Today we're starting a series of recommended reading from John Griffin's hedge fund Blue Ridge Capital. Griffin was Julian Robertson's right-hand man while at Tiger Management before founding Blue Ridge.
Their reading list is quite extensive and broken up into four different categories. As such, we're going to post each category separately with links to others found at the bottom. Without further ado:
Blue Ridge Capital's Analytical Recommended Reading
The Art of Short Selling by Kathryn Staley: Examples and instructions on how to find overpriced stocks and profit from their decline.
Financial Shenanigans: How to Detect Accounting Gimmicks by Howard Schilit: How to identify inflated profits, suspicious write-offs, and shifted expenses.
A Random Walk Down Wall Street by Burton Malkiel: A great investing guide covering all asset classes.
One Up On Wall Street by Peter Lynch: A classic with contributions from John Rothchild as well.
The Warren Buffett Way by Robert Hagstrom: Outline of Buffett's tenets for investing.
Security Analysis by Graham & Dodd): Hands down THE best book on fundamental analysis and value investing principles.
Common Stock and Uncommon Profits by Philip Fisher: Investment philosophies from a widely regarded investor.
Winning the Loser's Game: Timeless Strategies for Successful Investing by Charles Ellis: Growing with the markets, rather than fighting them: Topics ranging from compounding to fighting down-cycles.
Built to Last: Successful Habits of Visionary Companies by Collins & Porras: Evaluation of what makes companies "great" and how to spot those with solid products, a great brand, and a bright future.
Against the Gods by Peter Bernstein: Comprehensive guide to understanding risk and probability throughout history.
As you can see, quite a lengthy and comprehensive compilation... and that's only one of Blue Ridge's lists. Below are their recommendations in the following categories:
- Blue Ridge's recommended behavioral finance reading
- Blue Ridge's recommended Economics reading
- Blue Ridge's recommended historical/biographical reading
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. 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.
Friday, May 8, 2009
Today we're starting a series of recommended reading from John Griffin's hedge fund Blue Ridge Capital. Griffin was Julian Robertson's right-hand man while at Tiger Management before founding Blue Ridge.
*Update: Unfortunately, Scribd has removed this document from their .pdf uploading service due to the copyright and confidentiality agreements enforced by Tiger. Sorry for any inconvenience. You can still check out what they said in the letter in our recent Tiger Global article.
We posted up the latest changes in Tiger Global's portfolio yesterday, but also wanted to post up their quarterly letter for those who enjoy reading the words from Chase Coleman himself (RSS & Email readers may need to come to the blog to view the slidedeck).
The eagerly awaited, somewhat informative, yet probably not completely accurate, overhyped and underdelivered, "it is what it is": Financials/Bank Stress Test Results.
(RSS & Email readers may need to come to the blog to view the presentation).
Bank Stress Test Results Overview - Free Legal Forms
Historic Shorting Opportunity is at hand [TheDailyCrux]
Liveblogs from the Value Investing Congress: Thoughts from Passport Capital & Centaur Capital [Manual of Ideas]
Consumer Credit Plunges [Zero Hedge]
Photograph series of Obama's first 100 days in office [Time]
Agriculture: The success of farming [The Economist]
Bill Ackman's house is for sale [The Observer]
Thursday, May 7, 2009
Just a quick heads up that Quicken has a bunch of discounts right now that expire at the end of May, so get 'em while they're hot:
- $30 off Quicken Premier
- Quicken Online for free
- $20 off Quicken Deluxe
- $40 off Home & Business Quicken
- Quicken Rental Property Manager: $50 off
And if you missed it, we also posted up a list of financial publication discounts last week.
Over the past week we've learned that Dan Loeb's hedge fund Third Point had sold out of his gold, as he was only using it as a temporary hideout from market volatility. David Einhorn, on the other hand, revealed in his investor letter that he still holds his gold at Greenlight Capital.
So, with these differences in strategy and opinion, we thought it would be prudent to take a look at gold from a technical perspective. The folks at MarketClub have put together a nice video that looks at the current gold market and the technicals involved. Check out their excellent video on gold, where they outline key levels to watch.
Today we'll be going over the latest from Chase Coleman's hedge fund Tiger Global. In their most recent quarterly letter, Tiger gives us some insight as to their portfolio and performance. Interestingly enough, Tiger's strong performance over the past quarter came entirely from the short side of their portfolio.
