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Billionaires Are CRASHING The Stock Market - The Ultimate Hedge - YouTube
Channel: Casgains Academy
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the wealth gap has been expanding for
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decades for one reason billionaires are
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experts at capital preservation and
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growing wealth that being said public
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sec disclosures allow retail investors
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like you and me to see exactly how
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billionaires are building their wealth
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the vast majority of top tier fund
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managers and billionaires have recently
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been hedging their net worth against the
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u.s stock market crash that is what this
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video will focus on before we get into
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it please consider subscribing if you
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haven't already as only 21 of you are
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and thank you to those who have done so
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as well as to ftx for sponsoring this
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video
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most investors assume that hedge funds
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are terrible at managing money because
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the average fund manager underperforms
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the s p 500 however further context is
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necessary before one can make such a
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conclusion the majority of hedge funds
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are not interested in beating the s p
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because they are simply focused on one
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goal steady capital growth this graph
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compares the performance of the average
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hedge fund and the s p 500 from 1994 to
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2017. what you will notice is that hedge
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funds are much less volatile in
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comparison to the s p the s p 500
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outperformed hedge funds during the
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dot-com bubble by a large margin but
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when the dot-com bubble popped the s p
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collapsed while hedge funds barely even
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moved a similar situation happens during
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the 2008 recession the average hedge
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fund crashed by roughly 22 percent while
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the s p crashed by over 50 percent the
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reason why this always happens is
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because fund managers are focused on
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alpha alpha is a statistic that tracks a
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fund's risk-adjusted return making large
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sums of money during a bull run is
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fantastic but that doesn't mean anything
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if your gains disappeared within a
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matter of months billionaires have
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recently begun hedging their portfolios
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against future market weakness it's no
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secret that valuations are at all time
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highs inflation is rampant and the
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federal reserve is set on raising
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interest rates and slowing quantitative
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easing which is when the fed purchases
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bonds interest rates are directly
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correlated with market valuations and a
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rise in interest rates could easily
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crash the market elon musk kathy wood
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ray dalio michael burry bill ackman
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charlie munger warren buffett and
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chamoth palihapatiya have all been
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hedging against a market recession the
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key to market hedging ultimately comes
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down to position sizing timing the
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market is notoriously difficult and you
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should never bet a significant portion
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of your portfolio on a market crash
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instead of going all in on short dated
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options or shorting the market you
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should allocate a small portion of your
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portfolio as a hedge against your long
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portfolio in the event that a market
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crash occurs you can sell that hedged
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position to purchase stocks for
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long-term gains bill ackman a hedge fund
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manager that manages over 13 billion
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dollars recently initiated a small short
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position on the bond market this
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position is only worth roughly one to
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two percent of his total portfolio but
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in the event that bonds crash it could
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rise to become 10 or even 20 percent of
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his portfolio bond yields are currently
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at 1.8 percent which is much lower than
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inflation these yields could easily
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increase to 4 or even five percent if
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inflation gets out of control on the
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flip side bond yields will never go
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below zero percent because investors can
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hold cash for zero percent returns this
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is asymmetric risk because those that
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are shorting the bond market are taking
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on low risk while having high potential
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reward ackman recently stated how he
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believes the federal reserve is
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understating their attraction plan he
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said while it has become conventional
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wisdom that the federal reserve will
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raise rates three to four times this
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year to mitigate inflation the market
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expects 25 basis point increments the
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unresolved elephant in the room is a
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loss of the fed's perceived credibility
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as an inflation fighter and whether
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three to four would therefore be enough
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the federal reserve could work to
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restore its credibility with an initial
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50 basis point surprise move to shock in
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all the market which would demonstrate
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its resolve on inflation bill ackman is
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essentially pressuring the fed to raise
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interest rates at the sake of the
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economy ackman is known for manipulating
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the market his hedging strategy is still
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noteworthy but you should never follow
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what he says
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ackman is using bond derivatives that
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are similar to options contracts but for
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bonds speaking of inflation crypto has
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historically been an incredible store of
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value the sponsor of this video ftx us
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dollars now let's get back to the video
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another popular strategy to hedge
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against overall market weakness is to
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use a long shore equity approach the
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long short strategy is commonly used by
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top tier hedge fund managers because it
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dramatically lowers short term risk two
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fund managers that have recently begun
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using this strategy are chamath
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palihapatiya the ceo of social capital
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and kathy wood the ceo of arc invest the
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key with the long-shore equity approach
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is to go long and short on companies in
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the same sector by doing such a move you
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would be making money on the difference
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in performance of the companies also
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known as the spread chamath is shorting
