Why Would a Billionaire Hedge Fund Manager Rush to Buy a Bubble?

About Anthony Davian, formerly known as Hedgieguy. He is a former hedge fund manager from Cleveland, Ohio.

A common view among market timers right now is that the speculative bubble action is a sign that a market top is forming. It is a typical contrarian argument based on the logic that when buyers are excessively undisciplined there can't be that much buying power left and the market is likely to top.

Market bubbles always end badly eventually but from the perspective of an aggressive trader that really isn't the issue. The issue is how to make the most money possible while you can.

Recently, hedge fund titan George Soros commented, "When I see a bubble forming, I rush to buy, adding fuel to the fire."

Anthony Davian Hedgieguy
Anthony Davian Hedgieguy

Soros does the direct opposite of what many market timers are advising right now. He embraces the speculative action and even tries to increase its intensity.

Ironically, this is similar to what we are seeing from the Robinhood and Dave Portnoy traders right now. The speculative action doesn't scare them at all. They see it as an opportunity and not a warning sign.

What separates a George Soros from the rookie traders who are gunning the market right now? Soros knows how to manage a trade. He knows how to take profits and he isn't just going to sit and hope when the market turns.

The pundits that are so gravely warning us about the dangers of this market aren't traders. They don't understand how momentum of this type has a tendency to run further and last longer than seems reasonable.

That doesn't mean this is an easy game. The risk is high and so is the reward and if you are undisciplined or lazy you will pay a high price.

The point is that frothy, bubbly markets aren't just a warning sign. They are an opportunity but you better understand the game if you want to play.

Anthony Davian Hedgieguy
Anthony Davian Hedgieguy

We have posted in the past: Billionaire hedge fund manager Seth Klarman is warning this rally that has taken stocks to record highs could soon end.

Klarman, who runs Baupost Group in Boston, wrote in a letter to investors that the “the rocket fuel that has propelled markets in 2019 will run out,” according to a Bloomberg News report. A Baupost spokeswoman confirmed the contents of the Bloomberg report to CNBC, but declined to comment further.

The hedge fund manager, who’s drawn comparisons to Warren Buffett for his disciplined value style, as of a few years ago was managing about $30 billion after racking up years of market-beating returns. However, according to this latest report, Baupost managed only high-single digit returns last year, citing a “few mistakes” he made along with “conservative positioning,” according to the Bloomberg account.

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