$13 BILLION HEDGE FUND: Jeff Bezos' deal for Whole Foods is 'true genius'
rew Angerer/Getty Images
Highfields Capital Management, a Boston-based hedge fund that flies under the radar, sent a letter to clients this week that lays out the reasoning. A copy of the letter, which is private, was reviewed by Business Insider.
Here's what the founder, Jonathon S. Jacobson, wrote (emphasis added):
"Amazon's strategy will be to slash Whole Foods' margins by cutting prices drastically. This is the bear case for Target, Walmart, Kroger, AutoZone, O'Reilly, HD Supply, Fastenal, W.W. Grainger, Michaels, Dollar General and Dollar Tree - just to name a handful...
Amazon is paying a huge premium to the current market price for a business where its strategy will be to slash its profitability for the foreseeable future in order to grow market share. That's an awful lot of gross margin dollars to make up, particularly if you have to earn a return on your investment. But get this: Amazon doesn't, because its stock trades at almost 100x earnings and there is no market expectation of current profitability. Given this reality, Amazon can invest for the truly long term and earn its cost of capital - because it is close to zero! That is the true genius of this deal and highly illustrative of one of the most valuable competitive advantages that Jeff Bezos enjoys."
A Highfields spokesperson declined to comment.
Jacobson also highlighted his concerns over quants - one of the biggest trends in investing - in his letter to clients.
The Highfields Capital IV LP fund, the firm's biggest fund with about $5.6 billion under management, returned 1.2% for the first half of the year, according to investor documents. That's compared to a 9.3% gain in the S&P 500 and 11% gain for the MSCI World Index over the same period.
- I quit McKinsey after 1.5 years. I was making over $200k but my mental health was shattered.
- Some Tesla factory workers realized they were laid off when security scanned their badges and sent them back on shuttles, sources say
- I tutor the children of some of Dubai's richest people. One of them paid me $3,000 to do his homework.
- Why are so many elite coaches moving to Western countries?
- Global GDP to face a 19% decline by 2050 due to climate change, study projects
- 5 things to keep in mind before taking a personal loan
- Markets face heavy fluctuations; settle lower taking downtrend to 4th day
- Move over Bollywood, audio shows are starting to enter the coveted ‘100 Crores Club’