Friday, May 29, 2009

Popular Articles on Market Folly

Here's the most popular articles currently on Market Folly:


1. Julian Robertson's Steepener Swap Play (Shorting Treasuries)

2. Hedge Fund Blue Ridge Capital's Recommended Reading Lists

3. John Paulson (Paulson & Co) Buys a Ton of Gold

4. The Ivy Portfolio: How to Invest Like Top Endowments (Book Review)

5. Educational Video on Fibonacci Retracements: Technical Analysis

6. Barron's Hedge Fund Rankings (Top 100)

7. Arthur Samburg's Pequot Capital Shuts Down

8. Our Custom Market Folly Portfolio: Generating 17% annualized returns since mid-2002 (created with Alphaclone)

9. Kyle Bass of Hayman Capital Predicts Sovereign Defaults

10. May 2009 Hedge Fund Performance Numbers

11. Discounts on Financial Publications (WSJ, Economist, Barrons, Investors Business Daily, etc)


Thanks for reading as always. If you enjoy our work, please consider making a donation (via PayPal or credit card). It definitely takes a lot of time to run a site and we appreciate your support!


Last, but not least, make sure you're getting our daily updates for free via email or for free via RSS reader.


Seth Klarman's Interview From Annual Graham & Dodd Breakfast

We're back with yet another interview with Baupost Group's Seth Klarman, as we keep stumbling upon more of his interesting thoughts. We also just recently posted up his interview from the Endowment Management Seminar, where he brought up some other great points.

This time around, we're posting up his thoughts from the Outstanding Investor Digest. The interview took place at the Annual Graham & Dodd Breakfast and encompasses value investing topics (as naturally Klarman and Baupost Group are value players). This portion comes from the question and answer session and he begins by stating, "For years, when someone asked me what my biggest fear was as an investor in managing my portfolio, my answer was that it was buying too soon on the way down from often very overvalued levels."

And, this quote is very relevant and pertinent to the current market environment. After all, Klarman has had a ton of cash on the sidelines over the years and has been gradually deploying it into this market turmoil. He obviously is afraid of being too early and from that we should infer that he will take his time scaling into larger positions that he deems valuable.

Klarman's methodology is unmatched by many, as he has one of the most sterling investment records in all of the investing game. As such, we have appropriately included him in our custom Market Folly portfolio which is seeing 17% annualized returns since mid-2002. Stay tuned next week as we dive into Klarman and Baupost Group's latest holdings, as per their 13F filing.

Here is the interview in full:
(RSS & Email readers will have to come to the blog to view the slidedeck)


Seth Klarman Interview -


What We're Reading 5/29/09

Hedge fund masters portfolio [World Beta, the blog by Mebane Faber. Last week we reviewed Meb's book, The Ivy Portfolio]

Wheat, Corn Stocks at 30 year lows [CommodityBullMarket]

Hedge Fund Manager's Farewell [NYT]

How to use Wolfram Alpha in researching investments [Marketwatch]

The reflation trade portfolio [IndexUniverse]

Inside Fortress Investment Group [TheDeal]

Potash crucial in preventing global food crisis [Stockhouse]


Thursday, May 28, 2009

David Einhorn's Greenlight Capital Has Big Bets on Gold, URS: 13F Filing Q1 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up is Greenlight Capital, a $6 billion hedge fund ran by David Einhorn that specializes in spin-offs and value investing and has seen annual returns of over 20%. Einhorn's name has been popping up in the media a lot over the past year, as he talked about his well documented short position in Lehman Brothers. And, while that position paid off handsomely for him, it barely offset losses he experienced from other positions. He was caught in the massive Volkswagen short squeeze as he detailed in one of his investor letters. Einhorn has also recently detailed the saga between his fund and Allied Capital, a company he shorted, in his book Fooling Some of the People All of the Time: A Long Short Story. It gives you an inside perspective as to how Greenlight constructs and researches their investment theses and we highly recommend it. Greenlight approaches things by identifying mispricings in the markets and going from there.

He has recently advocated getting long gold (GLD) and gold miners (GDX). And, at the same time, he has advocated shorting commercial real estate property REITs, saying that a drop in rents of 10% hurts values due to leverage and also points to the difficulty they will have trying to refinance debt coming due. We covered more of his recent thoughts and ideas from his most recent investor letter.

We posted up his major moves and you can also read the letter here (in downloadable .pdf format). Other notable activity includes Greenlight filing an amended 13D on MI Developments in April. In terms of performance, his offshore fund finished 2008 -16.5% as detailed in our 2008 year end hedge fund performance numbers list. But, more recently, we've noted that Greenlight was +9% for April, bringing them up to +13.8% for 2009 as of that time. Their performance and more are listed in our April hedge fund performance list.


The following were Greenlight's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Nike (NKE)
Liz Claiborne (LIZ)
M (MXGL)
Everest Re Group (RE)
KKR Financial (KFN)
IPC Holdings (IPCR)
Microsoft (MSFT)
American Eagle Outfitters (AEO)
Hess (HES)
Wyeth (WYE)
Conway (CNW)
BJ Service (BJS)
Harman Intl (HAR) & Jones Apparel (JNY) - both new purchases which we covered back in April
Discover Financial (DFS)
Pfizer (PFE)


Some Increased Positions (A few positions they already owned but added shares to)
Patterson-UTI (PTEN): Increased by 340%
McDermott (MDR): Increased by 319%
Aspen Insurance (AHL): Increased by 159%
Patriot Coal (PCX): Increased by 142%
Sinclair Broadcast Group (SBGI): Increased by 101%
Republic Airways (RJET): Increased by 94%
Dow Chemical (DOW): Increased by 31%
EMC (EMC): Increased by 29%
Sunstone Hotel (SHO): Increased by 22%
SPDR Gold Trust (GLD): Increased by 14%
Helix (HLX): Increased by 14%
Teradata (TDC): Increased by 6%
MI Developments (MIM): Increased by 5%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Commscope (CTV): Reduced by 47%
URS (URS): Reduced by 5%
Allegheny (AYE): Reduced by 4%


Removed Positions (Positions they sold out of completely)
CF Industries (CF)
Triple-S Management (GTS)
Sears Holdings (SHLD)
Ensco (ESV)
Dr Pepper Snapple (DPS)


Top 15 Holdings (by % of portfolio)

  1. SPDR Gold Trust (GLD): 13.6% of portfolio
  2. URS (URS): 7.4% of portfolio
  3. EMC (EMC): 6% of portfolio
  4. MEMC Electronics (WFR): 4.9% of portfolio
  5. Target (TGT): 4.9% of portfolio
  6. Gold Miners ETF (GDX): 4.8% of portfolio
  7. Teradata (TDC): 4.6% of portfolio
  8. Allegheny (AYE): 4.1% of portfolio
  9. Pfizer (PFE): 3.3% of portfolio
  10. Hess (HES): 2.9% of portfolio
  11. Einstein Noah Restaurant Group (BAGL): 2.6% of portfolio
  12. Wyeth (WYE): 2.5% of portfolio
  13. Aspen Insurance (AHL): 2.2% of portfolio
  14. Harman Intl (HAR): 2.1% of portfolio
  15. McDermott (MDR): 2% of portfolio

Einhorn continues to like Gold (GLD) and gold miners (GDX) in a big way. At over 13% of his portfolio, his gold position can't be taken lightly. So, we now have David Einhorn, John Paulson, Eric Mindich, Stephen Mandel and many other hedge fund managers all with sizable gold positions. As such, we thought it would be prudent to post up a current technical analysis video on gold, as the metal could possibly be consolidating.

Overall, Einhorn did a lot more buying than selling. His portfolio didn't change too drastically and many of the changes we had already covered through various investor letters and other SEC filings. While Bill Ackman typically gets all the press surrounding his Target (TGT) position, Einhorn also quietly has a sizable Target stake. However, Einhorn's position remained flat from quarter to quarter; he neither added nor sold.

