Friday, September 11, 2009

David Einhorn: Short McGraw Hill (MHP) & Moody's (MCO) - The Curse of the Triple A


While David Einhorn's short position in Moody's (MCO) is by no means new information, we did recently learn that his hedge fund Greenlight Capital is now also short McGraw Hill (MHP), the parent company of fellow ratings agency Standard & Poor's. He initiated the position after a U.S. judge refused to dismiss a case against the ratings agencies. Those agencies were seeking refuge from such litigation under the notion that their opinions on ratings are protected by free-speech rights. This U.S. District Judge's refusal to throw out the case could be a landmark ruling, Einhorn says. While this could potentially be a chink in the armor, it is also prudent to point out that 10 of the 11 claims were dismissed; a fact that Moody's representatives have been quick to point out.

Einhorn presented his short position in Moody's back at the Ira Sohn Conference where numerous hedge fund managers shared investment ideas. While we can't track their short positions via SEC filings, we have covered Greenlight's long portfolio here. Greenlight was up 16.3% for the second quarter and year to date for 2009 is up 21.5%. For more of Einhorn's tirades shorting companies, we highly recommend reading his book Fooling Some of the People All of the Time: A Long Short Story. In it, you'll learn how Greenlight constructs and researches investment theses. Not to mention, it's just an interesting read and story in general.

Instead of summarizing Einhorn's thoughts regarding why he is short the ratings agencies, we figured we'd just let him tell you himself. Embedded below is his presentation from the Ira Sohn investment conference entitled 'The Curse of the Triple A.' You can download download the .pdf here or read on below:



David Einhorn's Ira Sohn Presentation -



So, while he presented that argument back in late May of this year, he appeared on television a few days ago to further elaborate on his argument. Below is the video where he presents his case to CNBC anchors:

















And lastly, for posterity's sake, we would also like to highlight Einhorn's thoughts on credit from back in 2007 at the Annual Graham & Dodd Breakfast. You can download the .pdf here or read the embedded document below:



Einhorn On Credit -



Certainly interesting thoughts and reading all around. In addition to Greenlight Capital's short position, we found additional transactions in shares of MCO by another market guru to be intriguing as well. Berkshire Hathaway's Warren Buffett owns a large stake in Moody's (MCO) but has sold shares in 2 recent transactions. Most recently, Buffett sold 794,388 shares in the first two days of September. Initially back in July the Oracle of Omaha reduced his stake in MCO by 17%. While we are paying attention to these sales, you also have to consider that Berkshire Hathaway still owns over 39 million shares of MCO, which translates to a 16.64% ownership stake.

Buffett has owned Moody's shares for 9 years now after first receiving them in the spin-off of Dun & Bradstreet back in 2000. There are a few reasons Buffett could be selling though. On one hand, he could be reducing his ownership stake because it had been increasing as Moody's bought back shares. And, maybe the stake was getting too large for comfort. On the other hand, Buffett could be losing some interest in this oligopoly of an industry. While he was quoted as saying he still likes the business, he doesn't think it will be doing the volume it used to, especially in capital markets. The fact that his sales come amidst this court ruling and Einhorn's PR blitz is all the more intriguing, whether it is coincidence or not.

As an aside to the Triple-A debate, we also wanted to mention that fellow hedge fund Sprott Asset Management recently had some research out that deemed gold 'The Ultimate Triple-A Asset'. Their assertion becomes all the more interesting when you note that gold climbed above psychological and technical resistance of $1000 recently. (Check out this technical analysis video on gold for further insight as to upside price targets). Not to mention, Mr. Einhorn and Greenlight own the precious metal and have actually begun storing physical gold. They found it was cheaper to store the gold than to pay the expense ratio associated with exchange traded fund GLD, which they previously held. This part obviously doesn't relate to Moody's or Standard & Poor's, but we thought it made for an interesting aside given the debate as to the relevancy of 'Triple-A.'

Overall, very intriguing stuff all around. We'll end simply by asking one question: Do you remember the last time Einhorn was out openly criticizing a company and disclosing he was short? Yeah, that company was Lehman Brothers. That one certainly turned out well for him.



Compilation of resources on David Einhorn & Greenlight Capital:

- David Einhorn's Book: Fooling Some of the People All of the Time: A Long Short Story

- Einhorn's Ira Sohn investment conference presentation on Triple-A/Moody's (.pdf)

- Greenlight Capital's recent portfolio update

- Greenlight's Q2 2009 hedge fund investor letter

- Einhorn on credit, from back in 2007: .pdf here


Stock Market Resources: Bank Loan Performance, Value Screener, & Trend Plotting

This week, we've also stumbled upon some useful tools for investors/traders. We wanted to share these great finds but make sure they didn't get lost in our weekly linkfest. Without further ado:

Great site for analyzing bank loan performance of financial institutions [wlm lab]

Interesting Valuecruncher app [Valuecruncher]

Google finance domestic trends for plotting unique economic insight [Google Finance]


What We're Reading 9/11/09

Lots of good reading lately, so here's a lengthy list:

After seeing gold above $1000, we look at: Five reasons to avoid the gold rush [zero hedge]

And conversely: China et. al puts floor in gold [zero hedge]

About that hedge fund renaissance you were told was coming... [Reformed Broker]

How Texas Hold 'Em Poker is similar to investing/trading [Wall St. Cheat Sheet]

How to make the most of Stocktwits [Abnormal Returns] The Stocktwits desktop is a great application and we use it daily, just fyi.

