Monday 5 August 2024 will be remembered as one bad day for the financial markets global. The collapse of the Tokyo Stock Exchange had a domino effect, overwhelming other world markets and causing heavy losses. However, while small investors have suffered considerable damage, hedge funds and savvy investors saw in this chaos a golden opportunity to do business.
Hedge funds hunting for bargains
A report by Goldman Sachs, seen by Reuters, reveals that the hedge funds they seized the opportunity offered by the collapse of August 5th: that day saw the most great wave of purchases of the last five months, marking a turnaround compared to previous weeks, when speculators had sold more than they bought. Instead of fleeing the market, hedge funds have taken advantage of of the rebates to accumulate stocks at rock-bottom prices. According to the analysis of the bank, which monitors the flows of its hedge fund clients, the latter have concentrated their investments on sectors with high upside potential, such as tech (except hardware) and the Health, but they also invested in basic necessities and public services. Instead, they reduced their exposures in consumer discretionary, real estate and financials, thus restructuring their portfolio for future opportunities.
The hedge fund strategy was clear: “buy on the lows”. When the technology index lost 3,8% on August 5, funds took the opportunity to increase their long positions in the sector, focusing in particular on semiconductors and software. However, despite this momentum, hedge funds continue to be underweight the technology sector, at their lowest levels in a decade.
Stock market, the other side of the collapse: purchasing opportunities
Il stock market crash it is not just a moment of crisis; it is also aopportunity for shrewd investors. Losses and market declines offer the possibility of eliminate overvalued stocks and to buy shares at lower prices, with significant upside potential. Or, you can take advantage of declines to accumulate liquidity and prepare to seize more advantageous opportunities in the future, such as Warren Buffet “The Oracle of Omaha”. In other words, while many see only chaos, the more experienced may recognize an opportunity to build a more robust and profitable portfolio.
Warren Buffett's strategy
Despite the recent market collapse, Buffett has demonstrated how strategic liquidity management can be beneficial. Its holding company, Berkshire Hathaway, boasts a colossal liquidity of 276,9 billion dollars, approaching 300 billion. Buffett was able to take advantage of the market storm to sell shares that he considered overvalued and to restructure his holding's portfolio.
The Wall Street guru has significantly reduced his holdings in banks e big tech. In the second quarter alone, Berkshire Hathaway sold approximately 390 million shares of Apple , reducing the stake to a value of $84,2 billion, a decrease of 49,2%. This decision follows a 13% reduction in Apple's share already occurred in the first quarter. Additionally, Buffett sold shares of Bank of America worth $3,8 billion in 12 days, reducing Berkshire's stake to 12,1%.
Buffett has adopted a strategy based on fundamentals and market cycles. His philosophy is clear: invest when the opportunities are concrete and the risks are minimal. As he stated at Berkshire Hathaway's annual shareholder meeting, “We would like to spend our cash, but we will only do so when we find opportunities that carry little risk and can generate large profits.”