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apple meta amazon and netflix while
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going long on microsoft and google this
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means that if big tech as a whole goes
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down chamat's position will not be
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affected similarly if big tech goes up
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chemoth would still be mutual in his
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position instead of betting on the
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growth of the sector he is profiting on
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whether microsoft and google will
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outperform apple meta amazon and netflix
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this reduces the risk dramatically
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because valuations don't matter as much
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if big tech at large is overvalued it
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won't affect chamath's trade only
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comparative valuations for the
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individual companies matter jamal do you
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think that the google long netflix short
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play is the right play i think what's
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going on i think the best trade on the
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best trade on the internet the most
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obvious simple money making trade is
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long microsoft google short big tech
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short the rest of the big tech short ibm
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short netflix no no no no no no sure
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short i don't know meaning you could you
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can very comfortably short apple
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facebook amazon netflix and be long
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microsoft google so as a spread trade
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right right it's the most it's the best
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risk parity trade on the internet right
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now i mean period in the market chamath
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has performed incredibly well over the
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past decade but this trade actually
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isn't even from him he simply just heard
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it from another undisclosed hedge fund
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manager and copied it so when you're
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betting on internet stocks you don't
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necessarily have to be naked long or
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naked short which comes with a lot more
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risk than if you were
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long one security and short another
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against it so for example
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over the last 10 years you would have
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made a lot of money by being long amazon
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and short a basket of traditional
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commerce companies offline commerce i'm
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gonna make up a basket but macy's
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jcpenney you know kmart sears right so
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if you're short those and long amazon
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that's what's called a spread trade
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you're you're basically playing the gap
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between your longs and your shorts it's
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independent of where the market
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generally trades it's one of those
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irrelevant of the market you're
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basically saying those stocks could go
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up but just not everything could go near
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yeah
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when you put that trade on for example
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it's oh i'm gonna bet that if everything
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goes up amazon will go up more than
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kmart walmart sears and if the stock
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market goes down
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amazon won't go down that much but these
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ones will go down a lot and you you're
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playing the spread another spread trade
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that chamath recently initiated is in
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the financial payment sector chamath is
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shorting visa and mastercard while going
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along on cryptocurrencies with a strong
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payment infrastructure
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i think
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that this is the year you can put on
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what probably will be the most
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profitable spread trade of my lifetime
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which is to be short these companies and
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that anybody that basically lives off of
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this two or three percent tax
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and be long
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well thought out
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web three crypto projects that are
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rebuilding payments infrastructure
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in a completely decentralized way
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now that doesn't necessarily mean that
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what you say won't also happen both that
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stripe will have an incredible ipo and
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that a lot of these scammy crypto
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projects will go to zero however if you
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read the white papers of these crypto
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projects
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and you systematically put together a
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framework i think you can be long those
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and you can be short visa mastercard
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because i think this is their peak
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market cap the reason why chamath
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believes this is going to be the most
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profitable spread trade ever is because
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visa and mastercard charge an
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unnecessary fee on consumer spending the
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average payment fee on transactions
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ranges from 1.5 to 3.3 percent with the
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release of decentralized
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cryptocurrencies out of quick payments
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and low fees the payment system may
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begin to change even though crypto may
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not be ready quite yet to replace all
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payments every change has to start
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somewhere and market prices are always
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forward-looking that being said a lot of
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these crypto projects are targeting
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developing countries that need an online
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payment system replacing the traditional
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credit card companies with crypto will
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not happen until scale is achieved
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that's why cryptocurrencies are
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targeting countries like nigeria to test
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and scale their payment infrastructure
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amazon recently stopped accepting uk
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issued visa credit cards which could be
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a sign that companies are looking for
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new ways to process payments amazon
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earlier this year nick maybe you can
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post this decided to just shut visa off
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in the uk oh yeah now amazon is not
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going to do something like that in my
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opinion unless it's a test of what they
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can do all around the world and again
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going back to this idea of
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arming the rebels there really is no
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need today for all of these small
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businesses to sit on top of visa
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mastercard and amex rails it's
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unnecessary and so it'll probably get
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developed in the developing world first
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this is why i think you know focusing in
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markets like nigeria to me are way more
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exciting than talking about
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you know these fading western european
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countries who cares right this is where
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this stuff will happen
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um it's not to say that those are those
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other companies can't
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you know trundle along for a while
