THE JUGGERNAUT WHO'S FLATTENING SHORT-SELLERSJeff Vinik's plays often drive stock prices through the roof
Caution is not his middle name. When Jeffrey N. Vinik ran Fidelity Investment's huge Magellan Mutual Fund, he was known for his large--and often short-term--bets on stocks and sectors. Vinik's record was stellar--until the end of 1995, when he shifted a big chunk of the $50-plus billion portfolio into bonds. Not smart. Rates rose, returns collapsed, and he departed in June, 1996.
Vinik is now running his own hedge fund, Vinik Asset Management LP. Launched last November in Boston, the fund, say Wall Street sources, has more than $1 billion--and some very happy investors. In the 10 months ended in August, his gross returns were up 62%--compared with 21% for the Standard & Poor's 500-stock index and 15.7% among hedge-fund peers. The returns far outstrip his record at Magellan, and not surprisingly, Vinik is attracting a growing following of investors.
Vinik, 38, declined to be interviewed for this story. But information from competitors, Securities & Exchange Commission filings, and other sources suggests that, if anything, he is making proportionately even larger and quicker bets than he did at Magellan. Since more than 80% of his investments are now in small and midsize companies, he can be a more nimble player. Says Bob Gabele of CDA/Investnet in Fort Lauderdale, Fla.: ''His duration in companies is a lot shorter-term than many money managers.''
His style is drastically different from the best known Magellan manager, Peter Lynch. Lynch espoused long-term investing in companies with strong fundamentals. Vinik follows the so-called momentum strategy, buying stocks showing strong upward movement. One Wall Streeter considers him ''a poster child for momentum players. He takes big stakes in companies not based on research or fundamentals but on trading strategies.''
At Magellan, Vinik had a reputation of building up a huge position in a stock, which pushed up the price. When the action attracted other investors, he would quickly unload his position. By all accounts, he is continuing that strategy--with a twist. He now often buys more than 5% of a company's outstanding stock, requiring him to disclose the position to the Securities & Exchange Commission in a 13D filing no more than 10 days after the purchase. Since last November, Vinik has made more than twenty 13D filings, including Converse, USFreightways, and Pacific Sunwear of California (table). The 13Ds attract even more followers. ''Clearly, Vinik is someone prominent in the public eye, and when news of his purchases become public, stocks can move up dramatically, to his benefit,'' says Cary Krosinsky, vice-president for research at Technimetrics Inc. in New York.
SHOOTING STAR. Vinik, Krosinsky adds, has a penchant to ''squeeze'' short-sellers by buying up a large portion of the outstanding float, something he would have had a hard time doing at Magellan, where he was dealing mostly in large-cap stocks. ''Frequently, all this happens very quickly, and a stock shoots up,'' says Krosinsky. That allows Vinik to cash out, often rapidly deflating the stock.
Vinik's most recent filing was in Vivus Inc., which manufactures a drug for erectile dysfunction. Vinik started buying Vivus shares in July. On Sept. 15, with the stock trading at 26, Vinik disclosed a 7.2% stake. A third of the shares were then borrowed by shorts. In less than two weeks, with no other news, Vivus soared to 38. Now there are rumors on Wall Street that Vinik is selling some of his shares.
Vinik's tactics don't always work. He has sold stocks that continued to outperform the market long after he unloaded them. Last November he started buying Morningstar Group Inc. at 16. In February, he began selling it at 19 to 23. Today, the stock is at 44 3/8.
Vinik's strategy bothers many executives of small companies. ''If you're management, potentially the worst thing that can happen is to have Jeff Vinik in the stock,'' says Krosinsky. ''He can leave a plummeting stock in his wake.'' Says Edward Bersoff, CEO of BTG Inc. in Fairfax, Va. ''What Jeff Vinik was doing with our stock'' created an ''inherent lack of confidence in the value of [our] company.'' To the Viniks of the world, though, that's just the price of public ownership.
By Debra Sparks in New York
Updated Oct. 2, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.