Wednesday, April 26, 2017

What We're Reading ~ 4/26/17

The downside of managing downside risk [Morningstar]

A short guide to short selling [Dead Companies Walking]

James Montier: market fair value is 50% lower [Finanz und Wirtschaft]

On the many price fluctuations items see on online shopping [The Atlantic]

4 things that set successful CEOs apart [Harvard Business Review]

Using Eisenhower boxes to improve productivity [Quartz]

3 ways to build a culture of better decisions [CFA Institute]

Against all odds, the US tobacco industry is rolling in money [WSJ]

Refuting the short thesis on Apple [Bireme Capital]

Sprint said to look beyond T-Mobile for other deal options [Bloomberg]

Losses are the new black [L2 inc]

The unique advantage of equity investment [Fundsmith]

Profile of the founder of Chobani [CBS]

Millennials and credit: are we missing the real story? [FICO]

On being special in investing [Reaction Wheel]

What separates champions from 'almost champions?' [NYMag]

Berkshire Hathaway Buys More Liberty SiriusXM

Warren Buffett's Berkshire Hathaway has submitted a couple of Form 4's with the SEC regarding its position in Liberty Sirius XM (LSXMA / LSXMK). 

Per the filings, Berkshire was out buying both the Series C stock (LSXMK) and the Series A stock (LSXMA).  They purchased over 3.87 million LSXMK shares across April 20th, 21st, and 24th at weighted average prices between $38.7043 and $40.62.  After these buys, Berkshire now owns 27.23 million shares of LSXMK.

They also bought over 2.47 million LSXMA shares in total across the same dates at weighted average prices between $38.6046 and $40.795.  After these buys, they now own over 13.15 million LSXMA shares.

Liberty Media's Greg Maffei also tweeted: "Nice to have Berkshire, Warren B, and Ted Weschler step up their $LSXMA investment.  Thanks.  $SIRI. #hearmysiri." And then followed it up with: "Forgot to bow to altar: $BRK.A #OmahaRules."

Given that Ted Weschler was mentioned as the investor involved in this name, it seems natural to draw similarities to a past position of his.  At his old hedge fund Peninsula, Weschler previously owned DirecTV and a large part of the thesis there was a levered buyback.  Given that Sirius XM seems to be following a similar playbook, it seems plausible that this is one of the reasons Weschler is attracted to this name as there are some similarities.  Not to mention, Sirius XM has grown subscribers consistently over the past 7 years.

Per Google Finance, Liberty Sirius XM "owns interests in subsidiaries and other companies, which are engaged in the media and entertainment industries. The Company's principal businesses and assets include its consolidated subsidiaries Sirius XM Holdings Inc. (SIRIUS XM) and Braves Holdings, LLC (Braves Holdings), and its equity affiliate Live Nation Entertainment, Inc. (Live Nation). The Company's segments are SIRIUS XM, and Corporate and other. SIRIUS XM provides a subscription-based satellite radio service. Through its subsidiaries and affiliates, the Company principally operates in North America. The Company also owns a portfolio of minority equity investments in publicly traded media companies, including Time Warner, Inc. and Viacom, Inc. SIRIUS XM transmits music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, in the United States on a subscription fee basis through two satellite radio systems. "

Foxhaven Boosts Trivago Stake

Michael Pausic's hedge fund firm Foxhaven Asset Management has filed a 13G with the SEC regarding its position in Trivago (TRVG).  Per the filing, Foxhaven now owns 11.4% of Trivago with over 3.42 million shares.

This marks an increase of 810,431 shares since January when we highlighted how Foxhaven had boosted its TRVG stake. The latest filing was made due to activity on April 20th.

About Foxhaven Asset Management

Foxhaven is a long/short equity hedge fund that focuses on the technology, media, and telecom sector as well as consumer and internet.  Prior to founding the fund in 2013, Mike Pausic worked at Maverick Capital as head of the media and telecom team

About Trivago

Per Google Finance, Trivago is "company based in the Netherlands that operates an online hotel search platform. The platform allows users to search for, compare and book hotels. It gathers information from various third parties' platforms and provides information about the hotel, pictures, ratings, reviews and filters, such as price, location and extra options. The Company offers access to approximately 1.3 million hotels in over 190 countries via more than 50 localized websites and applications in various languages. The Company also offers marketing tools and services to hotels and hotel chains, as well as to online travel agencies and advertisers, among others. Its principal executive offices are located in Germany."

Tuesday, April 25, 2017

Boyar Research Reports on Hanesbrands, Legg Mason, and Liberty Global

Barron’s recently ran a bullish story on Hanesbrands where they argued the stock could advance by 25%. The piece references extensively a recent report published by Boyar Research. Boyar was kind enough to provide our readers with this report as well as additional reports on Legg Mason and Liberty Global.

To receive these free reports, please visit:

Boyar Research takes a private equity approach to public market investing by identifying securities trading at a substantial discount to their estimate of intrinsic or private market value. Since 2009, the average return for each company profiled in their flagship publication Asset Analysis Focus has been 83.7%, compared with an average return of 53.3% for the S&P 500.*

Hanesbrands Inc. (HBI)

- Hanesbrands, the world’s largest basic apparel company, boasts a portfolio of first-rate brands that hold the #1 or #2 market share position in underwear, intimate apparel, hosiery, and active wear in 12 countries.