We track Tiger due to their strong performance and proven fundamental research methodology. In fact, Tiger Global is one of the hedge funds that comprises the Tiger Cub Portfolio created with Alphaclone, where you can replicate their positions and enjoy 15.5% annualized returns since 2000. The numbers say it all and Tiger Global's contribution to such a portfolio is one of the many reasons we follow them. We'll provide a full background on Tiger at the bottom of this article, but let's start by getting into the latest updates:
Rarely do you get a glimpse into a hedge fund's coveted short positions, and Tiger is no different. While no specific names are mentioned, they give us enough clues to where we can make an educated guess as to which stocks they are shorting in the current market. While they derived all of their gains from the short side of their portfolio last quarter, Tiger mentions that their shorts have been rallying against them, leaving them with gross exposure of 125% and net exposure of -5%. The interesting thing to note here is that despite the rally, they still have conviction on the short side.
In their quarterly letter, Tiger references some of the sectors they are targeting on short side, writing, "We continue to have high convictiction in our short positions in select financial institutions and REITs. Our financial short exposure consists primarily of US regional banks and European banks with exposures to poorly performing geographies." Their conviction derives from the fact that non-performing loans are actually increasing. They cite shorting companies with "many multiples of tangible common equity exposed to the worst categories of loans." Essentially, they are wagering that these companies won't be able to escape the massive burden in front of them.
On the REIT side of things, they are focusing mainly on apartments, retail properties, and industrial storage in both Europe and the United States. They note that equity offerings by various REITs have helped recapitalization for now, but they remain short under the notion that the free cash flow of these companies will decrease significantly over the years. It seems that equity offerings are all the rage in REIT-land these days and stocks of those underlying companies have been rallying... hard. We can only imagine the pain Tiger must be feeling from these names as Wall Street gets high on equity offerings and squeezes the shorts. By far the most interesting thing to take away from this is the fact that despite the rally, Tiger remains short with high conviction.
Tiger is waiting for more attractive multiples and clearer forward earnings before ramping up exposure. But, at the same time, they don't want to try and time the market since they are fundamental investors. They cite the term 'false dawns in bear markets' (a.k.a. bear market rallies) and state that they are very wary of them (hint, hint). Tiger still believes that the deleveraging of both financial institutions' and the consumer's balance sheets is the key. That said, they still like to focus on company specific situations, rather than the macro picture.
On the long side of the portfolio, Tiger references specific names they own, seeing how most of that information is already public anyways. (After all, we did cover Tiger's portfolio in our Q4 2008 hedge fund portfolio tracking series). In their letter, Tiger mentions that they are still long Apple (AAPL), Google (GOOG), and Qualcomm (QCOM). They also mention that they've started a position in Priceline.com (PCLN), citing their strong European presence and significant free cash flows. Outside of equities, they also mention that they have started two nameless positions in corporate credit.
Performance & Exposure
Tiger's first quarter 2009 performance was pretty solid as they were up 6.8% gross for the time period compared to a -11.7% performance for the S&P500 over the same timeframe. Their first quarter Sharpe Ratio was 1.1 and they had a standard deviation of 22.3% compared to S&P 42.1%. As we mentioned above, all of these gains were due to strong performance from the short side of their portfolio. Their long portfolio was down 2.6% for the period, even with strong performances from Mastercard (MA), who they name in particular. We had just noted that Mastercard was recently removed from Goldman Sachs' Conviction Buy List on the heels of strong earnings. The areas that hurt their portfolio were their Asian positions and then in the general sectors of Retail and Energy.
Tiger's short exposure to sectors with government intervention have obviously increased their portfolio's volatility and they are seeking to reduce the large swings they are seeing. Initially, they tried to combat this with high conviction ideas in a portfolio of low gross exposure. However, they say they will "opportunistically" reduce portfolio themes and exposures should volatility continue to wreak havoc on their consistency.
Chase Coleman is yet another 'Tiger Cub,' or manager who learned their trade under the watch of Julian Robertson while at (now defunct) hedge fund Tiger Management. Coleman attended Williams College and started Tiger Global with the blessing of Julian Robertson. His focus has always been on smaller cap names and on technology. Although, he has since expanded his horizons with time. In 2007, Tiger Global returned 70%, and from 2001-2007, Coleman bolstered an average return of 47%. And, as we mentioned earlier, they are a part of the Tiger Cub Portfolio created with Alphaclone, where you can replicate their positions and enjoy 15.5% annualized returns since 2000. In terms of additional activity, we've posted up Tiger's amended 13D filing on Longtop Financial Technologies (LFT) and also their portfolio in its entirety. We'll be updating Tiger's complete long portfolio here in about a week and a half, so stay tuned!
