The Stock Market Realty Shows
In case you missed it stocks lately are being driven by hedge funds and celebrity billionaires who tout their positions. The Icahn vs Ackman drama is the latest high profile realty show featured mainly by CNBC-TV. Biotechnology stocks have always been driven by a BIG money following and we covered an Icahn case in April 2011 when Icahn Capital was accumulating big positions in Biogen Idec (BIIB $168.61) and Regeneron (REGN $163.80). Both stocks have tripled since since December 2010 when holdings were disclosed. Another recent example of the Icahn effect was Icahn touting his investments in Netflix (NASDAQ:NFLX) from $70 to $188. It has gotten to the point where the deep pockets of the investor trumps the realty of the stock's value especially if large short positions can be squeezed. The mystery of the AAPL free fall is now coming to light as hedge fund sales are disclosed.
I remember two conversations on this topic, one from a partner at Tudor Investments in the mid 90's who told me that they liked biotechnology stocks because they could create leverage on the long and short side. Another conversation with a partner from a smaller hedge fund a few years back who said you cannot analyze a stock by looking at the holdings. This may be true for a tiny undiscovered company but not with known stocks with any trading volume. The stock "pedigree" and institutional holdings is more important than ever especially in biotechnology stocks, a relatively small sector that is responsive to BIG money.
Disclosure: I am long AAPL.