Exclusive interview with Charles Kirk of The Kirk Report [Wall St. Cheat Sheet]

Top 25 Largest Banks - Defaulted Loan Percentage [HardMoneyPros]

The hedge fund rebound is actually bad news [Richard Bernstein via BusinessInsider]

Criticizing hedge fund manager Eddie Lampert's Sears (SHLD) response [Jeff Matthews]

Why I hate shorting stocks [Dasan]

Oliver Stone returns to Wall Street for a sequel [NYTimes] Earlier, Wall Street 2 the movie coming February 2010.


Thursday, September 10, 2009

Seth Klarman Sells Facet Biotech (FACT) Shares & His Entire Horizon Lines (HRZ) Position


Seth Klarman's hedge fund Baupost Group has sold shares of Facet Biotech (FACT) as detailed in recent SEC filings: a Form 4 and an amended 13D. On September 4th, 2009 Klarman sold 867,532 shares with the bulk of those orders going through at prices of $15.434 and $15.393. The amended 13D now shows Baupost Group (and related entities) owning a 14.2% stake in FACT with 3,506,875 shares remaining. FACT of course was recently subject to a buyout bid from Biogen Idec (BIIB) whereby they would acquire all FACT shares for $14.50 a share in cash. Shares of FACT were trading around $8.79 before the bid and they now trade at around $15.95, currently at a premium to BIIB's offer. On Tuesday, the Facet Biotech Board of Directors came out and deemed Biogen's offer "inadequate." Then on Wednesday, Biogen reiterated their proposal to acquire all the shares at $14.50. Shares of FACT are up 66% year to date. We'll continue to watch these developments with interest as this all comes long after we've covered all the movements relating to Baupost's stake in FACT.

Secondly, Baupost Group filed an amended 13G on Horizon Lines (HRZ) where they disclosed they no longer hold a position. They have completely sold out of the 2,962,029 shares they previously owned as last reported on June 30th. So, they've liquidated this stake sometime over the past 3 months. Shares of HRZ are up over 93% for the year. While shares may be up big this year, this is a losing position overall for Baupost. SEC filings show them building a position of 5 million shares over time between prices of $10-33 per share. They sold some shares between $9-13, but the rest of their sale comes now at a share price of just over $6. This definitely goes down as one of Baupost's misses and shows that even the greatest of investors make mistakes and are indeed human. For all other portfolio changes, you can view Baupost Group's portfolio here.

We track Klarman & Baupost for their 20% annual compounded return and solid investing methodologies. They are one of the select few funds we have included in our Market Folly custom portfolio that is seeing over 20% annualized returns. Head over to Alphaclone to see what positions our portfolio is currently invested in. If you want to learn how to invest like Seth Klarman, then we'd highly recommend picking up his (extremely rare) book, Margin of Safety where he provides a "how-to" on risk averse value investing.

Lastly, in terms of other investment activity, Baupost Group sold PDL Biopharma (PDLI) and also sold out of their Omnova (OMN) position.

Taken from Google Finance, Facet Biotech is "a biotechnology company. The Company is engaged in identifying and developing oncology therapeutics. It has four antibodies in the clinic for oncology and immunologic disease indications, of which two are in phase II and two in phase I. The Company has several investigational compounds in various stages of development for the treatment of cancer and immunologic diseases, three of which it is developing with collaboration partners: two with Biogen Idec and one with BMS. The spin-off of Facet Biotech from PDL was effected on December 18, 2008."

Horizon Lines is "a container shipping and integrated logistics company. The Company's subsidiaries include Horizon Lines, LLC (Horizon Lines), Horizon Logistics Holdings, LLC (Horizon Logistics) and Horizon Lines of Puerto Rico, Inc. (HLPR). The Company owns or leases 21 vessels, 16 of which are qualified Jones Act vessels, and approximately 20,800 cargo containers.The Company ships a spectrum of consumer and industrial items ranging from foodstuffs (refrigerated and non-refrigerated) to household goods and auto parts to building materials and various materials used in manufacturing."


Bret Barakett's Tremblant Capital Bullish on Research in Motion (RIMM), Bearish on Nokia (NOK): 13F Filing

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

Next up in our series is Bret Barakett's Tremblant Capital Group. Barakett, a former portfolio manager for Louis Bacon's Moore Capital, now runs his own hedge fund in New York and manages over $3 billion. Taken from their site, Tremblant Capital Group's objective is "to achieve superior risk adjust returns for our investors through our focused and disciplined investment process." Barakett's name will ring a bell for some as he is the brother of Timothy Barakett of Atticus Capital. We just got word recently that Atticus would be shutting down its main fund as Timothy steps away from the hedge fund game. Hopefully Bret doesn't get that same itch.

In terms of recent activity, we've noted that Tremblant has filed a 13G on IMAX. Additionally, we've called attention to their position in Eclipsys (ECLP). The following were Tremblant's long equity, note, and options holdings as of June 30th, 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.


New Positions (Brand new stakes that they initiated in the last quarter, listed from largest to smallest):
Nokia (NOK) Puts, Sina (SINA) Puts, Broadcom (BRCM) Puts, Integra (IART), Sohu (SOHU) Puts, Ford (F) Calls, Intel (INTC) Puts, Omnicare (OCR), Amazon (AMZN) Puts, Sony (SNE) Puts, Netflix (NFLX) Puts, AU Optronics (AUO) Puts, Hologic (HOLX) Puts, CBS (CBS) Puts, Imax (IMAX), Symantec (SYMC), & Weingarten Realty (WRI).

