Billionaires Portfolio: Yesterday, GT Advanced Technologies Inc (NASDAQ:GTAT) declared bankruptcy sending the stock down more than 90% in one day. 99% of every person who read this news went on with their day thinking to themselves thank goodness, I didn’t own this stock.
But the 1%, the smartest hedge funds, were getting ready to pull the trigger on one of the oldest and most powerful quantitative trading strategies around, buying a stock the day after it declares bankruptcy then selling it at the close.
This strategy has been know by almost every hedge fund on the street including the billion dollar plus hedge fund I worked for back in 2002 when WorldCom filed one of the largest bankruptcies in history.
The next day our fund loaded up on WorldCom stock which was selling for pennies on the dollar and we made over 120% in one day.
This bankruptcy trade works for two main reasons:
1) Short sellers buy their stock back (or cover immediately after a bankruptcy filing)
2) Distressed traders-hedge funds will buy bankrupt stocks because their is a possibility they can squeeze some money out of them during the bankruptcy process, especially if they own 5% or more (a controlling stake).
This powerful combination of huge buying with virtually little selling (because no one really sells a stock after it has declared bankruptcy and dropped 90%) usually pops the stock more than 100% the day after a company declares bankruptcy.
That is why GT Advanced Technologies (GTAT) is up 150% today on huge volume, and why many hedge fund traders are smiling while the rest of the public is left scratching their head.
Please don’t miss the opportunity to learn more about me and how we follow Billionaire Investors into stocks by visiting the Billionaires Portfolio.
The insider behind the Billionaire’s Portfolio is William Meade. William started his career with Wood Asset Management. Wood Asset Management was a $1.5 billion dollar institutional asset management firm and hedge fund, founded by Gary Wood, a former Goldman Sachs Partner and Harvard MBA. At Wood, William helped manage equity and fixed income portfolios for major university endowments, Fortune 500 pension funds and super high net worth clients (including 2 billionaire families).
Next, William was Director of ETF and Mutual Fund Research for Zacks Investment Research in Chicago. At Zacks, he worked with the founder Len Zacks, a PHD from MIT, in developing and maintaining a proprietary model that ranked over 20,000 ETFs and mutual funds. This model was viewed and used by over 150,000 people monthly, and was published in US News and World Report, and featured on CNN, Yahoo Finance, and Fortune.com.
William received a Masters in Economics from Johns Hopkins University, including PhD level coursework in International Economics. At Johns Hopkins, Mr. Meade was taught by Economists from The Federal Reserve and Department of Treasury. While at Johns Hopkins Mr.Meade consulted for a top hedge fund in Washington DC.