Cues From Cooperman
How Wall Street titan Leon Cooperman stays on top in investing and philanthropy.Dynamic Duo
Leon Cooperman has never been afraid to blow his stack. In fact, his volcanic tendencies are so well known on Wall Street that almost no one was fooled when the late Barton Biggs, Morgan Stanley's longtime market strategist, introduced a character named Greg in Hedgehogging, a 2006 investment memoir. "Greg has a reputation of being difficult to work for and a screamer," Biggs wrote, attempting to disguise Cooperman. "A screamer is a hedge-fund guy who yells at the people who work for him when they are wrong or careless."
Asked about that description in a recent interview, Cooperman, 70, offered a warm, gentle smile. He is not a screamer, he said, but does take pride in being a "demanding" boss. Just look at it from his investors' perspective, he said. "If you are paying somebody two and 20, as opposed to 1%, you basically have the right to expect more from that person," he says. "And that's what I tell my people: You've elected, for better or worse, to be in the two-and-20 game, so you have to be on the balls of your feet at all times."
Cooperman's team has been listening up. His Omega Overseas Partners hedge fund has racked up average annual returns of 14.3%, after fees, since its inception in 1992, versus 8.6% for the Standard & Poor's 500. Over the past three years, the returns have averaged 15.6%, making Omega No. 46 on Barron's latest annual ranking of hedge-fund performance; see "Best 100 Hedge Funds." Last year, it was up a striking 30%. ...MORE
Why Leon Cooperman and Steve Einhorn think this bull market still has legs. Avoiding defense and health care. Long Sprint, Transocean, and Citigroup.
Leon Cooperman and Steve Einhorn first teamed up in 1977, when Cooperman, then head of equity research at Goldman Sachs, hired Einhorn as a U.S. equity portfolio strategist. Cooperman left to start Omega Advisors in 1991. And on retiring from Goldman eight years later, Einhorn teamed up with him again. Today, Omega manages $8.5 billion, much of it in stocks, and given their bullishness right now, almost all of it long.
While Cooperman, 70, and Einhorn, 64, don't finish each other's sentences, they think enough alike to finish each other's paragraphs. Says Einhorn: "Lee has an ability to isolate the critical variables that will ultimately determine the direction of a stock price before many others do."
Cooperman returns the compliment, lauding Einhorn's smarts and judgment, and calling him "a man of integrity who cares about the clients of the firm and me. What more can one ask of a partner?"
That combination has paid off for investors. Omega's main fund, Omega Overseas Partners, is up 15.6% a year on average over the past three years, compared with 10.9% for the Standard & Poor's 500.
Cooperman and Einhorn are avoiding stocks that have benefitted from the big federal deficit, including defense contractors and some health-care firms, but they think the broad market has room to grow, though there will doubtless be a pause along the way. For more of their insights—including the case for Sprint Nextel (ticker: S), Transocean (RIG), and Citigroup (C), read on.See also last year's "Omega Advisors Leon Cooperman Presentation: 'Observations regarding: life, hedge funds, the investment outlook'".
Barron's: Let's start with the big picture.
Cooperman: Throughout the post-World War II era, the average stock-market decline in a bear market is about 25% and lasts about 10 months. So the bear market that ended in March of '09 was twice as severe as the average. Most bear markets are induced by economic contractions. During the average recession in the postwar period, real gross domestic product goes down 2% from peak to trough. The most recent recession was about twice as severe in magnitude, so you had a bear market twice as severe as the average bear market, and the market discounted twice as severe an economic contraction.
The average economic expansion lasts about five years. If we had to make a guess, it would be that this expansion will be longer than average. One reason is a large GDP gap—that is, the difference between actual output and potential output. There is a large employment gap, and an important sector to the economy is housing, which is still operating well below normalized demand.
What kind of economic growth do you expect?
Cooperman: It's moving in the right direction. Our model forecasts about 2.5% real GDP growth for 2013. So the economy is fine, and the Federal Reserve, in my humble opinion, has created an environment where there is no effective alternative to common stocks.
What lessons did you take away from that downturn?
Cooperman: We totally misunderstood the significance of the Lehman insolvency and its impact on the economy, and we weren't alone. The U.S. government didn't understand it; most people didn't understand it.
Einhorn: The surprise with respect to Lehman was the reach it had into so many other financial institutions and the freezing of credit that it brought about. The recession we experienced in 2008 and the first half of 2009 would not have been nearly as severe without the freezing of credit flows between financial intermediaries as a result of the Lehman insolvency....MUCH MORE
