There was much talk this week about how hedge fund managers are increasingly discussing their various ideas amongst each other and tend to all be crowded into the same 50 stocks (we call ’em Hedge Fund Hotels).
Virtually everybody tackled the topic but my fave blog on the subject came from Baruch and Bento over at Ultimi Barbarorum…
First off, reading an article about how interesting it is that many investors can own the same security at the same time has the equivalent impact as reading an article tha says sometimes many women are interested in buying and wearing the same clothes at the same time. It is merely another revelation of the bleeding obvious, like the Economist last week which said that stocks which have gone up a lot sometimes go up more.
As for the crowded trades argument, well, crowding in illiquid, systemically important securities using leverage can be dangerous (think subprime CDOs), but I don’t think the Fed should lose sleep if 20 big hedge funds are all long VISA. When that tanked I don’t think anyone other than Visa and Mastercard noticed. It certainly didn’t rock my world.
I’m with the Spinozans on this one. Why is anyone surprised (or concerned)? Oh yeah, Whitney Tilson gets called out for promoting his positions in Netflix ($NFLX) and BP ($BP), also.
I highly recommend you click below for the whole piece.