I take a closer look at Louis Bacon and his fund's list of stock holdings where values have increased by more than 50% from the previous quarter.
From Poet To Financial Wizard
Louis Bacon was born in Raleigh, North Carolina on July 25, 1956. Bacon’s father, Zachary Bacon Jr., ran the North Carolina real estate operations of both Prudential and later Merrill Lynch & Co. Interestingly, Bacon received his BA in American Literature from Middlebury College in Vermont. His favorite professor, Horace Beck, saw no signs of a financial wizard back in those days. However, he did get a taste of Wall Street during his summer breaks, where he worked as a clerk for New York Stock Exchange specialist Walter N. Frank & Co.
The small taste of Wall Street apparently had Bacon hooked, and upon finishing college he landed a job as a clerk on the New York Coffee, Cocoa and Sugar exchanges. He subsequently received his MBA degree in finance at Columbia Business School in 1981, but continued to trade during his studies using his student loan as capital. Like many traders before him, Bacon lost all of his capital and had to work odd jobs or borrow money from his family.
By the time 1983 rolled around Bacon was at Shearson Lehman Hutton working as a futures broker. At 27 years of age, he had an impressive list of clients including some of the heavy hitters of the hedge fund industry. Thanks to these relationships with fund managers like Paul Tudor Jones, who ran some of his Soros funds orders through Bacon, he quickly became a top commission producer.
Most traders don’t get the types of opportunities that Bacon did, and even those that do aren’t as successful. One big advantage to trading on behalf of hedge funds was that he could learn their strategies. By 1986 Bacon had built up enough of a reputation that he began managing money, and in 1987, while still at Shearson, he set up a small fund called Remington Investment Strategies.
The 1987 Crash: Perfect Timing
Whether it was luck, skill, or a combination of both, Bacon hit a home run in the 1987 crash. Anticipating the crash he was short S&P futures, and then shifted long just as the market bottomed. Not only did this make his fund a ton of money, it also enhanced his reputation as a money manager. By 1989 he had a strong track record and decided to set up Moore Capital with $100 million under management.
Early investors were rewarded with an 86% return in the first year. His returns, plus the fact that Paul Tudor Jones closed his fund to new money and recommended Bacon, boosted his fund to $200 million by 1990. It has been reported that Moore Capital has returned 31% annually after fees since its inception.
Bacon is relatively tight-lipped about his macro-trading style. Forbes once described his investment strategy as “secretive, risk-conscious, a bit paranoid.” This is not entirely surprising given that Bacon had previously retreated to family and friends after losing all his capital once already.
Below, I take a closer look at Moore Capital's direct investments in public equities.
Moore Capital's Latest Form 13F Filing
On November 14th, 2017, Louis Bacon's firm Moore Capital filed their quarterly Form 13F regulatory filing. I reviewed the 13F filing to review holdings in Moore Capital's large portfolio.
Moore Capital's stock portfolio totals nearly $4.9 billion according to the latest filing. The list value of stock holdings is up 52.3% when compared to the last quarter. As a benchmark, the S&P 500 was up 3.9% over the same period.
Quarter-over-Quarter Turnover (QoQ Turnover) measures the level of trading activity in a portfolio. Moore Capital's QoQ Turnover for the latest quarter was 75.2%, so the firm appears to trade a significant percent of its portfolio each quarter.
Moore Capital's Largest Holdings
The Ideas section of finbox.io tracks top investors and trending investment themes. You can get the latest data on the holdings discussed below at the Louis Bacon page. The following table summarizes his firm's largest holdings reported in the last filing:
| Ticker | Name | Holding ($mil) | % Of Portfolio |
|---|---|---|---|
| EEM | ISHARES TR | $508.6 | 10.3% |
| SPY | SPDR S&P 500 ETF TR | $483.6 | 9.8% |
| BABA | ALIBABA GROUP HL... | $256.9 | 5.2% |
| IWM | ISHARES TR | $181.9 | 3.7% |
| FB | FACEBOOK INC | $166.4 | 3.4% |
| AMZN | AMAZON COM INC | $163.9 | 3.3% |
| JPM | JPMORGAN CHASE & CO | $111.7 | 2.3% |
The seven positions above represent 38.0% of the hedge fund's total portfolio.
