Lessons From A Hedge Fund Manager

Steven A. Cohen is a multi-billionaire hedge fund manager at Point72 Asset Management. Though probably better known for his recent purchase of the New York Mets, Mr. Cohen has been a juggernaut in the hedge fund world for decades. As a student of the financial markets, I have followed Mr. Cohen’s portfolios since the late 1990s, thanks to public information provided by the Securities and Exchange Commission (SEC). Point72’s portfolio has ballooned from $5.6b in 2009 Q1 (filed under SAC Capital Advisors LP) to $22.7b at the end of 2021 Q3. Let’s examine Point 72’s latest portfolio as of 2021 Q3 for a brief lesson in portfolio management.

As a hedge fund, Point72’s portfolio consists of long positions (shares and call options), as well as short positions (put options). Being the prudent portfolio manager that he is, Mr. Cohen’s largest positions are in lower-risk investments as shown below:

Gleaning from the above table, we learn that Mr. Cohen’s largest position is well-diversified in Standard & Poor’s 500 Index through the SPY ETF, followed by positions in individual stocks of profitable big tech companies. In total, these investments make up $3.5b of the overall $22.7b portfolio value.

For contrast, we can look to the new additions to the portfolio since Q3 of 2021. These show up in the SC 13G filings, which are required to be filed by investors (excluding company insiders) who hold at least 5% of company shares, shown below:

As one can see, all of the new additions are biotech and pharmaceuticals companies, many of which are pre-revenue and profit-negative, making them highly risky. Point72 makes small, incremental moves into these risky assets, evidenced by their small values relative to the overall portfolio value.

Conclusion

Over the years, Steven Cohen’s portfolios have grown by many fold, despite having made many bad stock picks. This success is because his overall approach is not very different to what is commonly taught in college finance courses and by financial planners: diversify, be patient, allocate less to riskier assets, and more to safer assets. These principles apply whether your portfolio is $1 thousand, $1 million, or $1 billion. In future blogs, I will dig deeper into Mr. Cohen and other influential investors’ portfolios to gain insight on market trends.