The Alpha Pages - 10.21.15

The Alpha Pages - 10.21.15

Garrett Baldwin

Alternative Thinking on The High Price of Good Drugs, the NCAA’s Gambling Hypocrisy, Video Game MBAs, Ray Dalio’s Performance, and Why Everyone Seems Confused about Alternative Investments These Days…

“ Ackman, who runs $19 billion Pershing Square Capital, is the largest hedge fund shareholder. Valeant is his fund's largest stock holding.”

Well, this isn’t going well.

On Tuesday, shares of Valeant Pharmaceuticals cratered as much as 40% after receiving a series of downgrades. Short-selling firm Citron Research issued a report that alleges fraud on how it operates with “specialty pharmacies.”

Citron went on to compare the company to Enron.

Today’s slump was bad news for a number of hedge funds, as Business Insider notes. Bill Ackman’s Pershing Square owns 5.71% of the company, and announced it was purchasing two million additional shares in support of the company.  Still, Ackman is down more than $1 billion on the company.

“When we’re talking to investors who aren’t familiar with this investing space, we have (a lot of investors) who think the strategy sounds really risky."

As we noted yesterday, alternative investments remain a critical point of focus as we expand The Alpha Pages and seek contributors and strategies for readers.

Yesterday, we explored a short piece on why alternative investments are successful.

But as Cara Smith explains in the Houston Business Journal, there remains a lot of confusion among investors on the actual strategy. As noted, the challenge is to “educate” people, but the primary concern – as Ben Hunt of Salient Partners notes – the last thing you want to do is sound like you’re talking down to someone when discussing alternatives as part of a broader investment strategy.

That’s why it’s important that as our community grows over time, we want to ensure that we’re having “Real Talk” on alternative investments… Be sure to fire back comments and your thoughts, and make sure that every discussion is a two way street.

"No one is really developing a new pedagogy that wouldn't be possible in the classroom." 

 Are video games the future of the MBA?

Bloomberg offers a pretty interesting exploration into an experiment conducted by John Beck, Ph.D., a professor at Hult International Business School. Beck has discovered that a business strategy video game has proved just as effective at educating students as a real-life teacher.

Beck designed a video game called One Day through his consulting firm.

Modern Trader explored the impact of technology on the job markets during its second issue “Sell Stocks Now.” In fact, cognative technologies similar to what Beck was the primary investment recommendation that we made in the article: “Possible Hedges against the Robot Apocolypse.”

It looks like that future is closer than ever…

So, is this it for MBA professors?

“The All Weather strategy famously does not hedge market exposure, relying on varying asset combinations to protect against market turmoil.”

Finalternatives reports that Ray Dalio’s Bridgewater All Weather Fund lost 1.9% last month. It’s not down 6% year to date. This is just the latest large macro hedge fund to disclose disappointing results for September.

"Such a meeting is inappropriate at this time in light of the fact that your enterprises appear to be under investigation by the Federal Bureau of Investigation and Congress."

Finally, the NCAA -- a "non-profit" entity dedicated to  student-athletes' education -- has declared that DraftKings and FanDuel cannot advertise during championship events.

The reason: "[the NCAA's policy that it] will not accept advertising from sports wagering entities."

But they will just turn their blind eye to the fact that they make billions of dollars a year directly from the interests of gamblers who are betting on their games -- pretty much constantly.

As we noted in Modern Trader during our Gambling and Gaming issue, Americans will have gambled roughly $95 billion on NFL and college football this year. March Madness basketball is one of the biggest gambling events every year, with Americans dropping $9 billion on brackets and individual games.

Meanwhile, ESPN – one of the companies that has the closest ties to DraftKings of anyone given their advertising agreements with the one-day fantasy site – is the hardest hit from this news. ESPN paid billions of dollars for the rights to the NCAA football playoffs. Even though ESPN hasn’t been completely forthright about their financial interests in DraftKings’ growth, but the NCAA shouldn’t be pretending that gambling isn’t central to its interests.

It’s stunning how much money continues to flow between the networks, the non-profit sports association, and gambling operations.

Just don’t pay the athletes whose jerseys are sold and faces are broadcast across television. For more on that, be sure to watch John Oliver’s remarkable takedownof the NCAA and its money game.

All of this hypocrisy and nonsense could be mitigated if Congressional leaders finally acted like grownups and opened and properly regulated the sports gambling industry. It’s a $200 billion industry that could easily fund any of the sweet pet projects that are ear-marked and paid for through borrowing…

Off to Game 4 of the Cubs versus Mets... will we see a miracle, or will Daniel Murphy keep the curse alive with a four-game sweep by the Mets.


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