Assets from the collective holdings reported to the SEC via 13F filing were $2.4 billion this quarter compared to $2 billion last quarter. So, they've deployed some capital on the long side of the portfolio between quarters. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, John Paulson's hedge fund Paulson & Co, Stephen Mandel's Lone Pine Capital, Eric Mindich's Eton Park Capital, and John Griffin's Blue Ridge Capital.


Art Samberg's Hedge Fund Pequot Capital Shuts Down

Well known hedge fund Pequot Capital Management is shutting down. Prominent investor and fund manager Art Samberg wrote in a letter to investors that, "Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction ... I have concluded that Pequot can no longer stay in business." Pequot was under SEC investigation regarding an insider trading allegation with Microsoft (MSFT). The incident has dragged on and on and has hung a dark cloud over Pequot's door. As such, investors became spooked and potential investors weren't arriving in the droves that they used to. And, as we all know, assets under management (AUM) are key to survival in hedge fund land. A tarnished image certainly does not help that.

This brings a sad end to Pequot's illustrious run where they managed $15 billion at their peak, but more recently managed around $3 billion. Samberg and Pequot have seen annualized gains of 16.8% after fees over a 22 year timespan; a record that speaks for itself and more than doubles that of the S&P 500. We had covered Pequot's portfolio in the past as part of our hedge fund portfolio tracking series, where we are currently in the midst of examining their Q1 2009 holdings. Additionally, we also presented the March commentary from Byron Wien of Pequot. However, it doesn't look like we'll be covering Pequot this time around.

Unfortunately for the investing world, Samberg has now decided to hang it up and retire. We ponder though, whether Samberg would have the desire to start new and afresh after dissolving the fund that was causing him headaches. But, after the overhang of ongoing investigations and distractions, it appears that Samberg has had enough and is ready to relax. Pequot still has $1 billion tied up within their Special Opportunities fund and their Matawin fund, which will continue to exist with their current managers.

Pequot is yet another fund on a growing list of prominent names that have been forced to close their doors. We previously covered Jeffrey Gendell's Tontine Associates blowup. Gendell had been a highly regarded and respected investor, but the crisis of 2008 became too much for 2 of his funds as illiquid positions and mounting losses overcame him. His firm still remains alive for the time being, managing the remainder of their funds.

Further back in time, we also noted that Dwight Anderson's Ospraie hedge fund blew up. Anderson is well known for his time both at Tiger Management and Tudor Investment Corp. But, just recently, we learned that Anderson will be back with 2 new Ospraie funds, which prompted us to wonder when investors will ever learn.

Overall, 2008 was definitely a bleak year in hedge fund land. A few other notable closures we've covered on the blog include Satellite Asset Management and Okumus Capital. (See the list of other 2008 closures here).

The prime distinction here between Pequot and the others is that Ospraie and Tontine closed due to large losses, while Samberg felt that Pequot would never be able to overcome their now tarnished image. In the end, such an image became equatable to large losses, as his fund has suffered the same fate as countless other funds. The hedge fund graveyard continues to expand.

This only goes to show that 2008/09 and beyond will be humbling for many fund managers out there. Many previously prominent names have been brought to their knees. After all, they're untouchable... until they're not.

Here's Samberg's letter to investors:
(RSS & Email readers will need to come to the blog to view the slidedeck)


Consumer Psychology In Recessions

Have to give a big hat tip to Value Plays for posting this up a while ago. Harvard Business School has a video out regarding consumer psychology during recessions. Watch the video below (RSS & Email readers will need to come to the blog to view it).



In the video, they discuss how both marketing and consumer behavior can be impacted by recessions and they bring up interesting points. In the past, we've highlighted that consumer spending during recessions is not quite what you'd think it would be.

Head over to Todd's site to check out his example of how Walmart has used the economic situation to refine their message while Target has suffered. Hedge fund manager Bill Ackman of course has confronted Target (read: gone activist), as he pushes for major changes in the company.


Wednesday, May 27, 2009

John Griffin's Blue Ridge Capital Likes Microsoft (MSFT): 13F Filing Q1 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up, we have John Griffin's Blue Ridge Capital. Now, Griffin is similar to Andreas Halvorsen of Viking Global and Stephen Mandel at Lone Pine Capital in that they are all 'Tiger Cubs' (pupils of Julian Robertson during their time at Tiger Management). Griffin though, is more well known because he was Julian Robertson's right hand man. So, needless to say, he knows his stuff.

Blue Ridge seeks absolute returns by investing in companies who dominate their industries and shorting the companies who have fundamental problems. Do note that the 13F filing only requires funds to disclose long positions (unless they are short via puts, we can see those). In the past, we have, however, gotten one sneak peek at what Blue Ridge has been shorting. Both Griffin at Blue Ridge and Lee Ainslie over at Maverick Capital like to effectively hedge with a solid balance of both long and short positions (like a true hedge fund... not like some of the crazy funds these days that aren't truly hedged).

Recently, we featured a multi-post series of readings recommended by Blue Ridge Capital. Their reading list is expansive and comprehensive, as it is broken down into four categories. We covered their lists of:

- Behavioral Finance recommendations
- Analytical recommendations
- Economics recommendations
- Historical/Biographical recommendations

We highly suggest checking out their suggestions as these lists are a great resource from a prominent and successful hedge fund.

John Griffin ahas numerous holdings in common with his mentor and ex-Tiger Management founder Julian Robertson. (Robertson has owned MA, V, AAPL, and MSFT as well). Griffin attended the University of Virginia for undergrad and received his MBA from Stanford. For more on Griffin you can check out our post of Tiger Cub biographies.

The following were Blue Ridge's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Range Resources (RRC)
Vale (RIO)
S&P500 Index ETF (SPY) Calls
Vornado Realty Trust (VNO)
Petrohawk (HK)
NovaGold Resources (NG)
Apple (AAPL)
RenaissanceRe (RNR)
Harley Davidson (HOG)
Whole Foods Market (WFMI)
Axis Capital (AXS)


Some Increased Positions (A few positions they already owned but added shares to)
General Growth Properties (GGP - now GGWPQ): Increased by 310%
Visa (V): Increased by 227%
Monsanto (MON): Increased by 194%
Google (GOOG): Increased by 191%
Target (TGT): Increased by 178%
Thermo Fisher Scientific (TMO): Increased by 160%
Microsoft (MSFT): Increased by 88%
Dell (DELL): Increased by 78%
Crown Castle (CCI): Increased by 77%
Exterran Holdings (EXH): Increased by 76%
Blackrock (BLK): Increased by 67%
Mastercard (MA): Increased by 34%
Millipore (MIL): Increased by 23%
National Oilwell Varco (NOV): Increased by 9%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Agnico Eagle Mines (AEM): Reduced by 53%
Netflix (NFLX): Reduced by 47%
Yamana Gold (AUY): Reduced by 38%
Berkshire Hathaway (BRK-A): Reduced by 36%
Goldcorp (GG): Reduced by 29%
Newmont Mining (NEM): Reduced by 28%
Petroleo Brasileiro (PBR): Reduced by 26%
Broadridge Financial (BR): Reduced by 23%


Removed Positions (Positions they sold out of completely)
American Express (AXP)
XTO Energy (XTO)
SPDR Gold Trust (GLD)
Gold Miners ETF (GDX)
Grupo Televisa (TV)
Genentech (DNA)
KBR (KBR)
Valero (VLO)
Marathon Oil (MRO)
Aeroportuario del Pacifico (PAC)
iShares Mexico ETF (EWW)
Compton Petroleum (CMZ)
EOG Resources (EOG)


Top 15 Holdings (by % of portfolio)