- Several issues have weighed on HBI shares over the past two years, culminating in a sharp sell-off in the stock after the Company reported poor 4Q 2016 results. HBI’s innerwear segment, which comprises 43% of sales and nearly 60% of operating profit, exhibited surprising weakness during that quarter due to soft retail traffic not being fully offset by their rapidly growing online sales. However, we do not believe that this recent weakness represents a secular shift in the purchasing frequency of HBI’s products. Rather, we believe this is a temporary situation caused by a shift of customer purchasing behavior from brick-and-mortar establishments to online distribution channels.

- To see Boyar’s estimate of intrinsic value for HBI and to receive their complimentary full report, please click here

Legg Mason, Inc. (LM)

- Legg Mason, Inc. is a formidable player within the asset management industry, possessing impressive scale (~$710 billion of AUM) and a diverse line of well-established products catering to a full range of investment styles and asset classes.

- Approximately 70% of LM’s strategies are outperforming benchmarks from one-year and three-year perspectives, and the figure for the five-year and ten-year perspectives exceeds 80%.

- The Company has also reduced its shares outstanding by 40% and has raised its dividend seven times since 2010. However, LM shares have failed to achieve significant outperformance despite the Company’s strategic advances. In large part, this likely reflects the difficult fundamentals currently impacting the actively managed fund sector.

- LM is trading at approximately 0.7% of AUM, a substantial discount from how comparable firms have historically been valued in transactions.

- To see Boyar’s estimate of intrinsic value for LM and to receive their full report, please click here

Liberty Global plc (LBTYA / LBTYK)

- Liberty Global is the largest European cable systems operator.

- Liberty Global is underpenetrated in its existing network and has plans to expand its footprint by 6-7 million homes in the coming years.

- Liberty Global shares have de-rated to ~9x EV/OCF, below their longer-term average of ~10x—offering a bargain, in our view, for a high-margin, recession-resistant business best positioned to capitalize on the secular growth in internet data usage.

- To see Boyar’s estimate of intrinsic value for LBTYK and to receive their full report, please click here

Monday, April 24, 2017

Marcato Capital's Presentation on Buffalo Wild Wings

Activist investor Mick McGuire's Marcato Capital Management has filed an amended 13D with the SEC regarding its position in Buffalo Wild Wings (BWLD).  Per the filing, Marcato has sent a letter indicating they think the board and management at the company needs to be replaced (letter here).

Marcato has also created a separate slideshow presentation and has outlined a multi-step plan to help turnaround the business: 

1) Refocus the company on its core brand and value proposition,

2) Sell stores to new and existing franchisees (targeting 90% mix of franchised stores by 2020),

3) Create a capital deployment strategy based on returns and profitability, 

4) And finally, realign management incentives to focus on returns on capital and per-share value instead of top-line growth or profit dollars.

Embedded below is Marcato's presentation on Buffalo Wild Wings:

You can download a .pdf copy here.

You can follow Marcato's presentations at the website

Market Strategist Jeff Saut on Gaining Street Smarts

Market strategist Jeff Saut has released his latest weekly investment strategy piece entitled "Street Smarts."  The title sums up exactly what his piece is about as he begins by quoting Confessions of a Street Smart Manager by David Mahoney:

"Some people can have a lot of experience and still not have good judgement. Others can pull a great deal of value out of much less experience. That’s why some people have street smarts and others don’t. A person with street smarts is someone able to take strong action based on good judgement drawn from hard experience. For example, a novice trader once asked an old Wall Street pro why he had good judgement. “Well,” said the pro, “Good judgement comes from experience.” “Then where does experience come from?” asked the novice. “Experience comes from bad judgement,” was the pro’s answer. So you can say that good judgement comes from experience comes from bad judgement."

We've said before that investing is a continual education, you never stop learning.  And while you can read all the investment books out there and learn from the mistakes of others (which is highly beneficial), sometimes you just have to make a mistake yourself to truly learn from it.

Saut's weekly strategy piece "Street Smarts" is embedded below:

You can download a .pdf copy here.

Bridger Capital Adds To Atara Biotherapeutics

Roberto Mignone's hedge fund firm Bridger Capital has filed a 13G with the SEC regarding its stake in Atara Biotherapeutics (ATRA).  Per the filing, Bridger now owns 5.2% of the company with over 1.52 million shares.

This means Bridger has boosted its position size by 725,870 shares since the end of 2016.  The filing was made due to activity on April 11th.

Per Google Finance, Atara Biotherapeutics is "a clinical-stage biopharmaceutical company. The Company is focused on developing therapies for patients with severe and life-threatening diseases. The Company operates through the business of developing and commercializing therapeutics segment. The Company is focused on developing allogeneic or third-party derived antigen-specific T-cells. T-cells are a type of white blood cell. The Company's product candidate, ATA129, is a third-party derived Epstein-Barr virus CTL for the treatment of Epstein-Barr virus (EBV). ATA188 is in development for the treatment of multiple sclerosis. ATA520, which is a third-party donor derived WT1-CTL, targets cancers expressing the antigen Wilms Tumor 1 (WT1). ATA520 is in Phase I clinical trials. The Company's T-cell product candidate, ATA230, which is a third-party derived cytomegalovirus-CTL (CMV-CTL), is in Phase II clinical trials for refractory CMV. "

Friday, April 21, 2017

Soros Fund Boosts Sigma Designs Stake

George Soros' family office Soros Fund Management has filed a Form 4 and 13G with the SEC regarding shares of Sigma Designs (SIGM).  Per the filing, Soros now owns 10.66% of Sigma Designs with over 4.06 million shares.

