Ron Muhlenkamp feels a bit like Cassandra these days, seeing all the right moves without being able to make them. “I’m seeing great values in companies,” he says, “but I can’t quite get my shareholders to say, ‘We could live through another 2008, because we’re seeing great values out there that we think could come home in 3-5 years.’ For better or for worse, we get judged on a shorter market than that.”
Muhlenkamp is the founder and president of Muhlenkamp & Company. Next week, he sits down with Steve Forbes for an Intelligent Investing interview. I had the chance to speak with him last week; read up on why he’s holding extra cash, what he’s worried about and the lessons he learned in 2008, and be sure to check back next week for his full interview with Steve Forbes.
“We think that what happened in 2008 was there was a huge amount of forced selling,” says Muhlenkamp, who now spends more time than ever trying to gauge the exposure of other firms. “We believe that hedge funds were told to cut their leverage in half, and we know that both hedge funds and mutual funds got redemptions. When you get redemptions, you’ve got to sell something, and if you couldn’t get a bid on what you wanted to sell, you sold what you could get your bid on. So we think that what happened in the second half of 2008, extending into the first quarter of 2009, was heavily driven by forced selling.”
“Companies got cheap and then they got cut in half again because of what we think was forced selling out there,” he adds. “My conundrum – and this has been true for the better part of two years now – is we’re seeing great companies selling cheap. But again, if people have to sell, either for mark to market or for leverage reasons, that doesn’t matter.”
Muhlenkamp made what he calls “an awful lot of money” by following the age old rule not to fight the Fed. He’s candid about the pitfalls of that strategy in recent years, though.
Link to the entire article: http://www.forbes.com/sites/chrisbarth/2011/09/23/the-fed-is-using-the-wrong-tool-says-cautious-muhlenkamp/
Muhlenkamp is the founder and president of Muhlenkamp & Company. Next week, he sits down with Steve Forbes for an Intelligent Investing interview. I had the chance to speak with him last week; read up on why he’s holding extra cash, what he’s worried about and the lessons he learned in 2008, and be sure to check back next week for his full interview with Steve Forbes.
“We think that what happened in 2008 was there was a huge amount of forced selling,” says Muhlenkamp, who now spends more time than ever trying to gauge the exposure of other firms. “We believe that hedge funds were told to cut their leverage in half, and we know that both hedge funds and mutual funds got redemptions. When you get redemptions, you’ve got to sell something, and if you couldn’t get a bid on what you wanted to sell, you sold what you could get your bid on. So we think that what happened in the second half of 2008, extending into the first quarter of 2009, was heavily driven by forced selling.”
“Companies got cheap and then they got cut in half again because of what we think was forced selling out there,” he adds. “My conundrum – and this has been true for the better part of two years now – is we’re seeing great companies selling cheap. But again, if people have to sell, either for mark to market or for leverage reasons, that doesn’t matter.”
Muhlenkamp made what he calls “an awful lot of money” by following the age old rule not to fight the Fed. He’s candid about the pitfalls of that strategy in recent years, though.
Link to the entire article: http://www.forbes.com/sites/chrisbarth/2011/09/23/the-fed-is-using-the-wrong-tool-says-cautious-muhlenkamp/