  1. Microsoft (MSFT): 8.68% of portfolio
  2. Mastercard (MA): 6% of portfolio
  3. S&P500 Index etf (SPY) Calls: 5.82% of portfolio
  4. National Oilwell Varco (NOV): 4.94% of portfolio
  5. Amazon (AMZN): 4.9% of portfolio
  6. Millipore (MIL): 4.88% of portfolio
  7. Monsanto (MON): 4.5% of portfolio
  8. Visa (V): 4.45% of portfolio
  9. Vale (RIO): 3.8% of portfolio
  10. Amgen (AMGN): 3.45% of portfolio
  11. Thermo Fisher Scientific (TMO): 3.3% of portfolio
  12. Apple (AAPL): 2.76% of portfolio
  13. Covanta (CVA): 2.59% of portfolio
  14. Target (TGT): 2.5% of portfolio
  15. Berkshire Hathaway (BRK-A): 2.47% of portfolio

There are a few major themes running through Blue Ridge's portfolio. Firstly, you'll notice the large presence of technology. John Griffin substantially boosted his holdings in Microsoft and Google, and started a new stake in Apple again (having owned the name in the past). Microsoft is by far his favorite play though, as it sits as their top holding. Also, while they are not technically technology plays, Mastercard and Visa's payment processing technology obviously has caught Griffin's eye as he now holds them as his 2nd and 8th largest holdings, respectively. These two names are featured quite prominently in numerous hedge fund portfolios, including many other Tiger Cub managers.

Secondly, we also noticed that Griffin was selling gold miner shares and sold completely out of his gold (GLD). This is interesting to note given the fact that we have seen numerous other hedge fund managers load up on gold and gold miners over the past 2 quarters. (Most notably David Einhorn, Eric Mindich, and Stephen Mandel, among others). As they say, 'there is always the other side of the trade'. And, it appears as if Blue Ridge was merely hiding out in gold until the storm passed, a tactic also used by Dan Loeb's Third Point LLC.

We also continue to notice the presence of Covanta (CVA), Monsanto (MON), and Millipore (MIL) in Blue Ridge's portfolio. These positions have been some of their core holdings for numerous quarters and it's safe to say they are longer term plays. They just boosted their stake in Monsanto this time around as well. Blue Ridge filed a 13G on Millipore (MIL) back in October of 2008 and continued to add to the position this quarter. However, they did get substantially reduce one of their other previously core positions. Last time around, Berkshire Hathaway was Blue Ridge's 3rd largest holding. In the first quarter of 2009 though, BRK-A is barely in their top-15.

Lastly, we saw one more thing that intrigued us. While they are not a huge chunk of their portfolio, Blue Ridge did indeed pick up some commercial real estate plays in Vornado (VNO) and General Growth (GGWPQ). Their VNO position is by far the larger of the two. Readers will be familiar with General Growth because another hedge fund titan, Bill Ackman, has a large position in GGP (new symbol: GGWPQ). So, they must see some value in these names.

Assets from the collective holdings reported to the SEC via 13F filing were $4.3 billion this quarter compared to $3.3 billion last quarter. So, overall, they were putting a lot more capital to work on the long side this time around. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, John Paulson's hedge fund Paulson & Co, Stephen Mandel's Lone Pine Capital, and Eric Mindich's Eton Park Capital.


Fibonacci Retracements: Technical Analysis Educational Video

Some readers have been asking for some more technical analysis tips and tools so we wanted to post up another useful video for you all. MarketClub has a great Fibonacci video for those of you wanting to refine or add to your technical analysis arsenal.

This educational video details Fibonacci retracements as it pertains to charts. This is yet another great tool in the world of technical analysis that many are unfamiliar with. The video is a great primer as to what it is and how to use it, so check it out. Also, don't forget we've outlined a Technical Analysis recommended reading list before too, which is a great resource.


Seth Klarman Interview: Endowment Management Seminar With TIFF

Here is an interview Seth Klarman (of Baupost Group) did with TIFF for their Endowment Management Seminar. This transcript provides even more words of wisdom from Klarman after we covered some of his latest movements. Additionally, be on the lookout next week when we cover him in our first quarter 2009 portfolio tracking series.

Here is the interview (RSS & Email readers will have to come to the blog to view it):


Seth Klarman Interview -


Tuesday, May 26, 2009

Eric Mindich's Eton Park Capital Buys More Gold: 13F Filing Q1 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up is Eric Mindich's Eton Park Capital, who was ranked 53rd in Alpha's 2008 hedge fund rankings. Mindich received an Economics degree from Harvard and then worked at Goldman Sachs' risk-arbitrage desk. After becoming the youngest partner in the history of Goldman Sachs at the age of 27, it was clear he had a bright future. In 2004, he started his hedge fund Eton Park Capital with a record $3 billion in assets and a $5 million minimum investment required of investors. Today, Mindich manages over $6 billion. Typically, Eton Park invests in long/short equity and convertible arbitrage strategies. Additionally, as much as 30% of the fund can be invested in private investments.

Their stellar performance and solid strategy are some of the main reasons we have included them in our Market Folly portfolio that we created with Alphaclone. Our custom portfolio takes the positions of Eton Park (and 2 other hedge funds) that are disclosed in the 13F filings. It then combines them into a unique hedge fund portfolio clone that is yielding 17% annualized returns since mid-2002. As you can see, the numbers speak for themselves. And, a large part of that solid performance can be attributed to Eton Park's stockpicking.

Lastly, we had also previously noted that Mindich was starting to see opportunity in the markets in an excerpt from an investor letter. The following were their long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Google (GOOG) Calls
Allergan (AGN) Calls
Energy ETF (XLE)
EMC (EMC)
Wyeth (WYE)
Homebuilders ETF (XHB) Calls
Financials ETF (XLF) Calls
Amdocs (DOX)
Suncor (SU)
Caterpillar (CAT) Calls
Harmony Gold Mining (HMY)
Schering Plough (SGP)
Grupo Televisa (TV)
Neustar (NSR)
America Movil (AMX) Puts
Scripps Networks (SNI)
Petroleo Brasileiro (PBR) Puts
Alcoa (AA) Calls
Brazil ETF (EWZ) Puts
Viacom (VIA-B) Calls
Emerging Markets ETF (EEM) Puts
SPDR Gold Trust (GLD) Puts


Some Increased Positions (A few positions they already owned but added shares to)
Potash (POT) Puts: Increased by 1384%
SPDR Gold Trust (GLD) Calls: Increased by 266%
Comcast (CMCSK): Increased by 252%
Silver ETF (SLV): Increased by 129%
Potash (POT) Calls: Increased by 100%
Vimpelcom (VIP): Increased by 58.8%
Mobile Telesystems (MBT): Increased by 36%
SPDR Gold Trust (GLD): Increased by 31%
Ebay (EBAY): Increased by 27%
Goodyear Tire (GT): Increased by 21%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Beckman Coulter (BEC): Reduced by 34.3%
Qualcomm (QCOM): Reduced by 29.8%
Lorillard (LO): Reduced by 28%
Wells Fargo (WFC) Puts: Reduced by 27.5%
Gold Fields (GFI): Reduced by 18.9%
Comcast (CMCSA): Reduced by 16.6%
Walter Energy (WLT): Reduced by 11%
Hansen Natural (HANS): Reduced by 10%


Removed Positions (Positions they sold out of completely)
Citigroup (C)
Emerging Markets ETF (EEM) Calls
Akamai (AKAM)
Constellation Energy (CEG)
Qualcomm (QCOM) Calls
Covidien (COV)
Foundation Coal (FCL)
AK Steel (AKS)
Lorillard (LO) Calls
News Corp (NWS-A) Calls
Newmont Mining (NEM)
NRG Energy (NRG)



Top 15 Holdings (by % of portfolio)