The Form 4 indicates Soros was buying on April 12th and 13th at a weighted average price of $5.6371.  Their position size is now 2 million shares larger than what it was at the end of January per their previously filed 13G.

Per Google Finance, Sigma Designs is "a provider of global integrated semiconductor solutions. The Company offers media platforms for use in the home entertainment and home control markets. The Company sells its products into markets, including smart television, media connectivity, set-top box and Internet of Things (IoT) devices. The Company's media processor product line consists of a range of functionally similar platforms that are based on integrated chips, embedded software and hardware reference designs. The Company's media connectivity product line consists of wired home networking controller chipsets that are designed to provide connectivity solutions between various home entertainment products and incoming video streams. The Company's IoT devices product line consists of its wireless Z-Wave chips and modules. The Company is engaged in the license of its internally developed intellectual property. It also offers legacy products that are sold into prosumer and other industrial applications."

Tiger Global Adds To Apollo Stake Again

Chase Coleman's hedge fund firm Tiger Global has filed an amended 13G with the SEC regarding its stake in Apollo Global Management (APO).  They now own 15% of Apollo Global with over 28.1 million shares.

As we've detailed previously, Tiger has been boosting its APO stake.  This latest filing means they've increased their position size by an additional 3.1 million shares.  The filing was made due to activity on April 17th through 19th where they purchased shares at around $25.xx per a Form 4 submitted to the SEC.

Per Google Finance, Apollo Global Management is "an alternative investment manager in private equity, credit and real estate. The Company raises, invests and manages funds on behalf of pension, endowment and sovereign wealth funds, as well as other institutional and individual investors. The Company's segments include private equity, credit and real estate. The private equity segment invests in control equity and related debt instruments, convertible securities and distressed debt investments. The credit segment invests in non-control corporate and structured debt instruments, including performing, stressed and distressed investments across the capital structure. The real estate segment invests in real estate equity for the acquisition and recapitalization of real estate assets, portfolios, platforms and operating companies, and real estate debt, including first mortgage and mezzanine loans, preferred equity and commercial mortgage backed securities."

Hedge Fund Links ~ 4/21/17

Paul Tudor Jones says US stocks should terrify Janet Yellen [Bloomberg]

ValueAct's Jeff Ubben giving some money back; feels market is overvalued [CNBC]

Passport Capital shuts down long/short hedge fund [Zero Hedge]

Former Harvard money whiz tries to regain his edge [WSJ]

Hedge fund investors are piling money into failing strategies [CNBC]

New report shows 40% of funds created last year were systematic [Benzinga]

Icahn's big bet against biofuel credits [Reuters]

The fall of Fortress [Institutional Investor]

Balyasny's tip to hedge funds at a crossroads [Bloomberg]

Thursday, April 20, 2017

Special Edition What We're Reading: Amazon (AMZN)

We're trying something new today: a linkfest focused on a single company.  This is mainly because we came across a ton of good reads related to (AMZN) recently and it was simply too many links to include in our regular "What We're Reading" post.  Here's the links:

The high speed trading behind your Amazon purchase [WSJ]

CEO Jeff Bezos' annual letter [SEC]

The Everything Store: Jeff Bezos and the Age of Amazon [Brad Stone]

Amazon and Walmart are in all-out price war [Recode]

Amazon's ambitions unboxed: stores for furniture, appliances and more [NYTimes]

Amazon wants Cheerios, Oreos and other brands to bypass Walmart [Bloomberg]

Jeff Bezos on how to start up a business [YouTube]

Amazon, the world's most remarkable firm, is just getting started [Economist]

Amazon said to mull Whole Foods bid before JANA Partners stepped in [Bloomberg]

CEO of the world's biggest ad company says Amazon keeps him up at night [Business Insider]

Wednesday, April 19, 2017

What We're Reading ~ 4/19/17

The Attention Merchants: The Epic Scramble To Get Inside Our Heads [Tim Wu]

Why we think we're better investors than we are [NYTimes]

Inside the hotel industry's plan to combat Airbnb [NYTimes]

Two law professors mimic activist hedge fund: a corporate raiding adventure [The Atlantic]

Vanguard is growing faster than everybody else combined [NYTimes]

Q&A with Blackrock's (BLK) Larry Fink [Bloomberg]

Why Facebook (FB) keeps beating every rival: it's the network of course [NYTimes]

A look at the first decade of augmented reality [Ben Evans]

Barry Ritholtz's rules of valuations [The Big Picture]

The making of a brand [Collaborative Fund]

Is American retail at a historic tipping point? [NYTimes]

E-commerce is a bear [Andy Dunn]

American Express, challenged by Chase, is losing the 'snob' war [NYTimes]

The potential of graphene to revolutionize the airline industry [Richard Branson]

A day in the life of a food vendor [NYTimes]

Howard Marks' Latest Memo: Lines in the Sand

Oaktree Capital's Chairman Howard Marks has just penned a new memo entitled, "Lines in the Sand."  In it, he addresses the use of subscription lines in private equity, real estate, distressed debt and other fields.