The rest of their new positions are less than 0.25% of their 13F each and aren't significant this time around, but we've listed them for those curious: Liberty Media Interactive (LINTA), Wynn (WYNN) Calls, CBS (CBS) Calls, AU Optronics (AUO) Calls, Caribou Coffee (CBOU), Lamar Advertising (LAMR) Calls, Benihana (BNHNA), Benihana (BNHN) - both shares, Sequenom (SQNM), and Commscope (CTV).


Some Increased Positions (A few positions they already owned but added shares to)
Visa (V) Calls: Increased by 405.7%
Equinix (EQIX): Increased by 303%
Research in Motion (RIMM) Calls: Increased by 120.4%
Redhat (RHT) Calls: Increased by 88.5%
Eclipsys (ECLP): Increased by 75.9%
Procter & Gamble (PG): Increased by 64.8%
Hologic (HOLX): Increased by 62.2%
Hologic (HOLX) Calls: Increased by 59.8%
Charles Schwab (SCHW): Increased by 54.2%
Mastercard (MA): Increased by 48.2%
Molson Coors (TAP): Increased by 42.6%


Some Reduced Positions (Some positions they sold some shares of)
Chipotle Mexican Grill (CMG-B): Reduced by 40.6%
Baidu (BIDU): Reduced by 39.4%
Green Mountain Coffee Roasters (GMCR): Reduced by 33.7%
Apple (AAPL): Reduced by 33.2%
Research in Motion (RIMM): Reduced by 32.1%
Inverness Medical (IMA): Reduced by 27.6%
Qualcomm (QCOM): Reduced by 25.9%
Redhat (RHT): Reduced by 24.2%


Removed Positions (Positions they sold out of completely, listed from their previously largest position to smallest)
Monsanto (MON), McKesson (MCK) Calls, J Crew (JCG), Thermo Fisher Scientific (TMO), Pharmaceutical Product Development (PPDI), Omnicare (OCR) Calls, Green Mountain Coffee Roasters (GMCR) Puts, Sohu (SOHU) Calls, Sina (SINA) Calls, Fred (FRED) Calls, Redhat (RHT) Puts, CSX (CSX), Covance (CVD), Bankrate (RATE) Puts, Factset (FDS) Calls, & Cheesecake Factory (CAKE) Calls.

The rest of the positions they dumped were previously less than 0.25% of the assets on the 13F each: Amazon (AMZN) Calls, Netflix (NFLX) Calls, Quality Systems (QSII) Calls, American Superconductor (AMSC) Calls, Pacific Sunwear (PSUN), and Ntelos (NTLS).


Top 15 Holdings by percentage of assets reported on 13F filing *(see note below regarding calculations)

  1. Research in Motion (RIMM) Calls: 8.78%
  2. Procter & Gamble (PG): 5.35%
  3. Nokia (NOK) Puts: 3.6%
  4. Visa (V): 3.46%
  5. Apple (AAPL) Calls: 3.42%
  6. Research in Motion (RIMM): 3.4%
  7. Hologic (HOLX): 3.1%
  8. Apple (AAPL): 2.76%
  9. Mastercard (MA): 2.68%
  10. Baidu (BIDU): 2.5%
  11. Red Hat (RHT) Calls: .25%
  12. Google (GOOG): 2.4%
  13. Qualcomm (QCOM): 2.36%
  14. Melco Crown (MPEL): 2.3%
  15. Walmart (WMT): 2.26%

Tremblant's portfolio is littered with a lot of typical 'hedge fund plays.' Apple, Visa, Qualcomm, Google, Mastercard, and Research in Motion are some of the most widely held stocks amongst hedge funds as noted in Goldman Sachs' hedge fund report. In that report, Goldman examined the top holdings across hedge fund land and Tremblant's portfolio is very emblematic of the industry.

In terms of portfolio shifts, we saw them buy a lot of new holdings via common stock and options positions, as listed in the rows above. In total, their assets invested on the long side as reported by 13F increased by over $900 million. Their most notable new position was that of Nokia (NOK) puts, which they brought all they way up to their third largest holding. While they already previously held shares of Visa (V), they boosted their current stake by over 400% and that should be duly noted. They also own the other half of true payment processing duopoly, Mastercard (MA), which they also boosted their existing position in by an additional 40%. These two positions are favorites of hedge funds far and wide as practically all the funds we track hold some amount of MA & V.

Tremblant also added to their position in Eclipsys (ECLP) which we covered on the blog before when they filed a 13G. This is the benefit of tracking all SEC filings rather than just the 13F as we already knew about their addition to ECLP back in April. Lastly, Tremblant also added to their existing position in Research in Motion (RIMM) common stock. They also own a ton of calls on RIMM and a few puts as well, most likely to hedge their long bias in the name.

In terms of notable sales, Bret Barakett's hedge fund sold 40% of one of their former prized holdings, Chipotle Mexican Grill (CMG-B). They had previously been adding to this position in February. This time around though, they were selling. Additionally, we saw Tremblant sell a third of their Green Mountain Coffee Roasters (GMCR) position. You can bet they've profited handsomely on this play as shares of GMCR are up 127% year-to-date, with a 3:2 stock split taking place back in June. On a quarter over quarter basis, GMCR was up 118%. There's definitely nothing wrong with locking in some solid profits. We've also noted very recently that Stephen Mandel's Lone Pine Capital has filed a 13G and disclosed a stake in GMCR as well. This is an interesting story because on one hand GMCR has some solid hedge fund ownership. Yet, on the other hand, it has historically had a large short interest and there was a short squeeze in the name earlier in the year.