We're back with another installment of the latest performance from Peter Thiel's global macro hedge fund, Clarium Capital. In the past, we've also covered Clarium's January as well as their February performance if you're curious how their portfolio has shifted over the past quarter. They finished up 1.7% for April and are now -0.3% year to date. Some of their largest exposure currently is in the Forex Cross, net long foreign debt, and net short US equities. Overall, they are using 3.2 to 1 leverage.
We track Clarium because we feel they are at the forefront of global macro thought and we like to see what they are extrapolating on a macro level. Over the past few weeks, we've covered some of their latest investor letters where they deliver some excellent market commentary. Additionally, we also covered their addendum to such letter where they evaluated a 'Macro Framework for Equity Valuation.' In the addendum, they examine valuation in two ways: from typical Benjamin Graham valuation and then also from a positive/negative liquidity standpoint. Both concepts are described in the letter, but you can of course get a better understanding of Graham's valuation by reading his well-renowned book Security Analysis (a staple in our recommended reading list).
Since they are a global macro firm and typically have little equity exposure for us to ponder via 13F's (their equity exposure lately has been on the short side), these investor letters are necessary insight to their thoughts and investment process. Upon reading their commentary you can start to piece together why they have taken on certain exposures in various sectors and asset classes. Again, make sure you check out their market commentary as well as their addendum.
Here is their latest breakdown sheet with all the details:
Clarium is a $2 billion global macro hedge fund that currently has the majority of its holdings in the debt and currency markets. Thiel's fund is unique in that it employs a slightly different management fee structure than most of the hedge fund world. Typical funds charge a flat 2% management fee on assets and then a 20% performance fee as well. Clarium, on the other hand, does not charge a management fee at all. Instead, they charge only a 25% performance fee. They have added incentive to perform well with this structure, otherwise they don't get paid. In the next week or two we'll be covering Clarium's long equity portfolio (however small it may be) when the new 13F filings are released, so be on the look out.
Wednesday, May 6, 2009
Hedge fund Baupost Group has filed an activist stake via 13D filing and has disclosed a 16.1% ownership stake in Breitburn Energy Partners (BBEP) due to activity on April 27th, 2009. They now own 8,495,939 shares. This is not a new position for Klarman, as they previously owned 8,157,439 shares. That figure was as of December 31st, 2008 when we looked at Baupost's entire portfolio. Since December, Baupost has obviously added slightly to their stake in Breitburn.
Originally, they had filed a 13G on Breitburn back in October of 2008. But, they've decided to file the 13D to reserve their right to take on an activist role to bring change to the company. 13G filings represent passive investments, while 13D filings represent an activist stake in a company. So, Baupost has simply shifted their passive stake to an activist one. This is the second company in a week that Baupost has filed an activist position in via 13D. We also covered their activist stake in Facet Biotech (FACT).
If you're unfamiliar with Klarman or his investment style, we highly recommend you check out his video presentation that we recently posted up. In the video, Klarman examines the current markets and really drills down what he looks for in his investment process. Klarman once wrote, "At Baupost, we are big fans of fear, and in investing, it is clearly better to be scared than sorry." His investment process is also further detailed in his hard to find book Margin of Safety.
Baupost Group's tremendous performance over the years is one of the main reasons that we selected them as one of the hedge funds in our custom Market Folly portfolio. Our model hedge fund portfolio has seen a total return of 194% since mid-2002 and is returning 17% annualized. It's very evident that Baupost's sterling reputation and performance is a big contributor to our custom portfolio's solid numbers.
Klarman's hedge fund is ranked 13th in the 2009 hedge fund rankings, jumping way up from being ranked 49th in Alpha's 2008 hedge fund rankings. Klarman has always considered himself a value investor and has been patient through the market turmoil. The past few years they have had nearly half their $14 billion in assets in cash. But, with turmoil comes opportunity and Baupost's cash has been gradually deployed. Some of their activity includes increasing their position in RHI Entertainment (RHIE) and making other SEC filings as well.
