Billionaires Are Selling EVERYTHING | The BIGGEST Hedge Ever - YouTube

Billionaires always see a storm before it comes,  and it just happens that the biggest storm of all  

time is coming. CEOs, hedge fund managers, and  venture capitalists worldwide are preparing for  

one of the most serious crises in history. Many  actually think that we're already in a recession  

but the world just hasn't realized it yet. This  video will unravel the strategies that are being  

used by billionaires to hedge themselves against  the upcoming downturn and how you can as well. 

Most people assume that timing the market is  impossible, and that's true for the most part.  

Timing the market is extremely difficult, but you  don't need to know the exact timing to prepare.  

Billionaires frequently implement strategies  that hedge themselves against incoming crises.  

By hedging their wealth, they will succeed in any  situation. In the scenario of a crisis happening,  

those who hedge their wealth will be the  only ones with their heads above the water.  

Take Elon Musk's strategy as an example of this.  Elon believes that we are already in a recession  

that could last from 12 to 18 months, but he isn't  trying to time the market with his stock holdings.  

Instead of being 100% certain that a crisis is  coming, he looks at the future as a probability.  

Economic landscapes are fluid, and you should  never be binary as to whether a crash will  

occur or not. Rather than going all in on  his economic prediction that could be wrong,  

he's simply just hedging for the worst outcome. How do you assess our current economic situation? 

Well, predicting macroeconomics is always  difficult, and one should assign probabilities  

to these things. But ironically, I did  last year, people asked me what I think  

about the economy, and I said, "Well, I think  we might enter a recession in approximately  

spring of 2022." Called it. Nailed it. 

Yeah. Actions speak louder than words,  

and Elon's actions are no different. He recently  decided to lay off 10% of salaried Tesla employees  

in preparation for a macroeconomic disaster.  The reason why Elon is laying off employees is  

for capital preservation. It might not seem like  cash is important during an inflationary period,  

but cash flow is king during recessions. This  not only applies to businesses, but also retail  

investors like yourself. The Federal Reserve has  overextended its balance sheet by over $5 trillion  

and plans to reduce the money supply over the  next couple of years. This means that the Fed  

doesn't have the leeway to hand out free  money like before. If the economy crashes  

in the coming months, money will become scarcer  even if inflation remains elevated. Elon already  

experienced the scarcity of money during the  dot-com bubble, and he highly advises businesses  

to get their hands on cash while they can. Make sure you're not running things too close  

to the edge from a capital standpoint,  that you've got some capital reserves to  

last through irrational times. Because in the past  when there's been a recession, it has gone, it's  

amazing, it's flipped like a light switch. David,  do you remember this when from the ex-PayPal days  

when we raised $100 million in March of  2000? And the demand was so high we had  

VCs just literally, without even a term  sheet, wiring money into our account. 

We'll send the term sheet later. They literally would sleuth out  

our bank account number and wire money in.  And we're like, "Where did this come from?"  

So it was like there was literally fire hosing  money in March of 2000. And then in April 2000  

the market went into free fall, and it went from  raising money was trivial to, even good companies  

could not raise money, in a month. So it's just  important to bear in mind that PayPal almost went  

bankrupt in 2000, came close. But thankfully we'd  raised that $100 million in March 2000, without  

which it would have been game over, basically. While Elon is one of the leading innovators, he's  

not the only one laying off employees. Peloton  fired 20% of its workforce. Carvana cut 12% of  

its total staff, which totals to 2,500 employees,  and Coinbase paused the hiring of new employees,  

withdrew existing job offers, and laid off 18%  of its workforce. All of these layoffs have one  

similarity, macroeconomic concerns. Coinbase cited  current market conditions as one of the primary  

reasons for its layoffs. An article written by  the chief people officer of Coinbase, L. J. Brock,  

explained how adapting quickly and acting  now will help us to successfully navigate  

this macro environment and emerge even stronger,  enabling further healthy growth and innovation.  

We've talked about how businesses need cash  flow to survive, but this also applies to  

people like yourself. Think about your monetary  inflows and outflows like a business. You have  

income flowing in and expenses flowing out.  By subtracting your expenses from your income,  

you can calculate your operating cash flow. Now take that operating cash flow and subtract  

your taxes to get your net cash flow. Although  your cash flow might be positive right now,  

it could easily disappear in the coming  months. That's why we have to focus on capital  

preservation. There are a vast array of methods  to hedge your portfolio against market downturns,  

many of which I've covered on this channel. One of  the most well known methods is to simply short the  

market. Carl Icahn manages over $21 billion as an  activist investor, and lately he has been shorting  

the market. Icahn is known for being a corporate  raider. This means that he frequently takes over  

companies and sells them for a profit by stripping  the companies of their assets. Even though many  

dislike Icahn, he is certainly one of the greatest  investors of all time. He averaged an annual  

return of over 26% from 1968 to 2014, which is  considerably higher than Warren Buffet's returns. 

Icahn went on CNBC earlier in 2022 to describe  why he believes there could be a recession or  

depression coming soon. Icahn uses a volatile  strategy, which means that he has to hedge his  

portfolio against considerable downturns. Carl  Icahn has been purchasing credit default swaps on  

mortgages of corporate offices and shopping malls.  Purchasing credit default swaps is equivalent  

to shorting on steroids. By purchasing credit  default swaps on corporate offices and shopping  

malls mortgages, Icahn is essentially shorting  physical stores. This acts as a hedge against  

his long positions. Remember that hedging  doesn't mean that you're timing the market,  

it simply means that you're protecting  your portfolio for the worst outcome. 