His piece asks investors to consider the implications of closed-end funds' increasing use of subscription lines.  He seems to conclude that subscription lines 'may be adding to risk at a variety of levels.'

Marks also notes,

"The key to financial security  –  individual or societal  – doesn’t lie in counting on things to work  in good times or on average.  Rather, it consists of figuring out what can go wrong in bad times,  and of only doing things that will prove survivable even if they materialize."

Embedded below is Howard Marks' new memo: Lines in the Sand

You can download a .pdf copy here.

For more from this investor, we also just posted Marks' recent presentation: The Truth About Investing.

Tuesday, April 18, 2017

Warren Buffett & Jorge Paulo Lemann Talk at Harvard Business School: Brazil Conference

Berkshire Hathaway's Warren Buffett and 3G Capital's Jorge Paulo Lemann sat down for a talk at Harvard Business School for the Brazil Conference 2017.  Here are some takeaways:

- Buffett considers it one of the larger mistakes in his life that he didn't team up with Lemann until later in his life

- Buffett: "Who you have as partners in life... it's a lot more fun and a lot more profitable to have good partners."

- Lemann met Buffett at the Gillette board and Buffett said he was very rich in the sense that he had tons of time and was able to do what he loves and that's what Lemann wanted after selling the bank.  Buffett: "The two things you can't buy are time and love."

- Buffett tells students to look for the job they'd still do if they didn't need to have a job.  Says to always hang out with people that are better than you.  You don't need a high IQ to succeed in life... find the place where your talents leave you happiest and produce the best results.

-  Lemann almost got expelled his first year at Harvard, went broke his first attempt at business, and he finally started getting going at age 30.

-  Buffett says Tom Murphy is his #1 example as a leader. Also cited Amazon's Jeff Bezos and then Jack Welch too.  Good leaders have big ideas.  "They don't settle cheap."

- Lemann on leadership: have focus, be efficient, have good people, keep costs down, take a bit of risk

-  3G likes to evaluate people in the system by giving them an opportunity to learn from mistakes; wants people that will try hard and do things exceptionally well.  "The only thing you cannot accept is somebody who is ethically not totally there."

-  Buffett asks himself: do they love the money or do they love the business?  (When he looks at leaders for his decentralized model at Berkshire)

-  "That's the one thing I've probably improved on over the years: judging the future behavior of people I encounter." - Buffett

-  "The first thing I want is a business I understand... where it'll be 10, 15, 20 years from now.  Understand if there's some economic castle with a moat, and whether the knight in the castle is any good." - Buffett

-  "The ideal moat is something that would be protected by any competition; usually earnings are regulated in businesses like that.  Perfect product is something that costs a penny and sells for a dollar and is habit forming." - Buffett

-  Lemann says they're "Running things for the long run and building them to last forever."

-  "In the food area, there's a lot to be done still... it'll probably be bigger than the beer area possibly ... We have to adjust, we have to be more nimble (to consumer taste)." - Lemann

-  "On SAB: the big attraction there is Africa... hot climate, young population, we have to learn how to operate, but the potential is there.  Africa maybe 30 years from now will be bigger than the US in beer consumption." - Lemann

-  On the current largest market cap companies being tech.  Lemann: "The better investments will be in technology.  But the problem is technology is very difficult to pick and things change very fast there."

Embedded below is the video of Jorge Paulo Lemann and Warren Buffett at the Brazil Conference 2017:

For more wisdom, we've also highlighted Warren Buffett's 2016 letter as well as Buffett's talk with Bill Gates.

Howard Marks: The Truth About Investing

Oaktree Capital's Chairman Howard Marks has put together a slideshow entitled The Truth About Investing which was posted by the CFA Society.  In it, he outlines the nuances of investing and also includes notable quotes from others.

Some highlights include:

"The price of a security  at a given point in time reflects  the consensus of investors  regarding its value.  The big gains arise when the consensus turns out to have  underestimated  reality.    To be able to take advantage of such divergences, you have  to think  in a way that departs from the consensus; you have to think  different and  better.   This goal can be described as “second - level thinking” or “variant perception.”


"Superior performance doesn’t come from being right, but from being more right  than the consensus.   You can be right about something and perform just average if  everyone else  is right, too.  Or you can be wrong and outperform if everyone else is  more wrong."

As well as:

"To be a successful investor, you have to have a philosophy  and process you believe  in and can stick  to, even under pressure.   Since no approach will allow you to profit  from all types of opportunities or in all environments, you have to be willing  to not  participate  in everything  that goes up, only the things that fit your approach. To be a  disciplined investor, you have to be able to stand by and watch as other people make  money in things you passed on."

Embedded below is Howard Marks' slideshow presentation: The Truth About Investing:

You can download a .pdf copy here.

For more from this investor, be sure to check out his book, The Most Important Thing, which is highly recommended if you found the above insightful.

We've also previously posted Howard Marks' latest memo: Expert Opinion.

