Thursday, December 6, 2012

Holiday Gift Guide For Financial Professionals

It's time for our annual holiday gift guide for financial professionals.  We like to highlight relevant discounts, great books, and useful tools for clients, bosses, colleagues or even yourself.  Here are this year's picks:

Discounts on Publications

Hedge Fund Wisdom: 33% Discount - Our holiday sale runs through the end of the year.  Save 33% on MarketFolly's premium newsletter that analyzes hedge fund portfolios.

Wall Street Journal: 67% Discount - Save on a subscription to the market's top news source.

Barron's: 65% Discount - More savings on this widely-read investment idea publication.

2012 Hedge Fund Compensation Report - If you're looking to make a move in the industry or negotiate a raise, this is a great resource with tons of data points on salary (base & bonus), hours worked, vacation days & more.

Portable Electronics

Apple iPad Mini - The most popular tablet, now even more portable.  Help out all the hedge funds that own AAPL shares by boosting Apple's topline.

Google Nexus 7 - A tablet for Android lovers. 

Kindle Paperwhite - Great for reading finance books and even SEC filings.

Apple MacBook Air - Very portable laptop for travel.

Samsung Chromebook - Another portable laptop option.

Monitors / Trading Station

Dell LED 27 Inch IPS Monitor - Tons of screen real estate here

ASUS 24 Inch LED IPS Monitor - Includes a rebate; great for a multi-monitor setup

Dell UltraSharp 24 Inch LED Monitor - Another good option

Dual Monitor Desk Mount - For assembling your monitors 

Triple Monitor Desk Mount - Turn your desk into a trading station

Great Finance Books

The Art of Short Selling by Kathryn Staley - The most highly recommended book on shorting.

Hedge Fund Market Wizards By Jack Schwager - The latest version in this awesome series featuring new interviews with 15 top money managers including Ray Dalio, Joel Greenblatt & more.

Investment Psychology Explained by Martin Pring - On how to overcome emotional and psychological impediments that distort decision making.

The Alpha Masters by Maneet Ahuja - Profiles of and interviews with 9 top hedge fund managers including David Tepper, Dan Loeb, Marc Lasry & more.

The Behavior Gap by Carl Richards - Great book on how to rein in emotion when thinking about money and making decisions.

Quality of Earnings by Thornton O'Gove - Recommended by Bill Ackman, this book teaches you how to understand various financial information companies provide.

Movies & Documentaries

Margin Call (DVD) - Movie starring Kevin Spacey, Jeremy Irons and Demi Moore about an investment firm during the financial crisis (get the Blu-ray version here).

Too Big To Fail (DVD) - Paul Giamatti, Ed Asner, William Hurt and more fill this star-studded cast in a detailed account of the financial crisis of 2008 (and Blu-ray here).

Arbitrage (DVD) - Starring Richard Gere and Susan Sarandon, this film depicts a hedge fund manager trying to sell his empire before his fraud is exposed (and Blu-ray here).

Inside Job (DVD) - The Academy Award winner for Best Documentary. Directed by Charles Ferguson & narrated by Matt Damon. (and the Blu-ray version here)

Happy holidays everyone!

Wednesday, December 5, 2012

What We're Reading ~ 12/5/12

Notes from the the Bloomberg Hedge Fund Summit [Reformed Broker]

More coverage from the summit [ValueWalk]

Goldman Sachs top 10 market themes for 2013 [ZeroHedge]

The confusion between volatility and risk [Jack Schwager]

Einhorn ramps up net long exposure [Institutional Investor]

The bullish case for gold [Sober Look]

John Paulson said to blame bet against Europe for most of loss [Bloomberg]

Aggregation of talks from the UVA Investment Conference [Santangel's Review]

Pondering fixed income in 2013 [Economic Musings]

Interview with Warren Buffett & Carol Loomis [Charlie Rose]

Xerox may be the next big writedown disaster [TheHour]

Pershing Square investors to convert into permanent capital vehicle [Reuters]

Kleinheinz Capital & Corriente return client money [Bloomberg]

In-depth look at DoubleLine's Jeff Gundlach [Bloomberg]

A holiday book giveaway [Abnormal Returns]

Nominees for the 2012 Absolute Return hedge fund awards [HF Intelligence]

Lunch with Warren Buffett [New Yorker]

Gene Munster's Apple presentation at Ignition [Business Insider]

Broyhill's Presentation on Oaktree Capital Group: Solid as an OAK

Broyhill Asset Management recently released a slideshow presentation with their pitch on Oaktree Capital (OAK).  Entitled "Solid as an OAK," they believe it's an exceptional company trading at a significant discount to intrinsic value.