Well, we have a very large position on shorting  the malls through the CMBX through a derivative,  

and that whole market is a huge market. The market  itself, I think, is manipulated to some extent,  

and you're going to be hearing from us on  that in that area. But that is an area that  

I think has problems, and certainly in  the B&C malls and in other real estate.  

You can't ignore the fact that, and I don't  know if this is a change that will continue,  

but you don't have people go into  offices all the time any more, obviously.  

And I think that is going to militate  against the real estate area, perhaps. 

Icahn is shorting an industry that is outdated and  in the process of being disrupted by innovation.  

Another billionaire fund manager named Leon  Cooperman is implementing a similar strategy.  

Cooperman averaged an annual return of 12.4% from  1991 to 2018, which is over 3% more than the S&P's  

average return. Similar to Icahn, Cooperman  also foresees a recession and is currently 68%  

net long. This essentially means that 68% of his  portfolio is long on stocks and the remaining  

32% is shorting the market. Although a lot of  billionaires are hedging through short positions,  

many of you are likely not comfortable  with the risk of shorting stocks.  

Cooperman himself has said that purchasing stocks  is historically a strong hedge against inflation.  

Before initiating his short position in April  2022, he actually called himself a full invested  

bear. This means that despite calling for a bear  market, he had no short positions whatsoever. 

So instead of shorting the market, he was actually  just holding stock to hedge against inflation.  

Another popular hedging method is to purchase  short dated put options on your existing stock  

holdings. Cooperman has publicly stated  that he has put options on Microsoft,  

Google, and Amazon, despite having long positions  in all three companies. This allows him to be  

protected against a short term selloff while still  being positioned well for the long term. His put  

options are a hedge against short-term downturns,  while his stock holdings are for long-term gains.  

Some investors might think this is pointless,  but you have to put this into the context of  

beta and alpha. Beta is the volatility of your  portfolio in relation to the stock market. The  

S&P 500 has a beta of one. If you have a portfolio  that is two times more volatile than the market,  

then that means your portfolio beta is two. If your portfolio is half as volatile as the S&P,  

your portfolio's beta is 0.5. Alpha is a risk  adjusted return that subtracts a factor of beta  

from your return. This means that it accounts  your return for volatility. If your portfolio  

has higher volatility, then your alpha goes  down because you're subtracting beta. This also  

works on the other side. Lower volatility  typically equates to higher alpha. High  

alpha is what fund managers strive for  because it adjusts your returns for the  

risks that you're taking. By having hedged bets  like put options against long stock positions,  

cooperman is increasing his alpha. Billionaire  fund manager Chamath Palihapitiya is also  

preparing for a stock market crash. He believes  that those who go for alpha instead of beta will  

be the only survivors of the upcoming downturn. We made a sub economic decision, like the idea  

that over the last four or five years you  optimized for anything except the market beta  

was kind of dumb. And the worst thing that  you could have done in that period was confuse  

alpha and beta, meaning alpha is what you  are able to do because of your discrete skill  

versus anybody else. Beta is when just the market  goes up. Said differently, you could take any NBA  

player and put them on a high school basketball  team and they would be the college player of  

the year, any single one. That's beta. If you  then can be the MVP of the NBA, that's alpha. 

Yeah. Okay, and  

I think that a lot of folks were made to feel very  silly or a downer or a wet blanket in these last  

few years who will probably have the last laugh. Another fund manager named Jeffrey Gundlach  

recently launched a fund that aims to tackle  the current and future economic issues. Gundlach  

manages over $140 billion through his mutual funds  that have consistently beaten their respective  

indices. Gundlach's newest fund is called the  double line Chiller CAPE ETF. The CAPE ratio  

stands for the cyclically adjusted P to E ratio.  This ratio essentially adjusts the P to E ratio  

for cyclical fluctuations and earnings. Gundlach  is using the CAPE ETF to find the most undervalued  

sectors in the market. The reason why Gundlach  chose the CAPE ratio is because it divides the  

price of a stock by the company's tenure average  of inflation adjusted earnings. This allows him  

to ignore short-term earnings fluctuations and  effectively pick out the long-term winners. These  

long-term winners are those that have stood the  test of time regardless of the broader economy. 

The last hedging method is to simply diversify  your portfolio. This is most commonly used by  

Ray Dalio, who is known as the king of  hedge funds due to his focus on alpha.  

Through his allocation that includes almost  every asset, he's protected in almost any  

macroeconomic environment. This chart lays  out the assets that Dalio holds in his fund.  

The Y axis is inflation, which increases and  decreases as it moves up and down respectively.  

The X axis is the US GDP growth. You can see  from this graph how Dalio includes assets that  

perform well in any macro environment. So his  fund is essentially macro neutral. By adding  

more asset classes he'll be able to increase  alpha by reducing volatility. This is because  

you're adding uncorrelated assets out of similar,  if not the same long-term returns. Dalio caused  

this strategy the holy grail because it's the  key to succeeding in the hedge fund space. 

Billionaire hedging strategies all differ  in their own ways. And it's our choice as  

retail investors to choose the one that  suits us best. In this video we've talked  

about initiating short positions, buying put  options, purchasing inflation resistant stocks,  

allocating capital to time tested  companies, and diversifying your portfolio.  

Investors can choose one of these strategies or  even use a mix of them in order to maximize alpha.  

Remember that it's usually never a good idea to  time the market. Timing the market is notoriously  

difficult and would involve either going all in  on your positions or simply holding 100% cash.  

Both of those are historically losing strategies  that typically lead investors to lose all their  

money or miss out. Let me know if you'd like me  to do a deep dive on any particular strategy. If  

you enjoyed this video, please hit the like button  and subscribe, and I'll see you in the next one.