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Why would a hedge fund take a risk on some other company they "think" can grow faster when they "know" Apple is a $500 stock selling at $395?

The whole point of a hedge fund is to "hedge" - and a $395 -> $500 sure thing is as good a hedge as there is.
 
Hedge funds are a different animal. They need to make huge profits to get their salaries justified. It's not wise for a hedge to go long for more than a year. That's why a hedge will sell off and put the money in another place with high growth. The value if the company is meaningless; especially when the company doesn't pay dividends.
 
Denny Crane said:
Why would a hedge fund take a risk on some other company they "think" can grow faster when they "know" Apple is a $500 stock selling at $395?

The whole point of a hedge fund is to "hedge" - and a $395 -> $500 sure thing is as good a hedge as there is.
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Nothing is a sure thing.
 
magnifier661 said:
The actual value of the company is $500 a share
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If you say so.

And a hedge fund's job is to HEDGE against losses while making a good return.

So they'll buy puts against stocks that they own that are up. They lose on the puts, but it's insurance.
 
Denny Crane said:
If you say so.

And a hedge fund's job is to HEDGE against losses while making a good return.

So they'll buy puts against stocks that they own that are up. They lose on the puts, but it's insurance.
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http://www.investopedia.com/terms/h/hedgefund.asp

It's a common misconception that hedges only use shorts or puts. They have longs as well. They are just an aggressive investment company. They are active in huge profits. They will sell off to gain a huge profit, then if it drops enough; they will buy them back.
 
http://www.magnum.com/hedgefunds/abouthedgefunds.asp

The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive (absolute) returns under all market conditions.

The popular misconception is that all hedge funds are volatile -- that they all use global macro strategies and place large directional bets on stocks, currencies, bonds, commodities or gold, while using lots of leverage. In reality, less than 5% of hedge funds are global macro funds. Most hedge funds use derivatives only for hedging or don’t use derivatives at all, and many use no leverage.

(it goes on and on about minimizing risk, performing during volatility, performing will in up and down markets, etc.)
 
magnifier661 said:
Hedge funds are a different animal. They need to make huge profits to get their salaries justified. It's not wise for a hedge to go long for more than a year. That's why a hedge will sell off and put the money in another place with high growth. The value if the company is meaningless; especially when the company doesn't pay dividends.
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Most hedge funds don't work they way you think they do.
 
magnifier661 said:
Yeah because you want to have a good return. The actual value of the company is $500 a share
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This is ridiculous. Like Denny said, the value is whatever people are willing to pay for it. If you state so emphatically that the "actual" value is $500/share, then you should be putting everything you have into long dated calls with a strike of $450-ish.
 
Ridiculous? How so? I explained what many I know trade like. Many of them work for big investment companies. That's advice I was given by many investment brokers too.

Stocks are 50% worth and 50% emotion. The moment on chunk sells off; investors take profits quickly and buy in when it's cheaper.

I think it's funny that you say this is ridiculous, when you explained in the stock thread that good investment brokers work this way. That even you work this way.
 
magnifier661 said:
Ridiculous? How so? I explained what many I know trade like. Many of them work for big investment companies. That's advice I was given by many investment brokers too.

Stocks are 50% worth and 50% emotion. The moment on chunk sells off; investors take profits quickly and buy in when it's cheaper.

I think it's funny that you say this is ridiculous, when you explained in the stock thread that good investment brokers work this way. That even you work this way.
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It's ridiculous to say a company's "actual" value is $500 when it's trading at less than $400. There may be a certain valuation model that puts a value at $500 but that is meaningless if the market disagrees.
 
blazerboy30 said:
It's ridiculous to say a company's "actual" value is $500 when it's trading at less than $400. There may be a certain valuation model that puts a value at $500 but that is meaningless if the market disagrees.
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So was it ridiculous when the stock was trading at $700 4 months ago? So in 4 months, what made them lose $300 per share? They bought too many high prices whores?
 
magnifier661 said:
So was it ridiculous when the stock was trading at $700 4 months ago? So in 4 months, what made them lose $300 per share? They bought too many high prices whores?
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Yes, it would have been ridiculous then too. Did you short the stock at $700?

What is your valuation model?
 
blazerboy30 said:
Yes, it would have been ridiculous then too. Did you short the stock at $700?

What is your valuation model?
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But that doesn't make sense. If the stock is "undervalued" it's okay and at the actual value by you, but if the stock is overvalued, then you claim it's ridiculous.