As you can see, we've covered Klarman's moves and will update his entire long portfolio when it is filed in a week or two via 13F filing. Lastly, we'll leave you with some of his additional thoughts on recent market action in his interview with Harvard Business School and his thoughts from Value Investor Insight.
Taken from Google Finance,
BreitBurn Energy Partners is "an independent oil and gas partnership focused on the acquisition, exploitation and development of oil and gas properties in the United States. The Company’s assets consist primarily of producing and non-producing crude oil and natural gas reserves located in the Antrim Shale in Michigan, the Los Angeles Basin in California, the Wind River and Big Horn Basins in central Wyoming, the Sunniland Trend in Florida, the New Albany Shale in Indiana and Kentucky, and the Permian Basin in West Texas."
While we've covered Bill Ackman in-depth on the blog many times before, we still cannot understand his Target (TGT) position. He refuses to give up hope on the name and we don't know whether to admire him or mock him for it. He was even recently quoted as saying,
"The investment business is about being confident enough to know that you’re right and everyone else is wrong. Yet you have to be humble enough that you recognize when you’ve made a mistake. Earlier in my career, I think I had the confidence part pretty solid. But the humbleness part I had to learn."
Target is losing share to Walmart (WMT) in this deep recession as customers continue to seek out cheaper alternatives. At the same time, Bill is trying his hardest to invoke change at an outfit that seems very complacent in a time when they should be actively seeking to compete and better their company.
If you've missed it, Ackman recently chatted with Charlie Rose and you can view Pershing Square's portfolio here. Here is his latest letter to Target shareholders:
How to choose a directory of family offices:
When selecting a directory or database of family offices to purchase there are 4 points to consider or investigate before making a purchase. By following these tips you will avoid purchasing something built for a different audience, working with information that is largely outdated or receiving data which has not been thoroughly prepared for commercial use with Excel or common CRP systems.
1. Length: Many family office directories come with 400 to 1,500 total contacts. In the last year how many firms has your team had time to effectively reach out to? 400? 800? Do you only speak with family offices while marketing your products? While it may be nice to obtain a directory of 1,000+ family offices make sure you don’t pay too much for a database built for a Fortune 500 company instead of a small team of 3-5 marketing and relationship development professionals. Often times just 300-900 contacts may be more than enough to expand your firm’s reach within this industry
2. Statistics Matter: Ask the owner of the family office directory for the percentage of contacts which come with email addresses AND phone numbers. Many databases have poor data quality and only 60-70% of their contacts even list a single email address for the firm. Look for 80-90%+ of listings to have both an email address and phone number for each firm.
3. Price < $1,000: Hiring professionals to efficiently use a database of family office contacts can be expensive; don’t spend more than $1,000 on your directory of family offices. It does take hundreds of hours to build a great product within this space but any firm selling such a product could make you a deal and sell a version of the database to you for $700-$900.
4. Check the Source: Who is providing the database of family offices? It is a firm which naturally speaks with family offices day-to-day? Can the professionals behind the product provide advice on how to approach family offices and HNW wealth management firms? The quality of the organization behind the product can often give you clues as to how valuable their end family office directory product may be. A quick example: The Family Offices Group is a family office networking association of 5,000 plus professionals. Due to their day-to-day contact with family offices and the firm’s history in raising assets from family office investors they know how to create a valuable directory of contact details on firms in the industry.
Adriana Albuquerque is the Managing Director of the Family Offices Group and responsible for developing the associated directory of family offices. To learn more please see FamilyOfficesDatabase.com.
Tuesday, May 5, 2009
In his latest quarterly letter, David Einhorn has revealed some of his hedge fund's latest activity. Greenlight Capital, who manages around $5 billion these days, recently picked up some Ford (F) high-yield bank loans, as well as their revolving bank line. Additionally, they added substantial stakes in EMC (EMC), Harman International (HAR), and Pfizer (PFE). (We originally covered his purchase of Harman here).
Greenlight managed to purchase Ford's debt at 37 cents on the dollar and started buying in the fourth quarter of 2008. Since their purchases, the debt is up to around 45 cents on the dollar. Ford, unlike General Motors, seems to be complacent in the current market turmoil and doesn't seem to need government aid. Additionally, Ford cut their debt by buying it back at a discount. These development have undoubtedly furthered Einhorn's conviction behind this pick.
