Mike Shinnick of the $850 million Wasatch Long/Short fund likes to have a load of cash for weeks like these. He typically keeps 20% of the fund's holdings in cash. It's a strategy that has produced market-beating 3% annualized returns since 2006. As markets plummeted, he used the money to snatch shares of insurance companies--some trading below book value--and business services firms.
The market's recent swings allowed him to boost the fund's long positions by 5%. But he's not predicting smooth sailing from here. "Psychology has been driving the markets over the past week," he says. "The fundamentals are attractive but the negative psychology could persist for a long time."
Equities, commodities, and high yield bonds have seen a dramatic sell off in the last couple of weeks. While they are cheaper, recent history suggests that we still have room to fall before there's blood in the streets.