Before ending, we wanted to bring up a slight caveat with Tremblant's portfolio. As always, 13F filings should be treated as a lagging indicator since they are essentially portfolio snapshots. However, you need to take them with even more grains of salt if the portfolios are laced with options positions. Since we cannot see strike prices or expiration dates, we can't truly gauge their position. Additionally, there's no way for us to see if they have sold options against their positions either. So, focusing on Tremblant's portfolio specifically, it's hard to see the true directional bet they've placed on some holdings. They own Apple (AAPL) common stock, but they also own puts, as well as calls on the name. So, this is just a warning to be cautious when evaluating their holdings that also have options attached to create their net position in a given name. We instead like to focus on the pure equity plays as they are much easier to accurately track. We addressed this issue previously with Eric Mindich's hedge fund Eton Park, who holds even more options positions than Tremblant.

*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $2.7 billion this quarter compared to $1.8 billion last quarter, so a substantial increase in long US equity exposure via common stock and options. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. In reality, the percentages are more watered down in their actual hedge fund portfolio. If you were to calculate percentage weightings in the actual hedge fund, they would obviously be lower since you would divide position sizes by their total assets under management (a larger number than the one reported on the 13F.

This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Dan Loeb's Third Point LLC, and Stephen Mandel's Lone Pine Capital, George Soros (Soros Fund Management), Lee Ainslie's Maverick Capital, Philip Falcone's Harbinger Capital Partners, David Stemerman's Conatus Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, Thomas Steyer's Farallon Capital, Boone Pickens' BP Capital Management, and Ken Griffin's Citadel Investment Group. Check back each day as we cover prominent hedge fund portfolios.


Lawrence McDonald's Book on the Fall of Lehman Brothers: A Colossal Failure of Common Sense

Lawrence McDonald, a former Vice President at Lehman Brothers has written an insightful insider account of the collapse that rocked Wall Street. Quickly climbing the ranks of the NY Times Bestseller list, his book is entitled, A Colossal Failure of Common Sense: The Insider Story of the Collapse of Lehman Brothers. In the book, he gives you tons of details regarding the fall and pegs the demise on decisions from chief executive and chairman Richard (Dick) Fuld. Essentially, Lehman was a large hedge fund employing 40:1 leverage and at one point had 35% of its net tangible assets in three huge real estate ventures. Needless to say, that's a recipe for disaster. The book goes on to provide juicy details that you can really sink your teeth into and is the perfect read for those who want the true insider account so that you can feel like you were there when it all went down.

The book's premise really is self-explanatory so pick it up for all the intriguing details. To give us more color, here's an interview Lawrence McDonald (the author of the book & now a managing director at hedge fund Pangea Capital) did with our pal over on Twitter, Misstrade.

(RSS & Email readers come to the blog to view the video interview):




Interesting stuff certainly. Of course make sure you check out Lawrence's excellent book, A Colossal Failure of Common Sense: The Insider Story of the Collapse of Lehman Brothers. If you want to get behind closed doors, then this is the book for you.


Hedge Fund Clarium Capital's August Commentary: Save Now, Invest Later

Here's the latest from Peter Thiel's hedge fund Clarium Capital. Their August commentary is titled 'Save Now Invest Later' and makes for some interesting reading (as does typically all of Clarium's commentary). Through the end of June, Clarium was down 6% for 2009 as noted in a recent piece, 'macro hedge funds bet against recovery.' As of the end of August, Clarium is now -8.3% for the year. That article further goes on to divulge that Clarium is positioned for a bear market by betting on the US dollar, hypothesizing the currency will strengthen due to leveraged investors selling equities to pay down debt they used to finance the equity trades they were in. Additionally, they are keeping a steady eye on the unemployment rate among other indicators. Clarium was down another 4.5% in August and is now -8.3% for the year. The poor performance even reportedly had a normally calm Peter Thiel yelling at Managing Director Jack Selby. For the year of 2008, Clarium was also down 4.5%. Someone once told us it's almost as if they think that the fancier the idea, the bigger the potential profit. Somewhere along the line at Clarium there seems to be a disconnect between the idea and turning it into a successful trading strategy.

While Clarium continues to have interesting research, they still have yet to translate those ideas into solid performance. All the same, we'll gladly read their commentary as it's always prudent to evaluate all sides of an argument regarding the economy and markets, whether you agree or disagree with them. And as an avid lifelong supporter of Manchester United Football Club, we were caught a bit offguard (yet delighted) to see Clarium start off their letter with a quote from the great George Best.

RSS & Email readers will need to come to the blog to view the letter or you can try downloading the .pdf here:

Clarium Save Now Invest Later


We also recommend checking out their past commentary, as well as their piece, 'Macro Framework For Equity Valuation.' Lastly, you can also check out some brief thoughts from Peter Thiel from the Ira Sohn investment conference.


Wednesday, September 9, 2009

Value Investing Congress: Discount for Market Folly Readers!

Today we are ecstatic to announce that readers of Market Folly can receive an exclusive discount to the Value Investing Congress in New York City on October 19th & 20th, 2009 at the Marriott Marquis in Times Square. If you want to hear from some of the best hedge fund managers in the game, then this is the conference to attend. Not to mention, it's a fabulous networking event and place to acquire wisdom to profit in this irrational market. Speakers at the two day event include many of the prominent players we track here on the site on a daily basis. Speaking at the VIC will be: Julian Robertson of Tiger Management, David Einhorn of Greenlight Capital, Bill Ackman of Pershing Square, Eric Sprott of Sprott Asset Management, Whitney Tilson of T2 Partners and many more listed below.