  1. SPDR Gold Trust (GLD) Calls: 15.9% of portfolio
  2. SPDR Gold Trust (GLD) Puts: 7.2% of portfolio
  3. Potash (POT) Puts: 6.48% of portfolio
  4. Brazil ETF (EWZ) Puts: 6.05% of portfolio
  5. SPDR Gold Trust (GLD): 5.3% of portfolio
  6. Emerging Markets ETF (EEM) Puts: 4.97% of portfolio
  7. Hansen Natural (HANS): 3.69% of portfolio
  8. Verisign (VRSN): 3.63% of portfolio
  9. Viacom (VIA-B) Calls: 2.81% of portfolio
  10. Potash (POT) Calls: 2.59% of portfolio
  11. Hospira (HSP): 2.35% of portfolio
  12. Goodyear Tire (GT): 2.3% of portfolio
  13. Qualcomm (QCOM): 2.2% of portfolio
  14. Viacom (VIA-B): 2% of portfolio
  15. Petroleo Brasileiro (PBR) Puts: 1.95% of portfolio

Mindich continued to beef up his gold position by way of GLD and GLD calls. He increased his GLD calls position by 266% and his GLD common position by 31%. However, at the same time, he also added a new stake in GLD puts to offset things a little bit. He now holds 2 calls for every 1 put on the etf. You'll remember that last quarter he started a gold position in a large way. And, he obviously still likes that play going forwards, even though he has hedged it somewhat. Just last week we noted that Stephen Mandel's Lone Pine Capital also liked gold. David Einhorn of Greenlight Capital also favors the metal and we'll be updating his portfolio soon too. Since so many prominent managers have been piling into gold, we've thought it would be prudent to include a video that looks at the current technical analysis of gold.

In addition to his clear fondness for gold, Mindich also was loading up on Puts across various emerging markets names as he thinks they may be overextended near-term. He boosted put positions in the emerging markets exchange traded fund EEM, as well as in the Brazilian exchange traded fund EWZ, and in Petroleo Brasileiro (PBR). Although not specifically emerging market related, Mindich also brought on a large Put position in Potash (POT). We found this interesting as such an agricultural nutrient can tied to emerging markets growth. As these countries grow economically and in population, they obviously require more agriculture and food. There could be a connection here with his thinking, but that's pure speculation on our part.

In terms of sales, Mindich sold out of his large Wells Fargo (WFC) Put position, as that was his 2nd largest holding in his previous 13F filing. He also got rid of his 8th largest holding last time around, Citigroup (C). So, he seems to have strayed away from the financials for now, at least from what is disclosed in the 13F filing (they're not required to disclose their short positions).

Lastly, we also wanted to point out that Eton Park continues to hold their decent sized positions in Hansen Natural (HANS) and Verisign (VRSN). Those positions remain largely unchanged for the most part and are Eton Park's 7th and 8th largest holdings. Assets from the collective positions reported to the SEC via 13F filing were $6.2 billion this quarter compared to $3.39 billion last quarter. So, Eton Park has definitely put some more capital to work over the course of the first quarter of 2009. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, Paulson & Co (John Paulson), and Stephen Mandel's Lone Pine Capital.


Technical Analysis: S&P500 (SPX), REIT (IYR), & Copper Charts

We wanted to take our periodic look at some broad market charts real quick to see how the market is trending in the near-term. We use technical analysis as just one of the many tools in our investment toolbox as it helps tell us the "how" and the "when" behind entering and exiting stocks, while the fundamentals tell us the "why." (If you want to learn more about technical analysis, we'd advocate checking out the resource we've compiled of recommended technical analysis reading).

As such, we're going to take a quick peek at charts of the S&P500 (SPX), Copper ($COPPER), and some REITs (IYR). We have selected these three charts because the S&P is representative of the entire market, copper is often seen as a leading economic indicator, and REITs have caused quite a stir lately with their robust rally despite weak fundamentals.


Copper

Firstly, we'll start with Copper. Kevin has interestingly pointed out that Copper has been forming a symmetrical triangle pattern. As you can see with the red trending lines, a break of the trend in either direction can trigger a large move. Since the bulk of the recent action in Copper has been upwards, we'd expect this trend to continue. However, you still have to monitor things carefully as it could very well break to the downside.

(click to enlarge)


As we mentioned earlier, we monitor Copper since it is often looked at as a leading economic indicator. If things are being built globally, they more often than not require copper. As such, it has become a 'tell' if the economy is recovering or not. As you can see above, the metal has been trending upwards for the entirety of 2009 pretty much, which could be a favorable sign. The ultimate test is now a breakout above the recent resistance.


REITs (IYR)

REITs are a touchy subject because there is so much research out there illustrating what a deathpit they will be in the years to come. Yet, they have rallied right in the face of those claims due to equity offerings and dilution out the wazzoo forcing massive short covering. The crux of the REIT matter is that many of these companies have massive debt loads and maturities coming due in the next few years. Couple that with the fact that overall, they are seeing declining FFO (funds from operations, a popular metric in REIT land), and increasing vacancies in their properties. If their cashflow is slowing and they have a lot of debt coming due, how will they survive? As of now, their plan seems to be to dilute shareholders with equity offerings to shore up their balance for the near-term, with no real long-term solution as of yet. So, with that in mind, let's take a look at the chart. We'll be using IYR as our proxy since it is the overall index.

(click to enlarge)


As you can see, REITs have been ripping higher over the past few months. We've outlined the uptrend with the light green lines. Each time the rally sells off, it finds support and continues higher. However, as we've illustrated with the bold red line at around $36, IYR definitely has some overhead resistance. Not only did IYR fail at that level the last time around, it also is an area of resistance from back in late 2008. Lastly, you've also got the 200 day moving average (downtrending thin red line) acting as resistance at around $37.50 as well. Overall, REITs have rallied hard but will have to rally even harder to breakout of this tough range. The lower bold green line illustrates the support IYR has around $22.50. So, it has essentially traded in a range of $22 to $36 over the past 6 months. Look to buy at the bottom and take some profits at the top. If it breaks out above all the resistance we just mentioned, then look out as this thing could really rocket higher.

Take note though, that we aren't really counting on this happenning. After all, the 200 day moving average is in an extreme downtrend, and rightly so. IYR overall is downtrending over longer time frames and the recent rallies have merely brought it back to its trendline resistance where it has typically sold off. So, we would wager that shorting IYR around $36 would be a prudent bet, allowing yourself the flexibility to then get long if the name breaks out above all the resistance. The trading range has definitely outlined a line in the sand for you to play with.


S&P 500 (SPX)

The market is struggling to break through its 200 day moving average, which is coincidentally the same level as the high for the year, made earlier this year in January. As we've twittered before, this area makes logical sense for some selling to take place. (By the way, make sure you're following us on twitter for market updates that we don't post on the blog). We've seen a massive rally and profit taking is not only healthy, but long overdue. This area also is a logical place as a starting point for the next big move, in either direction. If the market continues to fail at resistance, it could setup a big move to the downside. However, if it blasts through yet another area of resistance, it would mean we're going even higher. Point being, this could be a pretty important level.

(click to enlarge)


As such, it's time to practice the art of flexibility. But, that's nothing new, as we've been preaching that for a while now. In this whacky market, you've got to be flexible and nimble. Use the technicals to help guide you as to where the market will be going in the near-term. While the fundamentals are obviously still dreary, you have to respect the market action or you'll get your face ripped off. Case in point: the market rallying 16% over the past 3 months despite no real signal that we've solved our problems. And, as illustrated in the chart we posted last week, the market has had some wild swings over the past 2 years.

Irrationality is often the name of the game in the markets and you have to abide by her rules. After all, the market can remain irrational longer than you can stay solvent. That saying has stood the test of time for a reason.

So, it's certainly time to wait and see what the market brings us. No matter what direction she heads, we've got a solid gameplan now due to a quick check on the technicals. We also recently posted up some technical analysis on Gold if you're interested as well, as it looks like the metal could be building some support currently. And, last but not least, don't forget to check out our recommended reading list: Technical Analysis edition if you're looking to hone your chart reading skills.