Thursday, April 13, 2017

Bill Miller Wealthtrack Interview

Bill Miller recently appeared on Consuelo Mack's WealthTrack for an interview.  He's beat the S&P 500 for 15 consecutive years when he worked at Legg Mason.  Then he had a few years of underperformance and has come back with Miller Value Partners, an independent investment advisory firm. 

Here are some of the key takeaways:

-  Looks for stocks trading at a discount to intrinsic business value (present value of future free cashflow): looks for business that are naturally cash generative and buys them when free cashflow yield is 50% or more higher than the market.

-  Noted that typical value investors look for accounting value versus economic value.  Cites them missing Amazon (AMZN) as an example over the past 20 years.

-  Miller looks for "companies that can earn above their cost of capital through an economic cycle."

-  "Where you can really make significant amounts of money is when an industry changes from being one that doesn't generate economic value to one that does."  One example of this he cites is the airlines now.  Now they've had positive cashflow ever since 2009.  He owns Delta (DAL), United (UAL), American Airlines (AAL).  Consolidation has played a huge role.  As we've noted before, Warren Buffett is also now a large shareholder of airlines.

- Also owns Valeant Pharmaceuticals (VRX) equity in one fund and the bonds in another fund.  Notes that Bill Ackman has sold his VRX position.  Miller was buying around $30.  Thinks "perceived risk is way underpriced to real risk."  Thinks it could be a $50-60 stock in 3 or 4 years.

-  Miller thinks Apollo Group (APO) and Carlyle Group (CG) are cheap.  We've highlighted how Tiger Global has been buying APO as well.

-  Miller doesn't think the market is overvalued on a relative or absolute basis.  Especially compared to other asset classes it's cheap.

-  Likes Intrexon (XON), leading company in synthetic biology (think re-writing DNA). 

-  If he had to pick one stock to own for the long-term he'd pick Amazon (AMZN).  Compared it to Alphabet (GOOGL) and Facebook (FB) and their core business is the $500-600 billion ad market which is growing 5% a year.  Whereas AMZN's core business is retail.  US retail alone is $5 trillion so the total addressable market is huge.  Not to mention Amazon Web Services, etc.

Embedded below is the video of Bill Miller's Wealthtrack interview:

For more recent Wealthtrack interviews, we've also posted Consuelo Mack's interview with Joel Greenblatt.

The Wizard of Lies Movie Trailer: Bernie Madoff HBO Film

HBO has released a trailer for its new film The Wizard of Lies featuring Robert De Niro and Michelle Pfeiffer.  This new television movie tells the story of Bernie Madoff's infamous ponzi scheme. 

It premiers on May 20th on HBO and also features Hank Azaria, Alessandro Nivola, and Kristen Connolly, among others.

Embedded below is the video trailer for HBO's Wizard of Lies:

There has been a surge of recent documentaries, shows, and films on finance.  We've highlighted HBO's Becoming Warren Buffett as well as Showtime's Billions if you're interested.

Hayden Capital's Thesis on Zooplus

Fred Liu's Hayden Capital has penned an in-depth write-up on Zooplus (ETR: ZO1), a leading online retailer of pet food and supplies in Europe.

They see a return of around 20% per year as the company has 50% market share in its category and is the low cost provider.

Hayden notes the company's 94% sales retention rate and 31% annualized sales growth since 2010.

As far as risks go, they cite what any retailer fears: the looming Amazon (AMZN) threat.  Hayden counters that AMZN's European distribution centers aren't equipped to handle heavy, bulky items and points to's success in the US market. 

Also, Hayden acknowledges that there's some degree of 'key man' risk here as CEO Cornelius Patt has been a 'visionary' and losing him would be a big detriment.

Embedded below is Hayden Capital's full thesis on Zooplus:

You can download a .pdf copy here.

Berkshire Hathaway Trims Wells Fargo Stake To Stay Below 10% Threshold

Warren Buffett's Berkshire Hathaway has withdrawn its application to the Federal Reserve which would have let them take their ownership stake above 10%.  Now, they'll sell 9 million shares instead in order to remain below the 10% level.

As of the end of 2016, Berkshire owned 479 million WFC shares. The latest news indicates Berkshire has sold 7.13 million WFC shares and plans another 1.87 million share sale soon. 

Berkshire has said that "investment or valuation considerations" did not play a part in their decision to sell as it looks like they're merely just trying to stay under the threshold. 

For more on Berkshire, here's Warren Buffett's most recent interview on Apple and other topics.

Per Google Finance, Wells Fargo is "a diversified financial services company. It has three operating segments: Community Banking, Wholesale Banking, and Wealth and Investment Management. The Company offers its services under three categories: personal, small business and commercial. It provides retail, commercial and corporate banking services through banking locations and offices, the Internet and other distribution channels to individuals, businesses and institutions in all 50 states, the District of Columbia and in other countries. It provides other financial services through its subsidiaries engaged in various businesses, including wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, computer and data processing services, investment advisory services, mortgage-backed securities servicing and venture capital investment."

