Elliott Management Investor Letter: 2014 Q4

Elliott Management‘s 2014 Q4 investor letter is out. Billionaire Paul Singer’s Elliott Associates returned 0.5% during the fourth quarter and 8.2% for 2014. Elliott International Limited’s gain for 2014 stood at 6.8%. If you don’t care about wasting a lot of money on hedge fund fees, it is better to invest in Elliott compared to investing in an average hedge fund. If you really care about beating the market and minimizing your expenses, you should try Insider Monkey’s newsletters. Elliott’s hedge funds, which had $25.1 billion in AUM at the end of 2014, returned around an annualized 12.5% since 1994. That’s slightly better than S&P 500’s 9.8% gain over the same period. Insider Monkey’s small-cap hedge fund strategy was launched 2.5 years ago and managed to beat the S&P 500 Index by an average annualized rate of 20 percentage points.

Let’s talk about Elliott’s investor letter a little bit and explain why Elliott is a good hedge fund to follow and why you should cover your ears and sing when Paul Singer is talking macro. People who call Roubini Dr. Doom haven’t heard Paul Singer’s macro comments. If I didn’t know how Elliott invests and makes money, I would never ever consider paying attention to Elliott’s stock picks after listening to Paul Singer’s assessment and predictions regarding the macro situation and policies. It is truly crazy stuff. Let’s summarize what Singer is saying:

1. Investor may reject paper money: Money “debasement may have very different effects in a possible renewed downturn, and may actually result in investor rejection of paper money in the next round. If this rejection occurs, then it would be toward the top end of surprises for investors as well as policymakers, given the current consensus array of views.”

2. Completely clueless about what would happen to stock prices if confidence in paper money disappears: “Stocks are much harder to figure out. Profit margins in the U.S. are at the top end of their historical range, and equity market valuations are generally high. But if confidence in paper money or in the currently-viewed “safe havens” of the U.S. dollar and/or government bonds of the developed world disappears, it is anyone’s guess whether the expression of that loss of confidence would be a run-up in stock prices (if they are viewed as the “most real” liquid financial asset) or a rout (if the competition in yields from crashing bond prices caused a commensurate fall in stock prices).