Click here to receive the over 30% discount to Value Investing Congress.

You must use discount code: N09MF1 to receive the full discount. Hurry and register because this discount expires on September 15th, 2009! You've got exactly one week to get signed up with these savings. If you work for a firm, get approval to go and have your company foot the bill since this is one of the premier conferences out there. If you're an individual, we can truly say that the cost of admission is worth every penny. How often do you get to hear presentations and investment ideas from some of the most prominent hedge fund managers out there? Here's your chance. Lastly, it's also an excellent opportunity for networking.

The regular price of the two day event is $4,295. However, Market Folly readers pay only $2,795. That's over a 30% discount and savings of $1,500! Additionally, for those interested there is also a package that gets you admission to the two day event, plus an advanced seminar on Value Investing on October 18th (the day before the main event). This package is regularly priced at $6,495 but Market Folly readers can register for $4,395, a savings of $2,100! Click here to go to the registration page for more specific information about the event(s). If you're from out of town, the Congress has also negotiated lower room rates at the Marriott for attendees.

If you're unfamiliar with the Value Investing Congress, then here's what you need to know: At the event, you will learn from some of the most successful money managers in the business as they share where they're finding value in these tumultuous markets and present their best, actionable investment ideas. Think about that for a second. One good investment idea could more than pay your cost of admission to this event and net you some great returns. Not to mention, the wisdom gained from listening to these great investors can be priceless.

Here is the list of confirmed speakers:

- Julian Robertson, Tiger Management
- Bill Ackman, Pershing Square
- David Einhorn, Greenlight Capital
- Alexander Roepers, Atlantic Investment Management
- Eric Sprott, Sprott Asset Management
- Patrick Degorce, Theleme Partners
- Sean Dobson, Amherst Securities
- Lloyd Khaner, Khaner Capital
- David Nierenberg, The D3 Family Funds
- William C. Waller & Jason A. Stock, M3 Funds
- Zeke Ashton, Centaur Capital Partners
- Kian Ghazi, Hawkshaw Capital Management
- Whitney Tilson & Glenn Tongue, T2 Partners


It's going to be an awesome and insightful event, to say the least. Make sure you get our exclusive Market Folly discount for the Value Investing Congress here. Remember that you MUST use the discount code N09MF1 to receive the full discount!

We'll be able to offer readers a discount in some form all the way until October 4th, but do note that the discount decreases with each week that passes. So, this week (an over 30% discount) is the largest you'll be able to receive, so act fast. Please let us know if you have any questions or problems when trying to register with the discount code.


Ken Griffin's Citadel Portfolio: Hedge Fund 13F Filing


This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

Next up is Ken Griffin's Citadel Investment Group. Ken got his start trading options from his dorm room at Harvard his freshman year. He then launched a convertible bond arbitrage fund his sophomore year and by his senior year, he had $1 million from investors invested in that strategy. Since then, Citadel has seen average annual returns of around 20%. The year of 2008 was a difficult one for them though, as their flagship Wellington and Kensington funds were down big. In fact, they were among the top 10 hedge fund asset losers. Since they would not be recouping performance fees from those funds for a while it seemed, they did what any sensible hedge fund manager would do: start new funds where they can collect the fee again. This is an endless boom bust cycle we've seen in hedge fund land. If you fail, then just come back with a new entity and you're good to go.

Some interesting facts: Citadel is responsible for almost 30% of US equity options volume and 8% of NYSE and Nasdaq volume. Also, Ken Griffin graces Forbes' billionaire list for his endeavors with Citadel. We also wanted to point out that in addition to tracking Citadel's US positions, we can track their positions taken on the London Stock Exchange. Recently, Citadel revealed a stake in Songbird Estates via the contract for difference (CFD) market.

Before we get to their portfolio holdings, we want to insert a cautionary note. Tracking Citadel via 13F isn't particularly useful due to the complex nature of their portfolio. We've elaborated on this issue at the end of the article. But for now, just take the holdings below with a grain of salt. The following were Citadel's long equity, note, and options holdings as of June 30th, 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):
nothing notable within the top 50 positions in their portfolio


Some Increased Positions (A few positions they already owned but added shares to)
E*Trade Financial (ETFC): Increased by 979.6% (note that this activity is as of June 30th. Since then, there have been developments with this position and we'll update that in a separate post).
Apple (AAPL): Increased by 254.9%
Bank of America (BAC) Puts: Increased by 223.7%
Google (GOOG) Calls: Increased by 106.3%
Freeport McMoran C&G 5.5% (FCXGL) Puts: Increased by 83.5%
Walmart (WMT) Calls: Increased by 59.2%
Microsoft (MSFT) Puts: Increased by 32.3%
Conoco Phillips (COP) Puts: Increased by 28.5%
Illumina Bond: Increased by 27%
JPMorgan Chase (JPM) Puts: Increased by 24.5%
Research in Motion (RIMM) Puts: Increased by 22.9%