Wednesday, April 12, 2017

What We're Reading ~ 4/12/17

Matchmakers: The New Economics of Multisided Platforms [David Evans]

Beating the odds when you launch a new venture [Harvard Business Review]

Consolidated learnings: What I think I know about investing [Medium]

Inside Blue Apron's meal kit machine [Bloomberg]

Is it last call for craft beer? [NYTimes]

Americans haven't been this optimistic about stocks for nearly two decades [Bloomberg]

The gap between sentiment and certainty is stunning [WSJ]

On the ramifications of Brexit [Arp Investments]

How Canada completely lost its mind over real estate [Macleans]

Why Costco (COST) loves store sales: you try shipping a tub of mayo [WSJ]

Q&A with Airbnb's CEO Brian Chesky [Fortune]

Mobile video to grow almost 900% by 2021 Cisco predicts [Fierce Wireless]

Inside Verizon's go90, a video app mix between YouTube and Netflix [Business Insider]

Your focus should be on saving money, not investment returns [Collaborative Fund]

Instagram (FB) 'influencer' marketing is now a $1 billion industry [MediaKix]

Quick video on Zara: How a Spaniard invented fast fashion [YouTube]

Tuesday, April 11, 2017

JANA Partners Files 13D on Whole Foods Market

Barry Rosenstein's hedge fund firm JANA Partners has filed a 13D with the SEC regarding shares of Whole Foods Market (WFM).  Per the filing, JANA now owns 8.3% of the company with 26.31 million shares (including options to purchase 3.53 million shares).

The filing indicates JANA was buying throughout February, in early March and late March, and into early April.  The bulk of their buying came between $29 and $31 per share.

As to why they purchased shares, the 13D filing notes that JANA is looking to:

"(1) addressing the Issuer's chronic underperformance for shareholders, (2) changing the Issuer's board and senior management composition and addressing governance, (3) optimizing the Issuer's real estate and capital allocation strategies, including discussing the Issuer's "365" small store format and opportunities to improve returns on invested capital, (4) pursuing opportunities to improve performance by advancing its brand development and by addressing core operating deficiencies in areas including customer loyalty and analytics, category management and analytics, technology and digital capabilities, procurement and buying practices, pricing strategies and value proposition communication, and online offerings, (5) improving in-store execution, including labor scheduling and management, management of inventory and shrink levels, stocking practices, product layout, in-store signage, private label program strategy and management, and assessing broader cost structure and operating opportunities, (6) evaluating opportunities to re-engineer the Issuer's suboptimal and cost-disadvantaged grocery procurement and distribution strategy, such as by internalizing distribution or pursuing other hybrid strategies, in order to diversify away from its existing primary wholesale distribution partner, while in the interim implementing better management and increased auditing of this relationship to reduce costs, improve execution, and limit such distribution partner's influence, and (7) initiating a review of strategic alternatives particularly in light of the Issuer's apparent unwillingness to engage in discussions with third parties regarding such alternatives."

Per Google Finance, Whole Foods Market is "engaged in the business of natural and organic foods supermarket. The Company operates approximately 456 stores in the United States, Canada and the United Kingdom. Its stores have an average size of approximately 39,000 square feet, and are supported by its distribution centers, bake house facilities, commissary kitchens, seafood-processing facilities, a produce procurement center, and a specialty coffee and tea procurement and roasting operation, among others. It offers over 30,000 organic stock keeping units (SKUs), covering various areas of its store, including produce, packaged goods, bulk, frozen, dairy, meat, bakery, prepared foods, coffee, tea, beer, wine, cheese, nutritional supplements, vitamins, body care, pet foods and household goods. The Company's brands include 365 Everyday Value, Allegro Coffee, Whole Foods Market, Whole Paws, and Engine 2 Plant-Strong. It also offers approximately 400 temporary exclusives. ."

Tiger Global Buys More Apollo Global Again

Chase Coleman's hedge fund firm Tiger Global has filed a Form 4 with the SEC regarding its position in Apollo Global Management (APO). 

Per the filing, Tiger Global purchased 1,266,800 shares in total across April 6th and 7th at weighted average prices of $25.254 and $25.301.  After these purchases, Tiger Global now owns over 25 million shares of APO. 

This comes after the hedge fund has been buying Apollo Global over the past two months.

Per Google Finance, Apollo Global Management is "an alternative investment manager in private equity, credit and real estate. The Company raises, invests and manages funds on behalf of pension, endowment and sovereign wealth funds, as well as other institutional and individual investors. The Company's segments include private equity, credit and real estate. The private equity segment invests in control equity and related debt instruments, convertible securities and distressed debt investments. The credit segment invests in non-control corporate and structured debt instruments, including performing, stressed and distressed investments across the capital structure. The real estate segment invests in real estate equity for the acquisition and recapitalization of real estate assets, portfolios, platforms and operating companies, and real estate debt, including first mortgage and mezzanine loans, preferred equity and commercial mortgage backed securities."

Monday, April 10, 2017

Sohn New York Conference & Investment Contest 2017

Since 1995, the Sohn Investment Conference in New York has been the premier investing event.  It features top hedge fund managers sharing their latest insights and ideas in order to benefit the Sohn Conference Foundation's work to end childhood cancer.

This year's conference is coming up fast, so be sure to register for the conference before it sells out.

