In this year’s first quarter, Tiger Global took a new position in Zillow, exited Alibaba, reduced holdings in Apple, Amazon, and JD.com, and increased exposure to Etsy. Tiger Global’s actions are watched for their prowess exhibited, especially in the tech arena.
So when Tiger Global must release its quarterly holdings, it is reported and is read by many. Rather than list the positions and the changes, let’s us put them into perspective to add value.
It’s the hedge fund’s holdings of public domestic equities which must be reported on Form 13-F. The latest was released on May 16, 2016 for the quarter ended March 31, 2016.
As a hedge fund, Tiger Global profits when stocks price goes either up or down. These are long and short position. Long positions make money when a stock’s price goes up and it’s only long positions that are required to be disclosed on Form 13-F. A hedge fund manager going long or short needs some guide when picking stocks which are either undervalued or overvalued.
Tiger Global reported investment strategy is based upon a company’s future free cash flows. The “free cash flow” part is the cash generated by a company’s operations and available to shareholders. It also excludes cash needed for capital expenditures.
The “future” part is an estimate of cash flows to come. Tiger Global likes to buy “well-positioned companies” with stock price representing a low multiple to free future cash flows.
Here is the recipe: 1) Buy the company it’s undervalued and 2) Sell the company when it’s overvalued. Tiger Global’s holdings can be placed on spectrum of those representing purchases to those representing sales.
And in the middle are positions which do not change. In the latest quarter, Tiger Global bought Zillow, so it could be considered undervalued and sold Alibaba so it could be considered overvalued.
Part of Tiger Global strategy means estimating the future cash, which is hard to do with new companies with short operating histories. So it’s telling that Tiger Global, the hedge fund, trades companies which Tiger Global, the venture fund, took a pre-IPO position, such as Etsy and JD.com. Hedge fund managers at Tiger Global could be benefiting from a better understanding of the Etsy and JD.com gained from by the venture capital unit.
Tiger Global’s trades are difficult to replicate from the Form 13-F. For example, the short positions are not required to be reported. Short positions work in reverse from long ones.
A short position makes money when the stock prices declines. Tiger Global takes short positions in “poorly – positioned” companies with high multiples to free future cash flows. Translations: companies which are overvalued.
So by following the Form 13-F, one only sees one side of any trade. But Tiger Global could be both short and long in a particular sector. In was disclosed by the Financial Times, that in the 4th quarter of 2012, Tiger Global shorted Nokia. In the same quarter, Tiger Global also held a position in Apple.
So at the time, Tiger Global was long the best mobile company and short the worst mobile company. In addition, Tiger Global could have been executing trade by betting on the difference between Apple and Nokia, called a pairs or convergence trade.
May be the best that can be learned from reading Form 13-F is: technology changes very quickly. Winners can become losers very quickly. By understanding trends through the failures and fortune of public companies, people in tech, especially founders, angels, and venture capitalists, gain a better understanding of where they stand, their own positions.
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