Some Reduced Positions (Some positions they sold some shares of)
CME Group (CME) Calls: Reduced by 98.8%
Microsoft (MSFT) Calls: Reduced by 50.3%
International Business Machines (IBM) Calls: Reduced by 40.9%
Hologic Bonds: Reduced by 31.2%
Goldman Sachs (GS) Calls: Reduced by 30.7%
Goldman Sachs (GS) Puts: Reduced by 25.6%
Registere Bond: Reduced by 23.3%
International Business Machines (IBM) Puts: Reduced by 21.5%
Wells Fargo (WFC) Calls: Reduced by 20.5%


Removed Positions (Positions they sold out of completely)
Ford Motor Preferred A Bond, Alexion Pharma Bond, Fisher Science Bond, Sybase Bond, Comcast HLD Zones1 (CCZ), Broadcom (BRCM), Lions Gate Bond, Mentor Graphics Bond, Kendle International Bond, St. Mary Land & Exploration Bond, Alliant Techsystems Bond, Cadence Design Bond, Genesco Preferred Bond, State Street (STT), Actuat Bond, Albany International Bond, Ferro Bond, Covidien (COV), Great Atlantic & Pacific Tea Bonds, Texas Instruments (TXN), Tenaris (TS), Millipore Bond, Griffon Corp Bond, Resmed (RMD), Chesapeake Energy Bond, Airtran Bond, Agco Bond, and Hornbeck Offshore Bond.


Top 15 Holdings by percentage of assets reported on 13F filing *(see note below regarding calculations)

  1. Google (GOOG) Calls: 1.49%
  2. Cephalon (CEPH) Bond: 1.27%
  3. Amgen (AMGN) Bond: 0.97%
  4. Apple (AAPL) Puts: 0.93%
  5. Apple (AAPL) Calls: 0.91%
  6. Google (GOOG) Puts: 0.91%
  7. EMC (EMC) Bonds: 0.74%
  8. Goldman Sachs (GS) Puts: 0.74%
  9. Exxon Mobil (XOM) Calls: 0.73%
  10. Medtronic (MDT) Bonds: 0.73%
  11. Symantec (SYMC) Bonds: 0.69%
  12. Gilead Sciences (GILD) Bonds: 0.69%
  13. PG&E (PCG) Bonds: 0.68%
  14. Exxon Mobil (XOM) Puts: 0.64%
  15. JPMorgan Chase (JPM) Calls: 0.55%

The main thing with Citadel's portfolio is to take it all with a grain of salt. They hold a ton of positions and so we only tried to cover the biggest moves they made. More than anything, this look at their 13F is for novelty purposes as we can't really glean a whole lot from it. Many readers just like to see what the top positions are at Ken Griffin's firm and we're happy to oblige. But, for tracking or cloning purposes, it's not all that useful. Why? Since Citadel has the vast majority of their holdings in options markets, it makes it hard to decipher their true position in any given company. For instance, they can be holding both puts and calls on any given stock at a wide variety of strikes and expirations. Since they aren't required to disclose that information, we don't truly know the extent of their holdings. Additionally, they could be selling options against their position which are not required to be reported on a 13F filing. So, we're also missing out on seeing a big chunk of their portfolio to begin with.

Lastly, you'll also notice that each of Citadel's positions only represents a tiny amount of their overall level of reported assets on the 13F. Their largest position is a mere 1.49% of reported assets. What's more is that this percentage becomes even smaller if it were represented as a portion of assets under management rather than just 13F assets. (This goes back to the fact that 13F's only report longs... their overall AUM is much larger than the $33 billion reported on the filing. As such, each position becomes a smaller portion of their overall total). The main point here is that we can't truly see their directional bets so it's best to just glance at their portfolio, go "hmm" and move on.

Besides the typical options positions, we do notice a decent amount of bonds in Citadel's portfolio, so take that for what it's worth, with Cephalon and Amgen being their largest bond positions. The other interesting thing about their portfolio is the fact that they didn't really add any new positions. They were basically just adjusting the sizes of current positions. In terms of sales though, they sold completely out of a bevy of names, as outlined above.

Due to the complexities of Citadel's portfolio and the fact that it honestly isn't very useful to track them via 13F, we are most likely going to remove them from our hedge fund portfolio tracking series. HOWEVER, if numerous readers comment on this post or email us telling us they still want they updates, we will be happy to oblige. One thought we had was to simply update only the very major position changes we see going forwards. Let us know your thoughts in this regard. In our opinion, tracking Citadel via 13F is about as useless as tracking Jim Simons' Rentec via 13F. We might just only report on Citadel's bond positions from here on out, we'll see.

*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $33.8 billion this quarter compared to $28.3 billion last quarter, so quite a noticeable increase in assets invested on the long side. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. In reality, the percentages are more watered down in their actual hedge fund portfolio. If you were to calculate percentage weightings in the actual hedge fund, they would obviously be lower since you would divide position sizes by their total assets under management (a larger number than the one reported on the 13F).

This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Dan Loeb's Third Point LLC, and Stephen Mandel's Lone Pine Capital, George Soros (Soros Fund Management), Lee Ainslie's Maverick Capital, Philip Falcone's Harbinger Capital Partners, David Stemerman's Conatus Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, Thomas Steyer's Farallon Capital, and Boone Pickens' BP Capital Management. Check back each day as we cover prominent hedge fund portfolios.