Sohn New York Event Details

When: May 8th, 2017

Where: David Geffen Hall, Lincoln Center, New York City

Sohn New York Speakers List 2017

David Einhorn, Greenlight Capital

Bill Ackman, Pershing Square Capital

Jeff Gundlach, DoubleLine Capital

Clifton Robbins, Blue Harbour Group

Josh Resnick, Jericho Capital

Larry Robbins, Glenview Capital

Davide Serra, Algebris Investments

Brad Gerstner, Altimeter Capital

Keith Meister, Corvex Capital

Debra Fine, Fine Capital Partners

Chamath Palihapitiya, Social Capital

Tal Ben-Shahar, Potentialife

Kevin Warsh, Hoover Institution

To hear the latest investment ideas from these top managers next month, sign up for the New York Sohn Investment Conference here.

Sohn Investment Idea Contest

Also, the Sohn Investment Idea Contest is now live.  Pitch your best idea with a 12-month horizon and have it judged by David Einhorn, Bill Ackman, Joel Greenblatt, Seth Klarman, and Larry Robbins.

The winner of the contest will then present their idea in front of 3,000 people at the Sohn Investment Conference in New York.

You can enter the idea contest here.

Kase Capital Short Wingstop Presentation

Whitney Tilson's hedge fund firm Kase Capital has released a slide deck on its short position in Wingstop (WING).  This is Kase's largest short position.

He notes that while the company is growing rapidly, the stock's valuation is "absurd", trading at 52x trailing EPS and 29x trailing EBITDA.

Tilson points out that same store sales growth is decelerating and the company's gross margin has also declined significantly. 

Embedded below is Kase Capital's presentation on why they're short Wingstop:

You can download a .pdf copy here.

Betting on Zero Trailer: Documentary on Bill Ackman's Fight Against Herbalife

Bill Ackman and Pershing Square's short bet against Herbalife (HLF) has been dragging on for quite some time now.  Simply put, he argues the company is a pyramid scheme.

Now, a documentary has been released called Betting on Zero.  It details Bill Ackman's 'holy war' against the company and also touches on Carl Icahn's long position. 

The documentary is available on iTunes now, but here's a teaser of what you can expect.

Embedded below is the video trailer for Betting on Zero:

For more on this fund, we've detailed Pershing Square's 2016 annual report.

Friday, April 7, 2017

Hedge Fund Links ~ 4/7/17

Julian Robertson shuts down Tiger Accelerator fund [Reuters]

Allan Mecham's Arlington Value closes to new investors [ValueWalk]

Hedge funds manage risk: opposing view [USA Today]

Sears and its hedge fund owner, in slow decline together [NYTimes]

Eton Park shutdown shows how hedge funds are dying at an alarming rate [Fortune]

Potential Eton Park spinoffs coming? [Institutional Investor]

Hedge fund flows and name gravitas [SSRN]

Law firm Seward Kissel sees further hedge fund fee shift [ValueWalk]

Hedge fund titans face what's next as they pass certain age [Bloomberg]

The future of family office investing [Medium]

Thursday, April 6, 2017

Ryanair's Low Cost Flywheel: Scuttleblurb Analysis

Scuttleblurb has agreed to let us post their recent analysis of Ryanair for free.  If you're not familiar, provides subscribers with balanced and insightful analysis and commentary on the moats, business models, and corporate strategies of companies across a variety of industries, as well as time-saving summaries of management commentary on earnings calls.

Market Folly readers can receive an 18% discount off your first year of Scuttleblurb using coupon code: marketfolly.   

Ryanair's Low Cost Flywheel

“One thing we have looked at is maybe putting a coin slot on the toilet door...Pay-per-pee. If someone wanted to pay £5 to go to the toilet, I’d carry them myself. I would wipe their bums for a fiver.”  

- Michael O’Leary, CEO of Ryanair

In a letter to one of GEICO's officers dated July 22, 1976, Warren Buffett wrote:

“I have always been attracted to the low cost operator in any business and, when you can find a combination of (i) an extremely large business, (ii) a more or less homogenous product, and (iii) a very large gap in operating costs between the low cost operator and all of the other companies in the industry, you have a really attractive investment situation. That situation prevailed twenty five years ago when I first became interested in the company, and it still prevails.”   

One of the most compelling moats a company can possess is a set of self-reinforcing processes that continuously fosters lower unit costs. Interactive Brokers, for example, benefits from such a dynamic. As I've previously noted, IBKR can charge its customers a fraction of the commission assessed by peers and still generate significantly higher profit margins because it: 1) spends far less of its revenue on advertising; 2) does not support physical branches or an army of customer service reps, and less appreciated but critically; 3) attracts trading volume that is itself endemic to continuously driving down execution costs, since the more trades the company executes, the more optimally it can route orders to low-cost venues, and better execution in turn, leads to more trading volume.

Ryanair benefits from a similar low-cost flywheel.

This story really begins with Herb Kelleher - the founder of Southwest Airlines, the company that Ryanair modeled itself after - who observed that the hub-and-spoke networks operated by legacy carriers, designed to maximize load factors, sub-optimally left aircraft stranded on the tarmac waiting for feeder traffic and baggage transfers. Herb understood that to generate healthy profits along short point-to-point routes, he had to keep his planes off the ground and in the air for as long as possible while assiduously controlling costs, which informed an operating framework designed to hasten turnaround times: single-class, unassigned seating to expedite onboarding; a no-meals policy to obviate time- consuming clean-up; a single aircraft model (Boeing 737) to reduce crew training costs and enable speedier repairs and servicing; and at least at the start, concentrating on uncongested, secondary airports to enable rapid take-off and landing.