Greenlight's Top Positions
1. Criteria Caixa (in Spain)
2. Ford (debt)
3. Gold (GLD)
4. Österreichische Post (in Austria)
5. URS (URS)
Greenlight's position in Ford debt is their second largest long position, behind only a large position in Criteria Caixa. His top holdings list is also rounded out by another foreign name, Österreichische Post, as well as URS, which we had previously in Einhorn's holdings.
It's also interesting to note that Einhorn continues to hold Gold (GLD). Last quarter, Einhorn's move into Gold was touted all across the media, as we noted in our Greenlight portfolio update. He had never considered himself a 'gold bug,' but could not ignore the future inflationary pressures coming, among other things. Einhorn still holds his large holding in gold, while conversely, his hedge fund compatriot Dan Loeb recently sold out of his gold position, as he mentioned in Third Point's latest investor letter. It's always interesting to see two prominent hedge fund players play the same investment in different manners. Loeb merely sought momentary refuge from market turmoil and brought it up to his fund's largest position for 1 quarter. However, he is now out of the position and is moving on to other things. Einhorn, on the other hand, has seemingly taken a more long-term stance with his gold play, no doubt as a hedge on possible future inflationary pressures and economic turmoil.
EMC & Enterprise IT Spending
Einhorn wrote in his quarterly letter that, "2009 will be an extremely challenging year for all companies exposed to enterprise IT spending. However, we expect EMC to fare better than most given the less volatile nature of storage spending." Einhorn picked up his shares of EMC at an average price of $10.72 and obviously feels it will outperform peers in the sector. He is not alone in this wager, as fellow value-player Bill Ackman has a large EMC stake through his hedge fund Pershing Square.
Greenlight also made some sales over the past quarter in which they sold Aldar Properties (in Abu Dhabi), Cablevision (CVC), and Dr. Pepper Snapple (DPS). In terms of additional portfolio maneuvering, we also detailed in early April that Einhorn had filed a 13D on MI Developments. And, he has also filed a 13G on Ticketmaster (TKTM).
In terms of first quarter 2009 performance, Greenlight was up 4.4%. We also noted Greenlight's performance thus far for 2009 in our comprehensive March hedge fund performance update, where they were +4.5% for the month of March.
If you're unfamiliar with Greenlight Capital and Einhorn, then check out his book where he details his battle shorting Allied Capital. Entitled Fooling Some of the People All of the Time, Einhorn takes you into Greenlight's theses formation and investment process. Greenlight is a $5 billion hedge fund and has seen annual returns of over 20%, specializing in spin-offs and value investing. Einhorn appeared in the media frequently in 2008, as he discussed 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. 2008 was a rough year for Einhorn, as it was the first time he's lost money since 1996. Stay tuned, as we'll be presenting Greenlight's long portfolio in its entirety here in two weeks time.
We used to cover Goldman Sachs' Conviction Buy & Sell lists pretty frequently on the blog, but then we became so inundated with hedge fund tracking that we never had the time. But now, with the 4th quarter 2008 hedge fund portfolio tracking behind us, we've got some spare time before the Q1 2009 portfolios are released and we're swamped again.
Here's the caveat with this coverage: we don't normally place a ton of weight on individual analyst calls and upgrades/downgrades. That said, we are very cognizant that they often move markets and have to at least be monitored. As such, we've covered Goldman Sachs' list because for whatever reason, everyone loves a "V.I.P." or "Best of" and "Worst of" list. So, Goldman's lists are essentially the cream of the crop in either direction. If they add it to their Conviction Buy List, they love it, and if they add it to the Conviction Sell List, they (at least for the moment) hate it. That much is self-explanatory but we just wanted to give a preface for those unaware. Now, to the changes:
Conviction Buy List
The bulk of their recent changes were made to their Conviction Buy List. As the month of May begins, Goldman has decided to ambush everyone with a ton of changes.
Here are the names they have just recently added to their Conviction Buy List: Liz Claiborne (LIZ), Massey Energy (MEE), Joy Global (JOYG), and Research in Motion (RIMM).
And, here are the names that Goldman has removed from their Conviction Buy List: Mastercard (MA).
Their addition of Claiborne to the list is interesting given that they have doubled their price target on the stock from $3.30 to $7.20. Is it just us, or did the economy NOT get 100% better overnight? Apparently all the Wall Street wives and girlfriends who had cut back on their purchases of make-up are rampantly buying again. Previously, Claiborne was rated as neutral but now graces their Conviction Buy List. This seems to stick with the market theme of the past few months of what we crassly call "sh*t rallies." Essentially, all the horribly beaten down stocks with poor fundamentals and poor outlooks are rallying for hardly any reason other than that they are oversold and are hopeful that the economy will rebound a.s.a.p.