Hedge Fund Legend Michael Steinhardt Says Treasuries Are Foolish

The legendary hedge fund manager Michael Steinhardt has recently voiced his distaste for Treasuries over the long-term. In a recent Bloomberg television interview, he said, "To be a long-term investor in Treasuries at this point I think is foolish. The rates are low, and the danger is high." If you're unfamiliar with Steinhardt, he ran one of the first truly successful hedge funds, garnering a 20% return each year for almost thirty years. His Steinhardt Management Co, which he opened in 1967, earned 24% a year for multiple decades. He truly is a successful hedge fund manager with a proven long-term track record.

And, with that in mind, it's interesting to see that Steinhardt has joined numerous other well-tenured investors in his dislike of treasuries. He thinks that government bonds are not safe investments and shares Jim Rogers viewpoints on this subject. Rogers, of course, has a solid background as well, having run the successful Quantum fund with ex-partner George Soros. So, we now see that both Steinhardt and Rogers see Treasuries as poor investments for the future, as we noted in our Jim Rogers portfolio update. In the past, we here at Market Folly have even gone as far to lay out the rationale behind shorting treasuries. (That play has picked up steam as of late and we still need to do a follow-up post on that subject).

Steinhardt goes on to say that he thinks the current market rally will not last and that we are not out of the woods yet. He says, "The economy is still a scary place. My net feeling is that this rally doesn't have all that much more to go and the dangers out there remain consequential." Clearly he sees this as a bear market rally and thinks we have large fundamental problems still unsolved.

Nowadays, Steinhardt is the chairman of WisdomTree Investments, a firm that creates exchange traded funds (ETFs). Steinhardt also has an autobiography out entitled No Bull. It is a fascinating read detailing the life of one of the first true hedge fund managers out there, as his firm survived the collapse of the 1960's. This book also recently appeared on hedge fund Blue Ridge Capital's suggested reading list, in their biographical/historical category. We'll continue to track Steinhardt's words of wisdom whenever he makes a sporadic appearance.


Friday, May 22, 2009

The Ivy Portfolio: How to Invest Like the Top Endowments By Mebane Faber (Book Review)


We recently read through Mebane Faber and Eric Richardson's new book The Ivy Portfolio and thought it would be prudent to start off a book review series here at Market Folly. And, what better book to kick things off with than one that details how to invest like the top endowments and institutions.

Many readers may already be familiar with Mebane, as he is the co-founder of Alphaclone, the hedge fund portfolio replication tool we've covered extensively on the blog before. Additionally, Mebane is the portfolio manager for Cambria Investment Management, author of the well known World Beta blog, and has appeared in numerous financial publications. Now, to the review!

Simply put, The Ivy Portfolio details how you as an investor can replicate the returns of some of the top endowments in the country. And, you can even do so with as few as five exchange traded funds (ETFs). The book divulges the simple principles and techniques necessary to replicate their success. In addition to this focus, Mebane and Eric also cover the worlds of alternative investments as an asset class and active management, each in their own section. In terms of hedge funds and private equity as asset classes, they highlight that there is no perfect substitute for investors that cannot access the real thing. (We strongly concur and have previously written about how various exchange traded & mutual funds out there trying to replicate hedge funds leave much to be desired). The last section of the book covers active management and the use of a timing model with the 10-month moving average to avoid bear markets. As you can see, the book offers multiple flavors to sample.

We're no stranger to tracking institutional holdings, so we'd be lying to you if we said we didn't go straight to sections that deal with hedge funds. And, we found compelling content explained in a concise manner. The book includes a section entitled Following the Smart Money, where Mebane and Eric discuss how to use 13F filings to track some of the smartest hedge funds in the game (which Market Folly readers should be very familiar with). They proposition that, "If someone told you that you could have your portfolio managed by Warren Buffett, you would be interested, right?" And, almost everyone out there would say yes.

Following the smart money for free is easy, so why not do it? The Ivy Portfolio walks you through what a 13F filing is, the benefits of using them, and how to track hedge funds through the SEC. And, the book also focuses on three case studies, examining Warren Buffett, David Einhorn (Greenlight Capital), and John Griffin (Blue Ridge Capital). Readers of the blog will of course be familiar with all three of those names. The book walks you through how to do what we here at Market Folly do each day: track the 'smart money.' As mentioned earlier, Mebane has also taken it one step further by replicating their portfolios and gains with the Alphaclone web-based software.

We found The Ivy Portfolio to be succinct, educational, and a great read for those who love investing. The book has sections geared towards numerous types of investors, so everyone is bound to find something they like. Investors using asset allocation will love the endowment section, those curious about alternatives will enjoy the private equity and hedge fund section, and active investors will love the timing model. The main thing to take away here is that regardless of your background or investment methodology, you will learn something. This book teaches you to be a better investor by helping you learn from some of the best out there with proven performance. What's not to love about that?

There's really only one thing we can say: If you enjoy reading the content on Market Folly, then you will thoroughly enjoy reading The Ivy Portfolio. That's all there is to it.


Gold Technical Analysis Video

In light of the fact that hedge fund manager John Paulson recently bought tons of gold and gold miners, we thought it would yet again be prudent to examine what the technicals are saying about the metal this time around. Is it time to pick some up? Check out the video here.

Although Paulson & Co have said they bought the gold as a hedge, we've noticed a confluence of smart minds flocking to large gold positions over the past few quarters. At one point or another, David Einhorn of Greenlight Capital, Eric Mindich of Eton Park Capital, and Dan Loeb of Third Point have all been in gold (among many other funds we're sure). On one hand, Loeb was using it as a 'hideout' and safety net from market irrationality and volatility, and has since sold out, as noted in his investor letter. Einhorn, on the other hand, holds gold due to future inflationary fears.

The guys over at MarketClub have pulled up the charts in their latest free video and are seeing some possible consolidation signs in the metal. Check out some technical analysis on Gold here.


What We're Reading 5/22/09

In an effort to try and provide viewpoints contrary to our own, we want to highlight this particular article. We have been bearish on the REIT sector from a macro perspective as leverage takes it's toll and massive debt maturities come due. Not to mention, we keep seeing and hearing about 'for lease' signs literally all over the place. This article takes a different view and says now is the time to Buy REITs [DailyWealth]

Baltic Dry Index not a good leading indicator [Research Reloaded]

The Master of Money (Warren Buffett) [by Michael Lewis, on The New Republic]

And also, congrats to the StockTwits guys on their series of funding [AllThingsD]


Thursday, May 21, 2009

Blue Ridge Capital's Behavioral Finance Recommended Reading List

This is the fourth and final installment of hedge fund Blue Ridge Capital's recommended reading list. Previously, we've revealed Blue Ridge's recommended Analytical Reading List, their Historical/Biographical List, and their Economics List. This week, we'll turn to their recommended Behavioral Finance reads.

Long-time blog readers will know that we track Blue Ridge because they are the pure definition of a 'Tiger Cub'.   John Griffin was Julian Robertson's right-hand man while at Tiger Management before founding Blue Ridge.


Behavioral Finance

Investment Psychology Explained: Classic Strategies to Beat the Market by Martin Pring: A 'back to basics' book on how to beat the market.

Beyond Greed and Fear by Hersh Shefrin: A look at how bias, perception, and psychology run the stock market. 

The Money Game by Adam Smith: Book hypothesizing that the stock market is just a game; explains technical analysis, fundamental analysis, psychology, and more. 

Influence: The Psychology of Persuasion by Robert Cialdini: Understanding the foundation of persuasion and marketing.

The Inefficient Stock Market by Robert Haugen: 'What works and why.' This book looks at how the market is inefficient and argues that financial models based on economic behavior cannot explain certain aspects of (often irrational) market behavior.

Why Smart People Make Big Money Mistakes by Gilovich & Belsky: Close examination of the psychological reasons behind how and why people invest, spend, and save.

The Psychology and Judgment of Decision Making by Scott Plous: Examination of your own psychology of decision making.

How We Know What Isn't So by Thomas Gilovich: Focuses on errors humans make when forming opinions and trying to comprehend things.

