Hedge fund manager Mark Spiegel is long-term bullish on the stock market but says it's "mental" to get carried away without big a big downside hedge in place.
The bulletproof stock market has shrugged off a global health crisis, new China tensions and now riots across America. Even the bears have to admit, this is a strong recovery for stocks.
So, is it time to go all-in on the stock market? Not so fast, says the Mark Spiegel, head of Stanphyl Capital and notorious Tesla bear.
In his latest monthly update, the outspoken investor revealed he is carefully buying value stocks at this moment in time. But it would be “mental” do to do so without an enormous hedge to the downside. In his words:
The day I’m comfortable being long-only with the stock market near all-time highs at the beginning of a depression is the day I should be committed to a mental hospital.
That said, he still thinks a combination of U.S. equities and gold are the best option for long-term traders.
Spiegel’s fund returned 5.9% in May, out-performing the S&P 500 (+4.8%). How did he do it? With a fairly straightforward approach:
Our strategy during this economic depression is simple: own stocks that are cheap with great balance sheets that are turnaround and/or acquisition candidates.
Spiegel balances these careful bets with a series of hedges. First of which is a large position in gold which is knocking on the door of its record high due to market and monetary uncertainty.
Second is a massive dollar-equivalent hedge of, what Spiegel calls “very expensive stocks.” In other words, he shorts the Nasdaq 100 (via QQQ) to hedge against a possible bubble burst.
Spiegel joked that the fund would have performed even better without the hedge, but he wouldn’t dream of going long without that protection in place. The Nasdaq climbed almost 10% in May and is now positive for the year.
The fund is actively targeting cash-rich, ‘value’ companies, based on an enterprise value-to-revenue model. It’s a model often used to help price acquisitions, which is something Spiegel is looking for when he picks stocks.
Among the fund’s picks are Communications Systems Inc (NASDAQ: JCS) – a company in the internet-of-things space, and Amtech (NASDAQ: ASYS) – a semiconductor producer.
Spiegel is avoiding anything ‘consumer-facing’ or real-estate related, which he believes will struggle in the coming recession.
He’s still doubling down on that bet. In May’s investor update, he re-iterated that Tesla is “not a viable business” and demand is shrinking.
He also refers to Musk as a “securities fraud-committing pathological liar” and slammed the new Cybertruck as a “joke of a pickup truck.”
After shedding half its value in the recent selloff, Tesla has since paired most of the losses. Spiegel’s Tesla short may keep hurting the fund for a little while longer.
Last modified: September 23, 2020 1:59 PM