Goldman removed Mastercard from the Conviction Buy List, but still retains a 'buy' rating on the name. More than anything, this is due to a combination of the recent earnings release, valuation, and taking some profits off the table after the rally. Interestingly enough, Mastercard (and Visa too) are holdings currently present in our Market Folly portfolio that we created based on hedge fund cloning. Our portfolio has seen a total return of over 190% since mid-2002 and has annualized returns of 17%. Year to date for 2009, our portfolio is outperforming the S&P by a handsomely wide margin, and Mastercard and Visa are certainly to thank for part of that.
We don't have a problem with this Goldman removing MA from the Buy List, as we recently sold some of our Visa (V) into the earnings release pop, as shares have rallied over the past few months. We post all of our portfolio updates in our Twitter stream, so definitely follow us on Twitter if you're not already. Again, MA is still rated a buy, but no longer graces the Conviction List.
Massey Energy (MEE) was also added to their Conviction Buy List as Goldman sees shares more than doubling from their previous $12 price target to a new target of $26. Massey was previously rated as Neutral and now graces the Buy List. And, as we'll touch on below, this upgrade was a part of a sector-wide coal upgrade on Goldman's part. But, it definitely appears as if Massey is their favorite at the moment.
Sticking to the energy and raw material meme, we see that they also added Joy Global (JOYG) to their Conviction Buy List. Joy provides the equipment and servicing related to the mining industry and since Goldman is bullish on the Coal industry, they're projecting somewhat of a trickle-down effect where Joy will see more action as the Coal companies ramp up. Goldman had just recently upgraded Joy from neutral to buy back in late April. But, they've now essentially upgraded it again by adding it to their Conviction List. Also, interestingly enough, we had noted that in Q4 2008, numerous hedge funds had sold out of Joy Global. We'll have to see if they have reversed course when they release their Q1 '09 holdings.
Last, but not least, they've also added Research in Motion (RIMM) to the list and have only mildly adjusted the price target to $85, up from $82. We're not quite sure what exactly has changed or what merited this move, but oh well. We've noted that previously RIMM was hedge fund Maverick Capital's 9th largest holding.
Also, we wanted to touch a major move by Goldman that undoubtedly help shake up the Coal industry yesterday (5/4/09). We couldn't help but notice that coal stocks were all rallying hard, and Goldman is partially responsible for this as they upgraded the entire American coal sector to 'Attractive' from 'Neutral.' And, as we mentioned above, Massey Energy in particular was even added to the Conviction Buy List. Stocks in the specific sector who were all seeing action include: Patriot Coal (PCX), Arch Coal (ACI), Consol Energy (CNX), Alpha Natural Resources (ANR), Peabody Energy (BTU), and Foundation Coal (FCL) among others.
Other Recent Moves
The names mentioned above all were added/subtracted from the list here in the first few days of May. But, in fairness of playing catch-up, we also wanted to quickly list which names Goldman also added/subtracted from their Conviction Lists at the end of April and on the 1st of May.
Further additions to the Conviction Buy List: Brinker (EAT), Activision (ATVI), Och-Ziff (OZM), & CVS Caremark (CVS).
Further removals from the Conviction Buy List: DR Horton (DHI) and ITT (ITT).
So, there you have it. You are now all caught up with Goldman Sachs' Conviction Buy & Sell Lists. (That is, until they release the next batch of changes). From here on out we'll try and update these lists, provided that our hedge fund tracking doesn't get in the way.
Monday, May 4, 2009
George Soros' hedge fund Soros Fund Management has disclosed a new position in Plains Exploration (PXP). In a 13G filed with the SEC, Soros Fund Management now shows a 5.38% ownership stake in PXP due to activity on April 21st, 2009. They now own 6,467,400 shares. Again, this is a new holding for Soros Fund Management, as they previously did not hold it when we last looked at Soros' portfolio.
Their last disclosure unveiled positions held as of December 31st, 2008. PXP was nowhere to be found on that filing, but it will obviously be present on the next round of disclosures. Soros' next 13F filing disclosing his entire long portfolio will be available in the next two weeks or so and we'll be covering all the activity as always. This new position in PXP comes right after we just learned that Soros had updated his position in Mercury Computer (MRCY).