Decision Traps: 10 Barriers to Brilliant Decision Making by J. Russo: Training to become a good decision-maker (one of the most important business skills out there). 

Extraordinary Popular Delusions and the Madness of Crowds by Tobias & McKay: A book discussing "the herd mentality" at its finest, where the masses collectively assemble and follow each other like lemmings.

Hare Brain, Tortoise Mind by Guy Claxton: How to handle complex situations by way of perception, problem solving, and creativity. 

The Moral Animal: Why We Are the Way We Are by Robert Wright: Evolutionary psychology and human nature.


That finishes up the Behavioral Finance category and also concludes Blue Ridge's recommendations. If you've missed some of our past lists, here is our archived compendium.


Recommended Reading Lists

- Blue Ridge Capital's Recommended Analytical Reading

- Blue Ridge's Recommended Historical/Biographical Reading

- Blue Ridge Capital's Recommended Economics Reading

- Fundamentals

- Technical analysis

- Good Market Reads

- Gurus

- John Burbank's hedge fund Passport Capital: Suggested Reading List



Background on Blue Ridge:

Griffin is a Tiger Cub, and as mentioned above, he was Julian Robertson's right hand man. So, needless to say, he knows his stuff. Blue Ridge seeks absolute returns by investing in companies who dominate their industries and shorting the companies who have fundamental problems. While hedge funds typically closely guard their short positions, we've gotten a sneak peek in the past at what Blue Ridge had been shorting. Both Griffin at Blue Ridge and Lee Ainslie over at Maverick Capital like to effectively hedge with a solid balance of both long and short positions (like a true hedge fund... not like some of the crazy funds these days that aren't truly hedged). Griffin attended the University of Virginia for undergrad and received his MBA from Stanford.


S&P500 Chart: Wild Market Swings 2007-2009

Great chart from The Chart Store that illustrates just how volatile and seesaw-ish this market has been over the past 2 years. There have been rapid, massive declines and equally massive rallies. The current rally from the lows in March 2009 extends over 39%. Maybe we should highlight contrarian signals more often, as we did back in early March. Those signals we highlighted turned out to be a great barometer for a short-term turn in the markets.

Buy when there is blood in the streets and pessimism abounds. Sell/short when everyone is plunking money down in the market thinking they're invincible.

The ultimate question now is, what's up with the current action? Typical bear market rally? Foundation for something constructive? Time will tell.

(click to enlarge)



Wednesday, May 20, 2009

Stephen Mandel's Lone Pine Capital Still Likes Qualcomm, Visa: 13F Filing Q1 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

The third fund we're covering is Lone Pine Capital, managed by Stephen Mandel Jr. His $7 Billion fund has returned over 25% annually since its inception in 1997. The term 'lone pine' comes from Mandel's days at Dartmouth College, where the school has a historical lone pine tree. Although Mandel has a solid track record, last year was rough on them (and many others), as noted in our list of 2008 year end hedge fund performance numbers. Why is Mandel worth following you might ask? Well, he served as a consumer/retail analyst for Tiger Management back in the day for legendary investor Julian Robertson. (Robertson's proteges/right-hand men have been nicknamed the "Tiger Cubs" and many have started their own funds).

So, not only has Mandel learned from one of the best, but he has put up some very solid returns himself. Mandel is well versed in the ways of finding undervalued companies and his funds typically like to sniff out solid companies with good management that are trading below their intrinsic value. We've already covered another one of the Tiger Cubs for Q1 2009 in Andreas Halvorsen's Viking Global. And, below, you'll definitely see some similarities between their two portfolios.

Recently, Lone Pine was named to Alpha's 2009 hedge fund rankings list, where they were ranked 21st for 2009, slipping from being 18th the year prior. Lone pine was pretty busy filing 13G's back in March of this year, where they disclosed positions in Strayer, Deckers, and Ctrip. All three of these positions are also now reflected in their filing below.

The following were their long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Apollo Group (APOL)
Coca Cola (KO)
CTRIP (CTRP)
Deckers (DECK)
Mead Johnson Nutrision (MJN)
Medco Health (MHS)
Philip Morris International (PM)
PepsiCo (PEP)
SLM (SLM)
Strayer (STRA)
VistaPrint (VPRT)


Some Increased Positions (A few positions they already owned but added shares to)
Fomento Economico (FMX): Increased by 380%
Las Vegas Sands (LVS): Increased by 67.8%
SPDR Gold Trust (GLD): Increased by 50%
Coach (COH): Increased by 42%
JPMorgan Chase (JPM): Increased by 26%
Carnival Paired CTF (CVC1): Increased by 7%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Sears (SHLD) Puts: Reduced by 84%
Activision Blizzard (ATVI): Reduced by 67.8%
Dolby Labs (DLB): Reduced by 56.7%
MSC (MSM): Reduced by 38.9%
XTO Energy (XTO): Reduced by 32.2%
Google (GOOG): Reduced by 29.9%
Precision Cast Parts (PCP): Reduced by 27.9%
Mastercard (MA): Reduced by 28%
Priceline (PCLN): Reduced by 27.8%
America Movil (AMX): Reduced by 22%


Removed Positions (Positions they sold out of completely)
Abercrombie & Fitch (ANF)
Bunge (BG) Puts
Lorillard (LO)
Teradata (TDC)


Top 15 Holdings (by % of portfolio)

  1. Qualcomm (QCOM): 11.07% of portfolio
  2. Visa (V): 7.7% of portfolio
  3. America Movil (AMX): 7.68% of portfolio
  4. JPMorgan Chase (JPM): 6.3% of portfolio
  5. Monsanto (MON): 5.5% of portfolio
  6. Philip Morris International (PM): 5.45% of portfolio
  7. Mastercard (MA): 5.35
  8. Union Pacific (UNP): 4.5% of portfolio
  9. Medco Health (MHS): 3.74% of portfolio
  10. SPDR Gold Trust (GLD) Calls: 3.64% of portfolio
  11. Google (GOOG): 3.13% of portfolio
  12. Priceline (PCLN): 3.11% of portfolio
  13. Fomento Economico (FMX): 3% of portfolio
  14. PepsiCo (PEP): 2.8% of portfolio
  15. Carnival (CVC1) Paired CTF: 2.79% of portfolio

Mandel and Lone Pine definitely show their Tiger Cub background with many of these holdings. They share numerous holdings with other Tiger Cubs, including Andreas Halvorsen's Viking Global. Viking likes both MA and V, and so does Lone Pine. Lone Pine clearly favors V as they brought it up to be their 2nd largest position. Additionally, many of the Cubs hold paired CTF's in Carnival. What is unique about Lone Pine's portfolio compared to other Tiger Cubs is the fact that they still hold AMX. Many other funds used to have large stakes in the name, but they all sold out. Lone Pine, on the other hand, stands by the name and continues to be invested in a big way. So, while all the Tiger Cubs definitely have some similar positions, they each also bring their own unique style and research to their portfolios.

While it is only his 10th largest holding, it is also interesting to note that Mandel has a stake in gold through GLD (via calls). A plethora of prominent hedge fund managers now have positions in this name. Just yesterday, we detailed how John Paulson has built up a large gold position. Another interesting move was Mandel's addition to his LVS position. Even though it is only 1.43% of his portfolio, you have to consider he was looking at this prominent Vegas name as a great value play when it was under $2 a share in March. In terms of positions they dumped, they no longer own Lorillard or Teradata. This is intriguing simply because over the past few quarters, numerous value oriented hedge funds had been accumulating these names. Lone Pine apparently does not see value anymore and has sold completely out of both. It will be interesting to see what the other value players have done with their positions in these names.

Assets from the collective holdings reported to the SEC via 13F filing were $6.1 billion last quarter and were boosted up to $6.5 billion this quarter. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global and Paulson & Co (John Paulson).


