In its required quarterly filings with the SEC, the $22 billion hedge fund Glenview Capital Management reported a new $293 million long position in megabank Citigroup (NYSE:C) as of March 31, 2015.
Interestingly, the fund exited a previous position in the bank in the 2014 fourth quarter, selling $171.8 million worth of the stock.
In my view, the reason behind Glenview's yo yo-like interest in Citi is as simple as it is dangerous.
Sell high, buy low
Fund manager Larry Robbins, worth over $2.2 billion himself, hasn't publicly shared his thoughts on the fund's position in Citi, but we can make an educated guess with a single, simple chart.
Throughout 2014, Glenview steadily increased its position in Citigroup to just under 11.9 million shares by the end of the third quarter. That increase coincides with a gradual movement from the lower left to the upper right in the stock's price as well.
In the fourth quarter, just as the stock was peaking, Glenview sold its entire stake in Citigroup. And like clockwork, the stock retreated in the first quarter back to levels seen in early to mid 2014 -- coinciding with the prices Glenview paid to buy shares in the first place. The fund seems to have timed the market perfectly.
It stands to reason that Glenview sold its shares in the fourth quarter because Citigroup exceeded the fund's valuation of the company at $53 to $55 per share. Then, in the first quarter, when the stock again returned to the $47 to $49 price range, Glenview again saw a value opportunity, prompting the fund to again buy shares.
It's unclear how Glenview will react to the stock's rapid rise from the prices seen in the first quarter to the seven year-highs we see today. We won't know for sure until the fund files its second quarter regulatory reports in the next six weeks or so. Based on its recent history with the stock, it wouldn't surprise me if the fund again sells its position.
Hedge funds like Glenview are not bound to buy and hold
Hedge funds operate under a different set of conditions than the typical retail investor. They need to produce market-beating returns quarter after quarter, not steady long-term results culminating in a comfortable retirement.
They employ highly specialized and highly trained financial professionals to develop sophisticated tax strategies and exotic hedging positions. These abilities can mitigate the expenses and risks of frequent trading.
As everyday, Main Street investors, we can't realistically mimic these trading tactics and expect the same results as multi-billion dollar hedge funds. More often than not, our attempts to buy low and sell high end up working out as the exact opposite. Even if we do luck into timing the market correctly, we still have a big tax bill to pay from the short term capital gain that will wipe out a huge chunk of our profits.
We just don't have the resources, expertise, or experience to match the moves of Wall Street players like Glenview Capital, Larry Robbins, and others. Let Wall Street behave like Wall Street. For the rest of us, trying to time the market like Glenview has done with Citigroup simply won't work.