Oaktree is one of the most widely recognized credit managers in the industry and shares of the company went public earlier this year.  We've covered commentary from their Chairman Howard Marks numerous times as it's one of Warren Buffett's favorite reads.

Broyhill's Thesis on OAK

They feel OAK is:

- Run by superior management with high ownership interest
- Has favorable industry tailwinds
- Has a catalyst for realizing value

They see accelerating cash distributions in 2013 and 2014 as a catalyst for investors.

Other notable institutional owners of OAK shares as of the end of Q3 include David Einhorn's Greenlight Capital, Kingdon Capital, as well as Farallon Capital.

Embedded below is Broyhill's full presentation: Solid as an OAK:

For more on this stock, Brooklyn Investor has also published a series of research on it, highlighting OAK's stake in DoubleLine Capital.

Jeremy Grantham's Latest Commentary: On the Road to Zero Growth

It's been a while since we last checked in on GMO's Jeremy Grantham so today we wanted to highlight his Q3 2012 letter: "On the Road to Zero Growth."

In it, Grantham examines GDP growth rate, slowing population growth, productivity, and reduced capital spending.  He concludes that,

"With a little luck, U.S. GDP growth (even after an increasing squeeze from rising resource costs and environmental damage) should remain modestly positive, even out to 2030 and 2050, in the range of 1% at the high down to a few basis points at worst."

Grantham doesn't offer any investment advice given the scenario he laid out, arguing that it's a complicated set of short-term and intermediate-term consequences.  It sounds like he'll address that in his letter next time around.

Embedded below is Grantham's Q3 letter:

We've also highlighted some of Grantham's past commentary for those interested: betting against bull market irrationality.

Tuesday, December 4, 2012

Are These The Next Warren Buffetts? Wisdom From Klarman, Perry, Chanos & More

Fortune recently republished an article that originally appeared in the 1989 issue of Fortune magazine.  "Are These The New Warren Buffetts?" was written by Brett Duval Fromson and highlights investors from that period who were thought to be talented enough to match the investing acumen of Warren Buffett.  Twenty-plus years later, the article accurately pinpointed some amazing investors.

The article identified the following (at the time) young investors:

- Seeking Subtle Signs of Value: Seth Klarman (Baupost Group)
- The Bargain Hunter: Michael Price (MFP Investors)
- Turning Value Upside Down: Jim Chanos (Kynikos Associates)
- A Formula For Deals: Richard Perry (Perry Partners)
- Pairing Value With Arbitrage: Eddie Lampert (ESL Investors)
- A Freudian Grahamite: Randy Updyke
- The Passionate & The Skeptical: Glenn Greenberg & John Shapiro (Chieftain Capital)
- A Scientist on Wall Street: Thomas Sweeney (Fidelity)
- Mr. Preservation of Capital: John Constable (Constable Partners)
- Mr. & Mrs. Aggressive: Jim and Karen Cramer

Wisdom From The "Next Buffetts"

As you can see, the list highlights some gems.  However, the best part of the article is that each investor shared some rare nuggets of wisdom regarding their approach that we wanted to draw attention to:

Seth Klarman: "Klarman's exceptionally quick and subtle mind allows him to see value in many different guises.  With stocks high, he looks for 'market-insensitive opportunities.'  By that he means companies whose financial performance depends on bankruptcies, announced mergers, liquidations, restructurings, or spinoffs -- corporate events largely independent of the vagaries of the financial markets."  Klarman focuses on the downside, saying: "I focus on what could go wrong.  Before buying, we always ask ourselves, 'what would we pay to own this company forever.' "  For more from this great investor, we've posted up Seth Klarman's recommended reading list.

Michael Price: "I like cheap stocks.  I'm basically a guy who looks at a company's balance sheet and asks, 'what is the company worth? Give me a number.'  If the answer is, 'Substantially more than the price,' then I get interested."

Richard Perry: "His investment approach? E(V) = {P(UPx) + [(1-P) (DPx)]} / (1 + COF).  That simply means he values a deal by calculating the odds that it will go through, how long it will take, and what the investment is worth with and without the deal.  Why all the effort to quantify?  Says Perry: 'There are no lay-ups in the arbitrage business.  This helps us maintain clear, high standards for buying a deal.' "  For more thoughts on this strategy from well-known investors, we've also posted up John Paulson on the risk in risk arbitrage.