John Paulson Starting Real Estate Recovery Fund

Fresh off of our unofficial 'John Paulson' day on the blog yesterday, we're back again to highlight that Paulson will be going forwards with his Real Estate Recovery fund that will be aimed on investing in distressed assets. Just yesterday we examined Paulson's equity holdings, and now it looks like he's getting ready to make a splash in other asset classes. The fund will manage a few hundred million in its initial capacity (though no cap has been set) and will be managed by Mike Barr. Mike was previously at Lehman Brothers where he has experience in real estate and private equity. Paulson's initial goal is to run the fund for 7 years, investing in both residential and commercial properties. This news comes fresh off the new mortgage-market proposal by Paulson's colleague and ex-portfolio manager, Paolo Pellegrini. The two of them undoubtedly have compelling ideas on how to solve the crisis.

This fund isn't really new news, as we had heard of his proposal a while ago. However, we're finally getting concrete details and the 'green light' that it is ready to go. With his front-row seat to the mortgage and housing crisis, Paulson's timing call might prove to be very prudent. He has played the market perfectly thus far and has already gotten constructive on the sector by buying up the types of assets he was previously shorting (mortgage backed securities). Now, however, he is taking his constructiveness to a new level: by buying outright real estate. Obviously, he has a longer-term time frame in mind and will take his time sorting and sifting through the right deals. But, the fact that he is getting constructive in this arena cannot be ignored.

At the same time, it is also interesting to note his large purchase of gold which we just detailed. The hedge fund firm has said it is merely a hedge for them, as they have a share class denominated in gold. However, his large stakes in both gold and numerous gold miners is intriguing. Paulson may be getting constructive in the real estate arena, but he must still be overall cautious on the economy, the US dollar, or something of the sort. After all, why buy so much gold and so many miners? Either way, it's always interesting to note his major moves and this new fund certainly is classified as such.

Paulson's hedge fund has generated massive returns over the past two years, as he bet against financials and all things subprime. One of his funds was even up 589%. Check out his recent portfolio movements.


Bloomberg Terminal: Command Shortcuts / Cheat Sheet

For those of you who have access to Bloomberg terminals or are trying to learn the ropes, we thought it would be good to post up this resource, courtesy of the Columbia Investment Management Association (CIMA) of the Columbia Business School.

They've gone through and put together a quick .pdf of some key shortcuts and keystrokes to use in a Bloomberg Terminal. This is definitely a great resource for people trying to learn the system or for people who get stuck and can't remember how to access something. Post this cheat sheet up right next to the terminal and you're good to go. (RSS & Email readers will need to come to the blog to view the .pdf).


Bloomberg Cheat Sheet -


Tuesday, May 19, 2009

Paulson & Co (John Paulson) Buys Tons of Gold: 13F Filing 1st Quarter 2009

(click to enlarge)

Since today is pretty much 'John Paulson day' here at Market Folly, we thought it was appropriate to begin with this interesting (yet already outdated) graphic of Paulson's overall winnings. Obviously, he's been quite successful. This post is a part of our 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

The second hedge fund in our series is Paulson & Co ran by John Paulson. His hedge fund has generated massive returns over the past two years, as he bet against financials and all things subprime. One of his funds was even up 589%. And, in the first part of 2009, he had also profited by shorting UK banks. Although Paulson is obviously one of the main brains behind the operation, there are also many talented individuals there. Unfortunately for Paulson, one of his co-portfolio managers has left to start his own fund, and we'll be keeping an eye on that. At the end of 2008, Paulson's Advantage Plus fund ended the year +37.58%, as detailed in our year end 2008 hedge fund performance post. For more information on how Paulson performed in 2008, be sure to check out their year end letter & report.

Paulson began shorting collateralized debt obligations and buying credit default swaps back in 2005 as he had conviction in his bet. His Credit Opportunities fund launched in 2006 with $150 million aimed to short subprime mortgage backed securities. This fund enjoyed immediate success, causing him to launch the Credit Opportunities II fund. At the end of 2007, the Opportunities fund was up 590% and his Opportunities II fund was up 353%. Such sterling performance led Paulson's hedge funds to be the #1 and #4 funds as ranked in Barron's hedge fund rankings (top 100). Paulson's funds earned this distinction due to their solid 3 year annualized performance metrics. Additionally, Paulson sits at #3 on Alpha's hedge fund rankings list for 2009, which is compiled based on assets under management (aum).

Obviously, such great performance has led to many other accolades for Paulson on a personal level. Recently, Paulson graced Forbes' billionaire list, but that one is almost a no-brainer. More notably, he was among the top 25 highest paid hedge fund managers of 2008. In terms of recent portfolio performance, Paulson's Advantage Plus Fund returned 4.8% through April as noted in our round up of hedge fund performance numbers.

The following were their long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
SPDR Gold Trust (GLD)
Gold Fields (GFI)
Gold Miners ETF (GDX)
Anglogold Ashanti (AU)
Capital One Financial (COF)
JPMorgan Chase (JPM)
Petro-Canada (PCZ)
Schering Plough (SGP)
Wyeth (WYE)


Some Increased Positions (A few positions they already owned but added shares to)
St Jude Medical (STJ): Increased by 134%
Peoples United Financial (PBCT): Increased by 12%
Kinross Gold (KGC): Increased by 8%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Rohm & Haas (ROH): Reduced by 11.5%


Removed Positions (Positions they sold out of completely)
BCE (BCE)
Genentech (DNA)
Istar Financial (SFI)
Merrill Lynch (MER)
NRG Energy (NRG)
National Citty (NCC - inactive, acquired by PNC)
Northern Trust (NTRS)
Teva Pharma (TEVA)
Time Warner Cable (TWX)
Tronox (TRXAQ)
UST (UST)
ProShares Ultrashort Financial (SKF)
Wachovia (WB)
Wells Fargo (WFC)


Top 15 Holdings (by % of portfolio)
  1. SPDR Gold Trust (GLD): 30.37% of portfolio
  2. Wyeth (WYE): 13.96% of portfolio
  3. Rohm & Haas (ROH): 13.44% of portfolio
  4. Boston Scientific (BSX): 8.4% of portfolio
  5. Gold Miners ETF (GDX): 6.81% of portfolio
  6. Kinross Gold (KGC): 5.87% of portfolio
  7. Philip Morris International (PM): 3.42% of portfolio
  8. Petro-Canada (PCZ): 2.96% of portfolio
  9. Schering Plough (SGP): 2.26% of portfolio
  10. Mirant (MIR): 2.22% of portfolio
  11. Gold Fields (GFI): 2.21% of portfolio
  12. JPMorgan Chase (JPM): 1.65% of portfolio
  13. Anglogold Ashanti (AU): 1.15% of portfolio
  14. St Jude Medical (STJ): 0.91% of portfolio
  15. Embarq (EQ): 0.81% of portfolio

The first major move that everyone will be talking about is Paulson's big entrance into gold. His position in the Gold Trust (GLD) is brand new and is brought up to a whopping 30% of his portfolio. Now, there are indeed a few caveats with this move: Paulson & Co have said themselves that they have done so as a hedge, as they now own well over 8% of this exchange traded fund (ETF). Their hedge funds have a share class that is denominated in gold (instead of in US dollars or Euros). Still though, that's quite a large hedge to have. Not to mention, Paulson also has a copious amount of gold miners now littered throughout his equity portfolio. Previously, we had posted up when he started his large stake in Anglogold Ashanti. Now though, he has boosted his stake in Kinross Gold (KGC) and he has also started new positions in Gold Fields (GFI) and the Gold Miner ETF (GDX). Gold is clearly the name of the game for Paulson at present. And, such a massive position in gold and gold miners has to be for more than merely a hedge.

One other thing to consider with Paulson's portfolio is that these holdings listed above are only his long equity holdings. The main reason why we bring this up is because the holdings above represent only a piece of his overall portfolio pie. Many of the positions above are merger arbitrage and event driven positions. While his gold stakes may be a large part of the assets disclosed in this filing, they are not quite as big when you compare them to his total assets under management. So, keep that in mind.