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but when i say you know we'll look back
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in 10 years
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and their market caps will be materially
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lower
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anybody in those traditional
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infrastructure and rails
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versus anybody in this new
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infrastructure and rails will be it will
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look like a no-brainer you might assume
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that chamoth spread trade is intended
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for the next 5-10 years but he actually
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believes that such disruption will be
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apparent within one year this is not one
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where i think this disruption happens
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slow
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i think it happens swiftly swiftly being
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five to ten years no like in a year
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kathy wood also recently began using the
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longshore equity strategy for the
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traditional companies that are getting
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disrupted by innovation one of the most
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prominent examples of this is kathy
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going long on tesla while shorting gm
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and ford even though gm and ford are
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trying to electrify 99 of their revenue
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will probably disappear over time this
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will theoretically allow tesla to
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benefit from taking ford and gm's market
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share well we have uh we have internally
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for employees only we're testing out a
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portfolio
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but it's really arc on steroids if you
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can believe that uh we don't think the
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we want to test it out on ourselves
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first and make sure that uh you know
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everybody keeps their eye on that
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five-year investment time horizon
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as
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which is our time horizon and uh and
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doesn't pay attention to the day-to-day
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because what we would be doing is
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shorting stocks that are in the big
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benchmarks and when we get into a wrist
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off situation what happens is portfolio
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managers and analysts generally run back
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to those stocks get closer to their
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benchmarks and they dump our stocks
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which are either small parts of
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benchmarks or not in benchmarks in
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addition to the strategies that we
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talked about there is also another way
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to hedge against the recession what's
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interesting about this strategy is that
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you don't need the short companies or
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asset classes the strategy that i'm
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talking about is going long on
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international stocks this will be
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controversial to some but many fund
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managers have embraced the controversy
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and purchased chinese stocks this is
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because when the u.s dollar is deflating
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in value other currencies will
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comparatively increase in value if
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someone holds chinese stocks they will
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essentially be hedging themselves
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against the decline of the u.s dollar
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this is because chinese companies will
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be dealing with revenue in chinese rent
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rather than us dollars so when the u.s
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dollar goes down the chinese rent would
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increase in value
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ray dalio the world's largest hedge fund
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manager is taking advantage of that
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opportunity dalio recently launched his
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biggest ever china fund in november 2021
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that exclusively invests in china there
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are also macroeconomic factors at play
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that i covered in a previous video
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linked on the top right and in the
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description
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ray dalio is known as the king of alpha
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because he always looks for ways to
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lower volatility while keeping long-term
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returns by adding china into his
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portfolio he is hedging himself and his
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clans against the us dollar as well as
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the u.s stock market warren buffett's
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right-hand man charlie munger may also
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have a similar mindset monger has been
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warning of a lost decade for u.s
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equities due to high valuations over the
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past few months mongrel has been
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branching out by purchasing alibaba
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stock in the latest quarter munger
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disclosed that he doubled down on
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alibaba over 25 percent of his portfolio
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is now in alibaba stock which is a
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significant amount relative to his whole
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portfolio the last way to hedge your
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portfolio against the recession is
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simply to hold some cash elon musk
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likely had this in mind when he sold a
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portion of his tesla stock shortly after
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selling his stock elon revealed that he
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believes a recession will come as soon
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as spring 2022 warren buffett also has
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this mindset as berkshire has a record
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cash pile of 149 billion dollars
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berkshire's total market cap is
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currently at 715 billion dollars at the
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time that i'm recording this video this
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means that over 20 of brochures market
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cap is in cash which is a substantial
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amount if you do decide to hold cash
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it's important to keep position sizing
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in mind the market could easily continue
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going up while inflation eats away at
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your cash therefore i would personally
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only keep 15 of your portfolio in cash
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especially if you currently have income
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we've talked about many ways that
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billionaires have been hedging against
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the market crash but regardless most of
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these investors still have a lot of
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money invested in the market they've
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simply added the necessary positions to
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protect their existing portfolio against
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overall market downturns these positions
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have likely been influencing the market
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negatively over the past couple of
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months retail investors do have
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influence on the market as demonstrated
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by gamestop but the fund managers that
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we covered in this video arguably have
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even more impact we can learn these
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tactics and implement them in our own
[898]
investing strategies if that sounds
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interesting to you hit the like and
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subscribe button let me know if and how
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you're hedging your portfolio against
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the market crash thanks for watching as
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always and i'll see you in the next one
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