Jeffrey Gendell's Tontine Associates Boosts Willbros Group (WG) Stake: 13G Filing

Jeffrey Gendell's hedge fund firm Tontine Associates recently filed a 13G on Willbros Group (WG) due to activity on August 31st, 2009. In the filing, they've disclosed a 5.36% ownership stake in WG with 2,125,661 shares. This is an increase from their last disclosure when they held 1,744,166 shares as of June 30th, 2009. In the span of 2 months, Tontine has added 381,495 shares of Willbros Group. We haven't yet covered Tontine Associates in our hedge fund portfolio tracking series yet, but be on the lookout when we'll detail all of their long US equities positions. In terms of other notable recent activity, we saw that Tontine sold shares of Broadwind Energy (BWEN).

Tontine specializes in macro investing by taking large, concentrated positions in companies they feel are poised to benefit from select themes. Occasionally, an activist role will be taken if necessary. While Tontine returned over 100% in both 2003 and 2005, the year of 2008 was one to forget as their Partners fund ended up -91.5% and their 25 LP fund was -63.6%. As such, two of their hedge funds closed down and Tontine found themselves on the top hedge fund manager losers of 2008 list. However, they've started off 2009 with a bang. When we last checked their performance in May, their 25 fund was up 72.3% and their Partners fund was up 49.8% for the year as of that time.

Taken from Google Finance, Willbros Group is "an independent international contractor serving the oil, gas and power industries, government entities, and the refinery and petrochemical industries. Willbros operates its business in three segments: Upstream Oil & Gas, Downstream Oil & Gas, and Engineering. These segments operate primarily in the United States, Canada, and Oman. The Company provides engineering; construction; engineering, procurement and construction (EPC), and specialty services to industry and governmental entities worldwide, specializing in pipelines and associated facilities for onshore and coastal locations."


Hedge Fund Panel Video: Steinhardt, Gerstenhaber & Cooperman

Once in a blue moon, you get something truly worth watching out of CNBC and this is one of those blue moons. Here's a great hedge fund panel video featuring none other than industry legends Michael Steinhardt (previously of Steinhardt Partners, now with WisdomTree Investments), Leon Cooperman of Omega Advisors, and David Gerstenhaber of Argonaut Capital. RSS & Email readers: come to the blog to view the video.















Tuesday, September 8, 2009

Technical Analysis Trading Setups: Weekly Watchlist Video

Here's the latest weekly watchlist from the OptionAddict where he looks at some technical analysis patterns and trading setups. Here's the video:


Free Educational Videos & Analysis From The CME Group

When hedge funds need advising, Dan Gramza is their guy. Today we're excited to bring you some free educational and analytical content from the CME Group. Dan Gramza has an MBA from DePaul and began his trading career at the Chicago Rice and Cotton Exchange. Nowadays, he is an advisor to hedge funds and is an instructor for the Chicago Mercantile Exchange Education Center, amongst other programs. While hedge funds and the like typically pay for his advice and insight, you can check out his free video here. Note that you'll have to supply an e-mail address to get the free presentation. But, once you're in there, you'll have access to Dan's presentation and a bunch of other educational content from the CME Group too.


Boone Pickens' BP Capital: Transocean (RIG) Still Top Holding (13F Filing)


This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

Next up is T. Boone Pickens' hedge fund, BP Capital Management. He runs an energy-centric set of funds out of Dallas, Texas and is a big advocate of Peak Oil Theory. On the positive side of things, he has landed himself on Forbes' billionaire list. Yet on the negative side of things, he also graced the list of top hedge fund manager losers of 2008.

To say Boone had a rough 2008 would be putting it lightly. His energy fund was down 98% and his equities fund down 64% in a year to forget for the energy maverick. That said, BP returned 300% in 2005 and so it looks like you better have a strong stomach to survive the volatility here. We say this of course because we got word that Boone was seeking investors for hedge funds back in July. He started trading the new portfolios back in February and was up 79% already.

We'll be watching Boone's funds closely now that he's been personally hurt by them so much. He obviously doesn't want to blow up (again). In our recent hedge fund news summary, we also saw that Boone was scaling back his wind energy projects too. Looks like tough times all around for our favorite resident energy maverick. At 20%, he is the largest investor in his funds and will live and die by them. And for that, we cannot criticize him. We love to see managers with a lot of 'skin in the game.'

The following were BP Capital's long equity, note, and options holdings as of June 30th, 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):
Forest Oil (FST)


Some Increased Positions (A few positions they already owned but added shares to)
Questar (STR): Increased by 40%
Cabot Oil & Gas (COG): Increased by 37.5%


Some Reduced Positions (Some positions they sold some shares of)
Transocean (RIG): Reduced by 27.8%


Removed Positions (Positions they sold out of completely)
Alpha Natural Resources (ANR)
Consol Energy (CNX)
Massey Energy (MEE)
Halliburton (HAL)
Schlumberger (SLB)
Foster Wheeler (FWLT)
Fluor (FLR)
Weatherford (WFT)
McMoran Exploration (MMR)


All of their long holdings by percentage of assets reported on the 13F filing *(see note below regarding calculations)

  1. Transocean (RIG): 28.23%
  2. Devon Energy (DVN): 15.93%
  3. Occidental Petroleum (OXY): 15.39%
  4. Suncor Energy (SU): 10.64%
  5. Cabot Oil & Gas (COG): 9.85%
  6. Questar (STR): 8.13%
  7. Chesapeake Energy (CHK): 4.64%
  8. Forest Oil (FST): 4.54%
  9. Anadarko Petroleum (APC): 2.65%

Boone Pickens has had a rough patch here over the past year, but we'll continue to check in on this energy maverick to see what he's up to. As you can see, he has quite a concentrated portfolio full of energy names with Transocean (RIG) as his top position by a wide margin even after he sold off almost a third of his stake. If you go back before his funds 'blew up,' you'll see that Boone held many of these exact energy names and has favored them over the longer-term. He is obviously a big bull on crude oil and natural gas long-term and has positioned his equity portfolio as such.