As many are already aware, Paulson bet against subprime and made a ton of money. As such, a lot of his holdings are in other markets. And, since the SEC only requires funds to disclose their equity, options, and note/bond positions, there is much of Paulson's portfolio left unseen. Besides any omitted positions in mortgage backed securities or other markets, we also do not get to see Paulson's shorts. The only short positions we can ever see in these filings (as per SEC regulations) are via positions in put options. And, Paulson does not have any such positions.

Another major move Paulson made last quarter was to buy a new stake in Wyeth (WYE). They brought their new WYE position all the way up to their #2 holding, which will turn a few heads. Aside from those major moves, Paulson also still retains the rest of his merger arbitrage style positions in Boston Scientific and Rohm & Haas, which we've covered previously. Additionally, Paulson still holds a position in Mirant (MIR), whom he filed a 13G on back in January.

We also noticed that Paulson essentially swapped out of Merrill Lynch, Northern Trust, Wells Fargo, and Wachovia in favor of Capital One and JP Morgan Chase. While this move is intriguing, it is fairly insignificant (at least at this time). All his financial positions are relatively tiny to his overall portfolio, with JPMorgan being the largest at only 1.65% of their portfolio, which is not saying much. We'll have to monitor this development going forward to see if Paulson is getting constructive here, or mainly using these as proxies for something else in the shorter-term.

Assets from the collective holdings reported to the SEC via 13F filing increased from $6 billion last quarter up to $9.36 billion this quarter. Overall, Paulson is a great fund to keep an eye on simply because they nailed the crisis and have a solid track record. However, much of his portfolio is not present in these 13F filings, so take everything with a grain of salt. If you want to keep an eye on someone else who had worked with Paulson in betting against subprime, then check out our recent piece on Kyle Bass of Hayman Capital, where we divulge his latest prediction.

This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios, as we've already covered Andreas Halvorsen's Viking Global.


Paolo Pellegrini Proposes Mortgage Solution

Over on Dealbook, there is a fascinating piece up by Paolo Pellegrini. "Who's that?" And, "why should I care?" you ask. Well, Pellegrini was previously a co-portfolio manager at John Paulson's hedge fund Paulson & Co. Pellegrini has since started his own fund, PSQR Management. Needless to say, he is very familiar with the housing and mortgage crisis, as he has been playing it from the investment side with precision. We thought that today would be the perfect day to post up Pellegrini's thoughts, as we've just covered Paulson & Co in our quarterly hedge fund portfolio tracking series.

Pelligrini proposes a market solution complete with bidding and aid from government financing, wherein homeowners and institutions alike can benefit. He writes,

"With more than a fifth of United States homes worth less than their mortgages, restructuring residential debt is the most important step to restore our country to prosperity and economic growth ... The government can assist struggling homeowners, remove bad loans from bank balance sheets and free up credit while utilizing a transparent, competitive process to minimize the taxpayer subside required."

His proposal is lucid and almost a no-brainer. However, such a simple system would ultimately require some complexities in its infancy. While the government searches for solutions, many close to the heart of the matter are voicing their opinion. Hopefully the government is listening. After all, if they should be listening to anyone regarding this matter, it's Pellegrini and Paulson. Those two have played the market pretty much perfectly thus far. And, suggesting an alternative mortgage solution in market form plays directly into their fortes.

Make sure you check out his entire proposal over at Dealbook.


Monday, May 18, 2009

Andreas Halvorsen's Viking Global 13F Filing: First Quarter 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

We'll start our Q1 '09 coverage with Viking Global. Andreas Halvorsen is one of the many 'Tiger Cub' fund managers we cover here on the blog. 'Tiger Cubs' are the progeny of legendary investor and hedge fund manager Julian Robertson of Tiger Management. Many of the critical members of Tiger started their own funds, and Halvorsen is no different. Halvorsen has taken what he learned/used at Tiger and added his own spice to the value oriented, yet growth at a reasonable price (G.A.R.P.) tolerable investment style. Viking employs a fundamental strategy, using a bottom-up process to pick stocks. In terms of recent performance, They were +0.99% for March, and +9.27% year to date as of that time. We covered Viking and other hedge funds in our March performance update.

Halvorsen attended Williams College and received his MBA from Stanford, while his work history includes stays at Morgan Stanley and Tiger. In Alpha's 2008 hedge fund rankings, Viking was ranked #70 in the world. You can view Viking's most 2008 year end investor letter if you want to look through the eyes of Halvorsen and company.

The following were their long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
ACE (ACE)
Alliance Data Systems (ADS)
Career Education (CECO)
Charles River Labs (CRL)
Cognizant (CTSH)
CVS Caremark (CVS)
Danaher (DHR)
Google (GOOG)
Lender Processing Services (LPS)
Oracle (ORCL)
Suntrust Banks (STI)
Teleflex (TFX)
Travelers Companies (UHS)
Thermo Fisher Scientific (TMO)
Thoratec (THOR)
Universal Health Services (UHS)
Visa (V)
Walmart (WMT)


Some Increased Positions (A few positions they already owned but added shares to)
Mastercard (MA): Increased by 176%
JPMorgan Chase: Increased by 72%
Invesco (IVZ): Increased by 23%
Qualcomm (QCOM): Increased by 12%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
DaVita (DVA): Reduced by 46%
First Horizon National (FHN): Reduced by 45%
Illumina (ILMN): Reduced by 37.5%
Aon (AOC): Reduced by 34%
Apollo Group (APOL): Reduced by 32%
McKesson (MCK): Reduced by 27%


Removed Positions (Positions they sold out of completely)
Alcon (ACL)
Bank of America (BAC)
Axis Capital (AXS)
BCE (BCE)
ITT Educational (ESI)
Kroger (KR)
ModusLink (MLNK)
Renaissance Holdings (RNR)
St Jude Medical (STJ)
Sherwin Williams (SHW)
Verisign (VRSN)
Vulcan Materials (VMC)


Top 15 Holdings (by % of portfolio)

  1. Apollo Group (APOL): 12.67% of portfolio
  2. Mastercard (MA): 12.51% of portfolio
  3. Invesco (IVZ): 8.88% of portfolio
  4. Qualcomm (QCOM): 7.11% of portfolio
  5. Google (GOOG): 5.83% of portfolio
  6. Visa (V): 5.8% of portfolio
  7. Priceline (PCLN): 5.33% of portfolio
  8. JPMorganChase (JPM): 4.12% of portfolio
  9. NRG Energy (NRG): 3.4% of portfolio
  10. Cognizant (CTSH): 3.24% of portfolio
  11. Career Education (CECO): 3.13% of portfolio
  12. MSCI (MXB): 3% of portfolio
  13. DaVita (DVA): 2.7% of portfolio
  14. Macrovision (MVSN): 1.96% of portfolio
  15. Charles River Labs (CRL): 1.87% of portfolio

From Q3 to Q4 of 2008, Viking had some substantial turnover in their portfolio. And, the most recent quarter is no different. In the first quarter of 2009, they sold completely out of 12 names and then started new positions in 18 other names. Last time around, we focused on Viking's decision to sell out of Visa and instead buy Mastercard. Well, this time around, they bought both. Viking re-bought their Visa position and brought it all the way up to their 6th largest holding. Additionally, they boosted their current Mastercard position by an additional 176%. They clearly have conviction in this payment-processing duopoly. (And, so do many other hedge funds for that matter).

Viking also started a new position in Google (GOOG) and brought it up to their fifth largest holding. That about covers all the major moves in the portfolio (besides the names they sold out of completely). Viking's top position remains Apollo Group (APOL). However, they did sell a substantial part of their position from quarter to quarter.

Assets from the collective holdings reported to the SEC via 13F filing were $3.5 billion last quarter and were $3.57 billion this quarter. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios, or get our updates for free via email or for free via RSS Reader.