Soros is famous for his stellar returns with partner Jim Rogers when they ran their (now defuntct) Quantum fund. (We recently covered Jim Rogers' portfolio here). Whether it be equities, bonds, currencies, debt, or commodities, Soros is more of a global macro player, seeking investments in whatever market they can gain an edge. The experience Soros has experienced is vastly evident with his appearance on Forbes' billionaire list, as well as on the top 25 highest paid hedge fund managers.
Recently, Soros detailed his thoughts about his portfolio from 2008 and it makes for a good read. His fund finished '08 up 8% as noted in our hedge fund year end performances post. His success in 2008 came from making correct bets on the US dollar and betting that short term interest rates in the UK would decline. Interestingly enough, Soros was down for much of the year, until he fought his way back with overtrading. And, as such, Soros Fund Management is now ranked #8 in the 2009 hedge fund rankings.
Additional thoughts from Soros on the current financial landscape are detailed in his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. Soros sees a vast consolidation in the hedge fund space in the near future. If you want to get a better sense as to how Soros formulates his investment theses, we highly recommend reading his first book, The Alchemy of Finance. This book is a staple in our recommended reading list and after you read it, you'll understand why.
Taken from Google Finance,
Plains Exploration is "an independent oil and gas company primarily engaged in the activities of acquiring, developing, exploring and producing oil and gas properties primarily in the United States. The Company owns oil and gas properties with principal operations in Onshore California; Offshore California; the Gulf of Mexico; the Gulf Coast Region; the Mid-Continent Region, and the Rocky Mountains. As of December 31, 2008, the Company had estimated proved reserves of 292.1 million barrels of oil equivalent, of which 61% was comprised of oil and 72% was proved developed."
This post will surely outrage a few people. The Associated Press has gone through the various proxy statements filed from the first of the year until the end of April and has analyzed the highest paid CEO's in the S&P500. So, firstly, we'll present their list of raw data. Secondly, we'll also make a few calculations of our own below where we determine just how much each CEO was compensated for each percentage point their shares dropped over the course of 2008.
Without further ado:
Top 10 Highest Paid CEO's of 2008
1. Aubrey McClendon (Chesapeake Energy - CHK): $112.5 million
2. Sanjay Jha (Motorola - MOT): $104.4 million
3. Robert Iger (Walt Disney - DIS): $51.1 million
4. Lloyd Blankfein (Goldman Sachs - GS): $42.9 million
5. Kenneth Chenault (American Express - AXP): $42.9 million
6. Vikram Pandit (Citigroup - C): $38.2 million
7. Steven Farris (Apache Corp - APA): $37.2 million
8. Louis Camilleri (Philip Morris International - PM): $36.9 million
9. Kevin Johnson (Juniper Networks - JNPR): $36.1 million
10. Jamie Dimon (JPMorgan Chase - JPM): $35.7 million
Let the riots begin. First, let's start by examining the requisite financial company CEO's. It is obviously astonishing that Vikram Pandit of Citigroup, Lloyd Blankfein of Goldman Sachs, Ken Chenault of American Express, and Jamie Dimon of JPMorgan are even on this list at all whatsoever. Sure, their pay packages were most likely negotiated long before the financial crisis. But, even so, it is borderline ridiculous that they earned so much for causing shareholders so much pain. Vikram Pandit's Citigroup common stock lost almost 75% in 2008 and for that awesome accomplishment he was compensated over $38 million dollars. Sure, he has "righted a wrong" (and that is a stretch calling it that) by taking a $1 salary and no bonuses until Citi is profitable again. Yet, his appearance on this list will surely outrage many. Surprisingly (or unsurprisingly?) no one mentioned above graces Time's list of 25 people to blame for the financial crisis.
To take things a step further, we wanted to illustrate just how truly ridiculous things are by doing a quick calculation. Below, we came up with a rough estimate of how much each CEO was compensated for each percentage point their stock decreased over 2008. If you were angry before, you'll surely be outraged now:
CEO Compensation Per Percentage Point Decline in Their Company's Stock
1. Chesapeake Energy - CHK: Aubrey McClendon made around $2,008,928 for every 1% his stock dropped, giving him a total salary package of $112.5 million based on CHK shares being down around 56% for 2008.
2. Motorola - MOT: Sanjay Jha earned around $1,491,428 for every 1% his stock dropped, giving him a total salary package of $104.4 million based on MOT shares falling around 70% for 2008.
