Billionaire hedge fund manager Israel Englander co-founded Millennium Management in 1989 with $35 million. Today, Millennium has more than $70 billion in assets under management and is one of the largest hedge funds in the world. Englander has done well and has one of the best investing minds in the game. That is why investors are eagerly awaiting Millennium’s quarterly report 13F applicationa form required by the Securities and Exchange Commission (SEC) that lists a fund’s investments.
Investors should understand that Millennium is a ‘pod shop’, meaning it allocates capital to different teams (or ‘pods’) each with their own strategies and a lot of autonomy. So an investment at Millennium may not have been made directly on Englander’s orders. However, as CEO, Englander likely still has some degree of control and influence over major hiring decisions, so he certainly has confidence in his portfolio managers. So don’t blindly follow these managers, but they can serve as a source for picking up new ideas and checking investment hypotheses.
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In the third quarter, Millennium sold large portions of its stakes in artificial intelligence (AI) companies. Nvidia (NASDAQ: NVDA) And Palantir (NYSE:PLTR) and bought a new stock that Wall Street thinks could go up.
Millennium isn’t the only major fund selling chipmaker Nvidia and analytics platform Palantir – it certainly is been a trend in the third quarter. Millennium sold 13% of its stake in Nvidia in the third quarter, although it still owns 11.15 million shares and put and call options. Millennium sold 90% of its shares in Palantir, but increased the company’s call and put options on the stock, which could be a straddle option strategy. The selling appears to be more of a valuation call in a market considered by many to be overbought and frothy. The market has risen over the past two-plus years, largely driven by themes such as technology, growth and AI.
As you can see above, these are astronomical valuations, despite AI’s ability to disrupt life as we know it. I don’t think institutional fund managers doubt the potential of AI, but an important but difficult lesson for investors is that valuation does matter. The best companies with unlimited potential can be bad buys if bought at extremely high valuations. On the other hand, bad, highly leveraged companies can make large investments if they are bought at low enough valuations.