He started a brand new position in Forest Oil (FST) with 260,000 shares and then he boosted his Cabot stake by 37.5% and boosted his Questar position by 40%. In terms of partial sales, he only sold off some RIG and that's it. However, in terms of full sales, he sold completely out of a bevy of names listed above in the 'removed' paragraph. Other than that, the rest of his positions were flat on a quarter by quarter basis as he left them unchanged.

*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $85 million this quarter compared to $93 million last quarter. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. In reality, the percentages are more watered down in their actual hedge fund portfolio. If you were to calculate percentage weightings in the actual hedge fund portfolio, they would obviously be different since you would divide position sizes by their total assets under management.

This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Dan Loeb's Third Point LLC, and Stephen Mandel's Lone Pine Capital, George Soros (Soros Fund Management), Lee Ainslie's Maverick Capital, Philip Falcone's Harbinger Capital Partners, David Stemerman's Conatus Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and Thomas Steyer's Farallon Capital. Check back each day as we cover prominent hedge fund portfolios.


Gold Technical Analysis Update

Here's a new gold technical analysis video that updates the market outlook. Gold has been in massive uptrend over the past 8 years where it has started to encounter resistance from 2008 until now around the $1000 range. And as of right now, it has hit $1005. We've touched on this before, highlighting that gold has both a psychological and technical resistance area there which it has now overcome. Technical analysis typically dictates that when a certain level is tested on the chart over and over, the more likely it becomes that the level will be broken the next time around. And, that's just what happened. What is key now is if can remain above that level as it will inevitably test it again to verify that past resistance has become future support.

The guys at MarketClub are targeting a price of $1200 for gold based on what the technicals are saying. While the market has been building momentum and they point out the MACD turning up, they are questioning what the catalyst will be in order to send gold truly skyrocketing. But, for the mean time, gold has at least crossed the barrier. You can watch the video on gold here.

(click to enlarge)


James Pallotta's Raptor Capital Cuts BigString (BSGC) Stake In Half (13G Filing)


James Pallotta's hedge fund Raptor Capital Management recently filed an amended 13G with regards to their position in BigString (BSGC). Shares of BSGC are traded over the counter and Raptor has disclosed a 3.35% ownership stake in the company with 2,006,780 shares. The amended filing was made due to activity on August 18th, 2009. This is way down from their previous ownership of 7.12% with 4,004,288 shares. So, they have sold over half of their position.

They had previously filed the original 13G back on January 1st, 2009 as Raptor as a firm was just getting started. Remember that James Pallotta used to head the equities team at Paul Tudor Jones' Tudor Investment Corp. Pallotta then spun-off Raptor as its own fund. However, back in June, we learned that Raptor would be winding down. For the rationale behind the move, Pallotta said, "I intend to step back from day-to-day investing for a few months to spend valuable time crafting an optimal investment strategy in order to capitalize fully on the next several years' developing investment opportunity set." We'll keep an eye out for Raptor's revival or possibly a new entity. You can view some of Raptor's prior holdings here.

Taken from Google Finance, BigString is "is a technology company focused on providing online communications. The Company provides a technology that would allow the user of e-mail services to have control, security and privacy relating to the e-mail generated by the user. In addition to its free e-mail service product, it offers e-mail services, products and applications, such as domain/vanity names, post office protocol version 3 (POP3) e-mail client access (a protocol used to retrieve e-mail from a mail server), advanced e-mail management and campaign management tools, which are offered in several different packages by the users of its BigString e-mail service."


Whitney Tilson's August Letter


Hat tip to MyInvestingNotebook for this. Here's an excerpt of the August 2009 letter from Whitney Tilson of hedge fund T2 Partners:

"We are bottoms-up stock pickers, but an important lesson we’ve learned from this downturn is the importance of factoring in our macro views when determining the fund’s overall positioning. Historically, we were roughly 100% long and 20% short, but when we became convinced early last year that the U.S. housing market was going to collapse, we tripled our short exposure, which is why we ended the year down less than half of the S&P 500. Down 18.1% means you only need to be up 22.1% to get back to even, whereas the S&P, which fell 37.0%, needs to rise 58.7% to do so.

We don’t know for sure what the future holds for the U.S. housing market, economy and stock market, but our best guess is that housing prices will continue to decline for another year – the recent signs of stabilization are likely due to seasonal and other temporary factors – and, overall, the U.S. economy will face a significant headwind for a number of years as losses stemming from the greatest asset bubble in history continue to be realized. Thus, whereas normal economic growth might be 2-3% annually, our base case scenario is approximately 1% for the next 3-5 years. Such low growth is not a catastrophe – it was only six months ago that we stood on the precipice of Armageddon, the chance of which has receded materially, thank goodness – but it will likely keep a lid on corporate profits and the stock market.

...

In addition to reducing our long exposure, we have become more defensive in terms of the nature of the stocks we own. We have trimmed more aggressive positions like Huntsman, Resource America, Crosstex and Borders Group as they’ve rallied, and added a number of blue-chip, cash- rich stalwarts to complement our Berkshire Hathaway position, including eBay, GE, Microsoft, Pfizer and Yahoo."


For some additional thoughts from Tilson, check out his take on Berkshire Hathaway as well.