Who has got the margin call?
Bronte Capital tends - as this blog has said many times - to be long large cap and relatively liquid companies at 10-16 PE ratios.
And we are short the wildest range of frauds, fads and failures you can imagine.
Our shorts are small and relatively illiquid. They are also higher beta - so we tend to be 2-2.5 times as long as we are short and that is only mildly market correlated.
The strategy has been wildly profitable for the last six months and is not bad most the time but we do not like days when the market really pukes.
When the market really pukes it is the biggest, most liquid names that get sold. Why? Because you can sell them.
And they go down hardest. Which is problematic if you are long that which goes down hardest.
So today is not our strongest day - and whilst we are down far-less than market - I can't say I am enjoying it.
But I am fascinated.
You see the desperate selling of the biggest liquid names is a sign of margin calls.
The market is not puking. Some prime broker is puking the stocks held by one or more very large hedge funds.
So lets play the game: guess who got the margin call!
Guesses by email or in the comments...
John