British billionaire Jim Mellon's (very) long and short bets

Jim Mellon describes himself as an "opportunistic, competent, plagiarist" investor.

"I'll take anyone's ideas," says the man that has often been described as Britain's version of Warren Buffet.

Mellon himself has rejected such comparisons, partly on the basis that he hasn't embraced the Oracle of Omaha's frugal lifestyle.

He has however been remarkably successful un-earthing value in both the public and private markets, and as such has assumed legendary status in the investment community. Mellon is one of the key offshore talents that will be speaking at the Sohn Hearts and Minds charity conference in Sydney next month.

So what is Mellon buying and selling at the moment?

He's "totally long "gold which he expects to hit $US1500 by the end of the year, and he's a buyer of Japanese stocks, which "remain undervalued", given the governance changes that are taking hold.

The Nikkei, he says, will hit 25,000 by the end of the year.

But Mellon is betting against some of tech's biggest names. On his short list are Facebook, Netflix and Tesla, which he quipped is "hand-making their cars".

Part of his short thesis is that firms like Facebook will suffer from "elephantitis".

"The juiciest markets have been quite saturated and the Chinese will never let them into their market."

At their core, Facebook and Google are advertising companies, and while Facebook is able to better target users, Mellon believes that much of what the sell is "junk advertising" that isn't adding much value.

But he's most critical of the huge power and influence of social media companies that should come under far more regulatory scrutiny.

These businesses are not monopolies (where there is a dominant seller) but monopsonies (a market where there is only one buyer), he says.

"They can't be controlled by dividing them up – so fine them, tax them and regulate them. Make knowledge a utility like water gas and electricity.

"What they are doing is taking all this information about us and recycling it for a profit, so shouldn't we be paid?"

So far betting against the big tech stocks has proved expensive. Mellon says he's down around 20 to 30 per cent on his position which equates to a few hundred thousand dollars.

But these trades are "more a hobby than a profession".

"This is distraction from what I really do which is invest long-term in companies."

These bets are biotechnology and, more specifically, longevity or rejuvenation science.

Technology that makes people live longer and live better sounds like a big deal, but somewhat inexplicably, it isn't exactly luring capital.

A few years ago, Mellon explains "there wasn't even a dribble" of capital flowing in the space with all the funding coming via endowments, charities and research foundations.

Mellon, who co-wrote a book about longevity technology titled Juvenescene says he's one of the few investors looking to back companies solving what is arguably man's greatest problem.

"The technology is here today and policymakers don't see it – it will affect anything from pensions to life insurance to patterns of consumption."

One would think that if people are living longer, the life insurance companies will be paying out less, but Mellon predicts that in actual fact people won't bother insuring themselves.

That's a problem for another decade. Right now insurers are battling stubbornly low interest rates, which Mellon thinks should be on the rise.

Persistently low rates have fostered wealth inequality and allowed "zombie companies that should have been put out of business to stay alive".

"Governments aren't measuring inflation properly and rates back up to 3 to 4 per cent in a few years. We need a price clearing mechanism for money and we don't have that."

Higher rates while painful "for people with mortgages will allow younger people to get back in to the property market".

What is Mellon's advice to aspiring young investor?

"Focus on one or two big ideas.

"They will sustain you. You don't need to invest in everything from stocks to bonds to soya beans – you just need to know more than other people [about those ideas]."

Source : http://www.afr.com/business/banking-and-finance/hedge-funds/british-billionaire-jim-mellons-very-long-and-short-bets-20171022-gz5q1a

Related Posts