Moore Capital's 7 Largest Purchases
I also used finbox.io to find Moore Capital's largest buys last quarter. Here's the list of the biggest stock purchases determined by comparing the last two filings:
| Ticker | Name | Purchased ($mil) | % Of Portfolio |
|---|---|---|---|
| SPY | SPDR S&P 500 ETF TR | $483.6 | 9.8% |
| EEM | ISHARES - MSCI Emerging | $472.1 | 10.3% |
| IWM | ISHARES - Russell 2000 | $158.2 | 3.7% |
| AMZN | AMAZON COM INC | $112.5 | 3.3% |
| MS | MORGAN STANLEY | $108.6 | 2.2% |
| JPM | JPMORGAN CHASE & CO | $107. | 2.3% |
| BAC | BANK AMER CORP | $90.5 | 2.2% |
Moore Capital's 7 Biggest Sells
Here's the list of biggest position reductions determined by comparing the last two filings:
| Ticker | Name | Sold ($mil) | % Of Portfolio |
|---|---|---|---|
| QQQ | POWERSHARES QQQ ... | $174.7 | 1.0% |
| GOOGL | ALPHABET INC | $94.1 | 1.3% |
| JD | JD COM INC | $73.6 | 2.3% |
| UTX | UNITED TECHNOLOG... | $62.0 | 0.0% |
| EFA | ISHARES TR | $52.2 | 1.6% |
| C | CITIGROUP INC | $49.1 | 0.5% |
| FB | FACEBOOK INC | $48.3 | 3.4% |
Moore Capital's Most Undervalued Holdings
To determine which stocks are trading below their intrinsic value, aka "fair value" I used the finbox.io Fair Value estimates. I also wanted to blend in some indication of which stocks might be ready to make a move up soon because they're popular with Wall Street analysts.
I calculated an average using the finbox.io fair value upside and analyst upside to create a blended upside which I then used to rank the most undervalued holdings.
Here are the top 7 stocks based on my calculations:
| Ticker | Name | Upside (finbox.io) | Upside (Analyst Target) | Blend Upside |
|---|---|---|---|---|
| NLNK | NEWLINK GENETICS... | 48.1% | 179.2% | 113.6% |
| ATRS | ANTARES PHARMA INC | 61.7% | 86.5% | 74.1% |
| ABEO | ABEONA THERAPEUT... | 53.1% | 81.8% | 67.5% |
| ONCE | SPARK THERAPEUTI... | 30.4% | 43.2% | 36.8% |
| ACRS | ACLARIS THERAPEU... | -10.0% | 78.8% | 34.4% |
| UAL | UNITED CONTINENT... | 47.7% | 9.9% | 28.8% |
| FDC | FIRST DATA CORP NEW | 31.0% | 25.9% | 28.5% |
Moore Capital's Recent Price Pull-Back Stocks
To find stocks in his portfolio that may be unpopular at the moment and trading at cheap valuations, I ranked his holdings by price pullbacks. The ranking table below lists the stocks in Moore Capital’s portfolio by stock price performance over the last 30 days.
| Ticker | Name | Price 1-mo Ago | Current Price | % Change 1-mo |
|---|---|---|---|---|
| ONCE | SPARK THERAPEUTI... | $72.93 | $51.10 | -29.9% |
| MBI | MBIA INC | $8.48 | $7.54 | -11.1% |
| AMAT | APPLIED MATERIAL... | $57.33 | $51.84 | -9.6% |
| LFC | CHINA LIFE INS C... | $17.02 | $15.62 | -8.2% |
| ABEO | ABEONA THERAPEUT... | $17.35 | $16.00 | -7.8% |
| BABA | ALIBABA GROUP HL... | $186.69 | $172.23 | -7.7% |
| GM | GENERAL MOTORS CO | $44.52 | $41.21 | -7.4% |
Managers with more than $100 million in qualifying assets under management are required to disclose their holdings to the SEC each quarter via 13F filings. Qualifying assets include long positions in U.S. equities and ADRs, call/put options, and convertible debt securities. Shorts, cash positions, foreign investments and other assets are not included. It is important to note that these filings are due 45 days after the quarter end date. Therefore, Moore Capital's holdings above represent positions held as of September 30th and not necessarily reflective of the fund's current stock holdings.
However, most can agree that with thousands of stocks traded on U.S. exchanges, doing thorough research on each one is nearly impossible for smaller investors. Leveraging the resources of the largest hedge funds on Wall Street can be a powerful way to narrow down the list.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.
Author: Matt Hogan
Expertise: Valuation, financial statement analysis
Matt Hogan is a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock.
His work is frequently published at InvestorPlace, Benzinga, ValueWalk, AAII, Barron's, Seeking Alpha and investing.com.
Matt can be reached at [email protected].