This is my evidence that publicly traded companies are 50% evaluation and 50% emotion.

Btw... I don't like shorting stocks, especially ones that have a company with billions in cash on hand. I read that it's cash alone is $200 a share.
 
magnifier661 said:
But that doesn't make sense. If the stock is "undervalued" it's okay and at the actual value by you, but if the stock is overvalued, then you claim it's ridiculous.

This is my evidence that publicly traded companies are 50% evaluation and 50% emotion.

Btw... I don't like shorting stocks, especially ones that have a company with billions in cash on hand. I read that it's cash alone is $200 a share.
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Stocks are 90% emotion. That's why putting some "actual" value on a stock is useless.

What is your valuation model that gave you $500/share?
 
blazerboy30 said:
Stocks are 90% emotion. That's why putting some "actual" value on a stock is useless.

What is your valuation model that gave you $500/share?
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$200 per share in just cash. Their P/E is very good, plus they have actually sold more product and services now then they've had a year ago. The emotion because shareholders aren't seeing the innovation is creating the downfall on stock prices.

Personally I think it's worth more than that, especially now that they are giving dividends. Something they haven't done forever.
 
Cash is... Cash. Or liquid equivalents.

Book value is assets minus liabilities per share. That figures in illiquid investments like real estate. You need to figure in the debt, too; $1M in real estate with $1m in mortgages is a net $0.
 
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Cash isn't 100% of a company's assets.

Assets and Liabilities show up on the balance sheet. Not just cash.
 
Denny Crane said:
Cash isn't 100% of a company's assets.

Assets and Liabilities show up on the balance sheet. Not just cash.
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I think you are misunderstanding what I said. Having cash is just as valuable as having the building worth that amount in cash. It is absolutely 100% a asset.
 
If someone asked me my net worth and I had $1,000,000 in liquid cash. That cash is of face value. Any debt or liabilities are taken down from there.

The questionable values are of intellectual property, CEO value if gone, other things like forecast and such. If apple has over $187 billion in cash; that is 100% of the dollar value.
 
magnifier661 said:
If someone asked me my net worth and I had $1,000,000 in liquid cash. That cash is of face value. Any debt or liabilities are taken down from there.

The questionable values are of intellectual property, CEO value if gone, other things like forecast and such. If apple has over $187 billion in cash; that is 100% of the dollar value.
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If you have $1M in cash and $100M in debts, you're not rich. You're $99M negative.
 
Denny Crane said:
If you have $1M in cash and $100M in debts, you're not rich. You're $99M negative.
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Yeah. And if you have $100,000 and are $10k in debt; you are $90k rich.

I showed the balance sheet. Apple is well over their debt by 3 times in assets. The company value just based on the balance sheet is $300 a share. Nothing accounting for sales, earnings, the fact they are still stockpiling cash.

Sorry Denny you are dead wrong with your $198 value per share remark
 
magnifier661 said:
Yeah. And if you have $100,000 and are $10k in debt; you are $90k rich.

I showed the balance sheet. Apple is well over their debt by 3 times in assets. The company value just based on the balance sheet is $300 a share. Nothing accounting for sales, earnings, the fact they are still stockpiling cash.

Sorry Denny you are dead wrong with your $198 value per share remark
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I didn't say their valuation is $198/share.

You're making things up now.

I did write their book value is $135/share.

All that means is that if you bought every share at $135 each and sold off every asset Apple has, paid off their debts, you'd break even.

If the stock price went below $135 and they're not hemorrhaging money like there's no tomorrow, then your risk of losing would be small buying the stock. Your upside would potentially be good.
 
Denny Crane said:
I didn't say their valuation is $198/share.

You're making things up now.

I did write their book value is $135/share.

All that means is that if you bought every share at $135 each and sold off every asset Apple has, paid off their debts, you'd break even.

If the stock price went below $135 and they're not hemorrhaging money like there's no tomorrow, then your risk of losing would be small buying the stock. Your upside would potentially be good.
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Oh okay misunderstood you then. I was looking at that quote and misread it then.

But even then; the value on the balance sheet differs from that price.
 
Book Value

A company's common stock equity as it appears on a balance sheet, equal to total assets minus liabilities, preferred stock, and intangible assets such as goodwill. This is how much the company would have left over in assets if it went out of business immediately. Since companies are usually expected to grow and generate more profits in the future, market capitalization is higher than book value for most companies. Since book value is a more accurate measure of valuation for companies which aren't growing quickly, book value is of more interest to value investors than growth investors.
 
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