Hayden Cole, 33
Includes long positions in Lindsay Corp., Senomyx Inc. and Apple Inc.; short positions in Veeva Systems Inc., Zillow Inc. and Caterpillar Inc.
Hayden Cole often puts his engineering knowledge to work when making portfolio decisions. "Many of my investments are either technology or industrial firms because those are the areas in which I have direct experience," Mr. Cole says.
How he invests
"I'm a value investor at heart," he adds. "My focus is on bottom-up, in-depth research of companies."
A recent buy was Lindsay Corp., one of the two largest companies in the duopolistic mechanized-irrigation industry. Its stock was cheap due "to a cyclical downturn in agricultural commodity prices" and high adoption rate in the U.S. market. "But long-term prospects are still good given the low penetration of mechanized irrigation in emerging countries."
When equity markets are expensive, he'll look for short positions to hedge his portfolio. "I tend to short stocks with the opposite characteristics that I look for in longs – some combination of extreme overvaluation, a flawed business model, secularly challenged industries or dubious accounting."
His short sale on Zillow reflects a belief the online real-estate firm "has a business that doesn't scale" – a big jump in marketing expenditures recently boosted revenues but not profits. Its stock is also trading at a very high valuation of "20 times sales."
As for shorting construction-equipment supplier Caterpillar, it's vulnerable to a slowdown in the Chinese construction market, and the unwinding of the decade-long boom in commodity prices.
Since he initiated his short position on Veeva Systems (a provider of client relationship software used by sales forces in the life-sciences industry), the stock is down nearly 50 per cent. Pharmaceutical companies are consolidating and cutting back on their marketing departments.
He bought a Chinese steel processor when it was "insanely cheap and had great margins and return on capital." But its pricing power was not based on a competitive edge, just a transitory supply shortage.
"Without a tangible edge over the average market participant, you are not going to outperform the market over the long term. That edge might be superior resources or technology, insight into particular areas, or a unique methodology for finding mispriced assets."
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