3. Walt Disney - DIS: Robert Iger earned around $1,965,384 for every 1% his stock dropped, giving him a total salary package of $51.1 million based on DIS shares declining 26% over the past year.
4. Goldman Sachs - GS: Lloyd Blankfein made around $726,379 for every 1% his stock dropped, giving him a total salary package of $42.9 million based on GS shares being down around 59% for 2008.
5. American Express - AXP: Ken Chenault made around $691,935 for every 1% his stock dropped, giving him a total salary package of $42.9 million based on AXP shares being down around 62% over the course of last year.
6. Citigroup - C: Vikram Pandit made around $509,333 for every 1% his stock dropped, giving him a total salary package of $38.2 million based on C shares being down around 75% over 2008.
7. Apache Corp - APA: Steven Farris earned around $1,377,777 for every 1% his stock dropped, giving him a total salary package of $37.2 million based on APA shares decreasing around 27% for the last year.
8. Louis Camilleri (Philip Morris International - PM: Louis Camilleri earned around $3,690,000 for every 1% his stock dropped, giving him a total salary package of $36.9 million based on PM shares sliding only around 10% in 2008.
9. Juniper Networks - JNPR: Kevin Johnson earned about $802,222 for every 1% his stock dropped, giving him a total salary package of $36.1 million based on JNPR shares sliding 45% over the last year.
10. JPMorgan Chase - JPM: Jamie Dimon made around $1,298,181 for every 1% his stock dropped, giving him a total salary package of $35.7 million based on JPM shares being down around 27.5% for 2008.
Please be aware that these are merely rough estimates made by using the compensation estimates provided by the AP and a rough gauge on how well each stock performed over the course of 1 year. We did not take into consideration any salary re-negotiations, give-backs, or other actions that might have been taken by CEO's in an effort to try and make their ludicrous pay seem "not as bad." So, while these numbers may be slightly crude, they will certainly energize angry shareholders that much more.
Let's dive into some of these numbers. Jamie Dimon's number seems artificially high mainly because his stock only fell 27.5% for 2008 compared to the catastrophic drops seen at Citigroup and other financial institutions. So, while he definitely earned a lot of money, his shares did outperform their financial peers. Louis Camilleri of PM also earned a hefty sum for each 1% decline in shares of his company. But, you also have to consider that PM shares only slipped around 10% in 2008. Sure, a loss is always a bad thing. But, all things considered, their shares were barely down at all compared to the S&P's monumental losses.
Lastly, we want to focus on Aubrey McClendon of Chesapeake Energy; he has a very interesting story, to say the least. He is number one on the compensation list and his guidance led to a 56% decrease in CHK shares over the course of 2008. And, better yet, he was even margin-called on his own company's shares, as he had been buying tons of CHK on the way up with leverage. As shares of CHK began to tank, the margin clerks forced McClendon to liquidate his shares in a capitulative sort of event. What is even more asinine about his particular situation is that the board of Chesapeake has essentially "rewarded" Aubrey in terms of compensation (no doubt as a means of helping him recover from his margin-call debacle).
That's borderline ridiculous. The man lost shareholders a ton of money and he himself felt the same pain the shareholders did. Yet, his company said "thank you" and essentially bailed him out of his mess, loosely speaking. Shareholders are undoubtedly wondering why they weren't bailed out by the board too. Don't get me wrong, McClendon is definitely top notch when it comes to management teams of public companies. But, does he deserve this kind of preferential treatment? I'm sure everyone out there (that is, except Chesapeake's board) shares the same opinion we do.
This list merely turns the spotlight (yet again) to executive pay. This has long been an issue on Wall Street and with companies in general. But, instead of making progress on the matter, we continue to drift along with no real change. We here at market folly are certainly left wondering what is taking so long. After all, this list is yet another piece of evidence that drastic change is needed in the realm of executive compensation as it relates to performance.
Underperform? No problem, here's a sh*tload of money for your time. Outperform? Great! Here's some money for your time, and here's even more money for doing what you were supposed to do in the first place. Great doing business with you, see you next year!
CEO pay source: AP via NYT
Eric Rosenfeld recently made this presentation at MIT regarding the collapse of Long Term Capital Management. As a former principal at the firm, he touches on the myths and lessons learned from those crazy times. Definitely a must-watch video if you're interested in markets or hedge funds. Here's the video: