regulators....
...when will we learn that the problem was "easy credit" provided by the FRB, irresponsible lending (the bankers themselves and mal-aligned incentive plans) by the banks, and poor decisions by the INDIVIDUALS (i.e., those that took out the loans).
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Dame Daxx
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34 Comments
Oct 11 12:15 PM-
Edgetrader
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14 Comments
Oct 11 12:36 PM-
john s. gordon
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694 Comments
Oct 12 12:07 PM> jack
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IJR
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4 Comments
Oct 12 03:49 PMbiz.yahoo.com/t/26/757...
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joshuat
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3 Comments
Oct 16 09:25 AMThis article is nothing but innuendo and based on 'facts' that aren't true. Sellers is owed an apology. His investments are anything but "hold and pray". Furthermore, the author doesn't seem to understand Rule #1. Buffett has been down 50% - on paper. You don't sell just because prices are going down. You sell if 1) the price reaches your estimate of worth, 2) you made a mistake assessing the fundamentals of the company.
Value investors, such as Mark Sellers do not try to predict short term price action. PRXI and MCF, his biggest holdings, are long term investments. MCF was slated to be more short term, as Peak, the CEO and majority owner, was planning to sell MCF before gas prices lowered, but that's how the cookie crumbles. I don't have the data for Seller's average cost for MCF, but he bought a lot of stock at lower than current rates. But why sell today, at 40 to 50, even if he would make money or break even, when sitting for a year should yield somewhere between 80 and 120 or so? *That's* rule 1.
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IJR
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4 Comments
Oct 16 09:56 PM-
fxtrader07
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618 Comments
Oct 17 10:57 AMthe rule#1 means not to lose money - in the sense of a permanent impairment of capital. it does not at all mean that you only buy things that go up in value immediately!
so sellers closing the fund simply means he does not want redemptions to force him to realize losses on sound investments. that's the big advantage of berkshire: it 's investments can go down - and big, but people can't take their money (insurance premiums) out.
and, btw., one of Seller's biggest positions is MCF. and boy, does this company sell very cheap compared to what it is actually worth!
such artciles are below your level, felix - or may be, some other by you simply were positive exceptions? you decide.
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Aristides Capital
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7 Comments
My Website
Dec 01 11:07 AMNice class warfare. If you are looking for a Utopia with no hedgies or Jews, I susggest you move to Zimbabwe, and please, by all means, take your four daughters with you.
P.S. Most hedge funds are quite small. Mine manages money mostly for doctors who used to serve in the Air Force. And my entire life savings is invested in it. If you can explain to me what is unamerican or bloodsucking about helping people to be able to retire, please do. I get paid for the returns I generate because it takes both a lot of guts to start your own fund and a lot of smarts to generate alpha.
On Oct 11 10:19 AM raising4daughters wrote:
> Right on, roger maxims. The moneychangers and corrupt civil servants
> in the Repblicrat Party got their seats in the game of musical financial
> chairs.
>
> If we aren't there yet, anger will turn into apathy and indifference.
> Then and only then will we have a bottom, but we need WAY more blood
> returned from the bloodsuckers like Sellers.
>
> As for the corrupt civil servants, anyone that votes for a single
> incumbent is a fool and deserves whatever comes to them.
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Mark Elmerick
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1 Comment
Dec 08 09:15 PMTo the guy that called Mark Sellers a “Bloodsucker”…
I’ve known Mark Sellers personally. We graduated from undergrad at the same time and were hired on at the same company in Chicago that first summer out of school. Mark sat in the cube across from me.
I haven’t kept up with Mark’s career during the last 6 or 7 years, but here is what I can tell you with 100% certainty: there is no one more deserving of his accomplishments than Mark Sellers. Mark has more integrity and tenacity on a bad day than most of us can hope for in a lifetime. He’s a standup guy and that much is certain.
As for Mark’s investing skills, I think his overall track record speaks for itself. To err is human, but if anyone is counting him out…well, good luck. Mark has fallen down before. He always gets up. And when he does get up, he’s always stronger than before.
My humble investment advice: figure out what Sellers is buying. Oh, and if you find out…let me know. No one – and I mean no one – will ever fully understand what makes the stock market tick…but Mark’s your best long-term bet out there.
He’s also the most grounded person you’ll ever meet at that level. And he’s one hell of an air hockey player to boot (seriously, he’s really good…or maybe I’m just really bad).
Cheers,
Mark Elmerick
On Oct 11 10:19 AM raising4daughters wrote:
> Right on, roger maxims. The moneychangers and corrupt civil servants
> in the Repblicrat Party got their seats in the game of musical financial
> chairs.
>
> If we aren't there yet, anger will turn into apathy and indifference.
> Then and only then will we have a bottom, but we need WAY more blood
> returned from the bloodsuckers like Sellers.
>
> As for the corrupt civil servants, anyone that votes for a single
> incumbent is a fool and deserves whatever comes to them.