Jim Chanos: "Chanos is in truth a perverse kind of value investor.  Using the same techniques as the others, he looks for overvalued stocks.  He stays mainly in large-capitalization issues.  That way there is more liquidity and thus less chance of a short squeeze, which would force him to liquidated his position because he could no longer borrow shares from brokers."  For more on his approach, we've posted up Chanos on the psychology of short selling as well as Chanos on the power of negative thinking.

Eddie Lampert: "Arbitrage helps our value investing.  If we can earn 20% to 25% annualized returns in arbitrage, then for the long term we can buy only stocks that we think will earn comparable rates of return.  Conversely, if deal stocks get overpriced, we will begin investing in companies with good long-term prospects at low prices." 

Randy Updyke: "Investing is about survival.  I stay away from the herd.  I like to buy things for a lot less than I think they are worth.  But to me the psychology and mood of the market are more important than anything."

Thomas Sweeney: "People always panic.  If you study this phenomenon over time, you see that eight times out of ten you make money by buying into a panic."

Be sure to check out the full re-published version of the Fortune article, where you can see Chanos rocking a sweet mustache and other great vintage pictures.

The Arithmetic of Equities By Whitebox Advisors

Andrew Redleaf of Whitebox Advisors penned an interesting letter a few months ago entitled, "The Arithmetic of Equities."  In it, he points to the folly of Bill Gross' "death of equities" commentary and makes the case for stocks.

Redleaf asks a simple question: "Why do U.S. institutions hold less of their money in equities than they have for decades?"  Instead of summarizing, we'll leave you with the entire letter embedded below:

You can download a .pdf copy here.

Warren Buffett on Hedge Fund Managers and Going Long Versus Short

Berkshire Hathaway's Warren Buffett recently was interviewed by Andrew Ross Sorkin for Dealbook and he made some interesting comments about hedge funds, respected investors, and short selling that we wanted to flag:

Buffett on Hedge Fund Managers: "They're not as good as the old ones generally.  The field has gotten swamped, so there's so much money playing and people have been able to raise money by just saying 'hedge fund.  That was not the case earlier on; you really had to have some performance for some time before people would put money with you.  It's a marketing thing."

Julian Robertson echoed this sentiment when he also recently commented that hedge funds aren't doing as well as they used to because the competition is more hedge funds.   

Buffett mentioned a few hedge fund managers who were successful like Julian Robertson (Tiger Management), and he mentioned that he liked Seth Klarman (Baupost Group).  As we highlighted today, Klarman was named one of the 'next Warren Buffetts' way back in 1989 by Fortune.

On Short Selling: "Charlie and I have both talked about it. We probably had a hundred ideas of things that would be good short sales.  Probably 95 percent of them at least turned out to be, and I don't think we would have made a dime out of it if we had been engaged in the activity.  It's too difficult."

On Going Long: "The whole thing about 'longs' is, if you know you're right, you can just keep buying, and the lower it goes, the better you like it, and you can't do that with shorts."

On Running 'Too Much' Money: "... money starts getting self-defeating at a point, too."

Head over to Dealbook for the full interview with Buffett.

Dan Loeb's Third Point November Exposure Report

Dan Loeb's Third Point Offshore Fund is out with its latest exposure report for November.  They finished the month up 2.9% and sit up 17% year-to-date and manage $10 billion.

Exposure Levels

Loeb's firm reduced net long equity exposure by a noticeable amount.  They went from 44% net long in October down to 38% net long at the end of November.  Their largest sector exposure continues to be tech, media & telecom (primarily due to their large stake in Yahoo).

In credit, Third Point is 27.7% net long, a 1% increase from the month prior.

Third Point's Top Positions

1. Yahoo! (YHOO)
2. Greek Government Bonds
3. American International Group (AIG)
4. Gold
5. Murphy Oil (MUR)

Their top holdings as a group remain unchanged this month, though their GGB and AIG stakes flipped position ranks.

Top Winners & Losers

Third Point's top winners included Greek Government bonds, Yahoo, Delphi (DLPH), Aveta, and Ally Financial (multiple securities held).  Their top losers included AIG, Short A, Short B, Apple (AAPL), and Liberty Global (LBTYA).

Embedded below is Third Point's November exposure report:

Overall, not too many notable changes in Loeb's portfolio aside from the reduction in net long equity exposure.  Head to Third Point's Q3 letter for more color on their positions.