Michael O’Leary, profanity-oozing ass-kicker and Ryanair CEO since 1994, left Kelleher’s charm and decency on the Love Field tarmac but imported his operating model to Europe, stoking a relentless self-reinforcing moat entrenchment process that continues to this day. Early in its corporate life, by targeting secondary airports desperate for traffic - Hahn, not Frankfurt; Brescia, not Verona; Lubeck, not Hamburg; Skavsta, not Stockholm - Ryanair obtained substantial landing fee discounts. Stansted, for instance, agreed to charge Ryanair £1 per passenger vs. the official rate of £6 while Essex airport offered heavily discounted fees on new routes, laddering up to higher tariffs over 4-5 years as those routes matured and densified. Ryanair recycled the cost savings into lower passenger fares, attracting fresh waves of traffic that were used to negotiate favorable landing fees at other secondary airports and receive discounts on aircraft orders from Boeing.

[When reading coherent business triumph narratives involving bold actors and crafty strategy, it's easy to neglect the crucial role of luck. Just to swiftly dispel the notion that Ryanair's status as the largest and most profitable airline banner in Europe was inevitable, know that the company was on the brink of collapse in the late '80s before Ireland's persuasive Minister of Transport somehow convinced the Cabinet to break up Aer Lingus' monopoly, yielding critical, life-saving routes to Ryanair. At the time, O'Leary, who was handling finances for the troubled airline, actually recommended to Tony Ryan (the airline's founder) that the whole cash-draining enterprise be shut down before striking what turned out to be an insanely profitable compensation package for himself, one which granted O'Leary a quarter of any profits above £2mn, a goal Ryan believed outside the realm of possible at the time (this deal has since been scrapped). The Aer Lingus break-up was then followed by EU’s 1992 Open Skies treaty, which deregulated the European airline industry and allowed carriers to fly passengers between EU states. I found this story and other interesting historical tidbits referenced in this post in the book Ryanair: The Full Story of the Controversial Low-Cost Airline written by Siobhan Creaton]

Complementing this feedback loop, a keen obsession with cost control and efficiency has taken root in policies and behaviors ranging from cringeworthy (charging the disabled for wheelchairs) to heroic (O’Leary heaving baggage onto planes during strikes) to downright petty (apparently and perhaps apocryphally, at one time Ryanair banned employees from charging their mobile phones during work hours, citing theft of company electricity amounting to 1.4 pence per charge), reinforcing an unrepentantly utilitarian attitude toward customer service: humane treatment for one compromises low costs for all.

This has all crescendo’ed to a cost structure today that no European competitor is even remotely positioned to rival. Ryanair's cost per passenger (excluding fuel) is just €27 vs. €40 for Wizz Air, the second lowest-cost airline. Culturally stodgy full-service European incumbents like IAG, Air France, Lufthansa, and Air Berlin have average ex. fuel per passenger costs that run 4x higher than Ryanair's. Besides maybe Wizz Air, a low-cost carrier focused on Eastern European routes whose seat capacity is just ~1% of Ryanair’s, no competitor can match the company's €42 airfare and still make money. This cost advantage will only widen as the company inks still more incentive deals with airports and takes delivery of Boeing 737 MAX aircraft, which come with 4% more seats and a 16% reduction in fuel costs per passenger.

And so, because engaging in a fare war with Ryanair is suicidal - as the failed low-cost initiatives of major incumbents like Virgin Express, BA Go, and KLM Buzz attest - Ryanair can profitably undercut competitors and steal their passengers, maximizing load factors while leveraging market share gains to secure increasingly advantaged landing fees and aircraft prices, with the capacity to incessantly reinvest the resulting savings into still lower passenger fares. Over the last dozen years, this self-perpetuating process has spurred 14% annual growth in passenger volume, amplifying scale advantages that have allowed Ryanair to cost-effectively (EBIT/passenger has remained flat over this time) extend its reach beyond secondary airports. Unable to compete with Ryanair's prices, competitors have increasingly relinquished bases in Germany, Italy, Spain, and Belgium, compelling primary airports, which today represent just over half of all airports served by the company, to negotiate attractive volume deals with Ryanair.

[On public conference calls, O'Leary will frequently and explicitly highlight its cost advantage over peers, often goading competitors by name. The confrontational posture is more than just an unvarnished reflection of O'Leary's gracious personality; it signals to competitors that Ryanair stands credibly ready to take fares down to levels that would still allow Ryanair to generate profits while producing significant losses to them, i.e. "don't even bother competing with us on price" (my words)].

Sometime in the late-90s, Ryanair placed an £800mn order for 25 planes with Boeing with the option to purchase 20 more for £650mn, a huge commitment for what was then a relatively unknown fledgling. To test the company’s creditworthiness, Boeing rigorously stress tested the airline’s business model through computer-simulated declines in passenger traffic, fluctuating fuel costs, and exchange rates. The result: Boeing could not find a single 3-month period in which Ryanair would not be profitable.

Boeing’s Director of Sales in the UK and Ireland remarked,

“The lowest we could do was break even....It is probably the most robust model we have encountered.”   

This assessment would prove mostly prescient as Ryanair subsequently delivered positive operating profits each fiscal year up to today (“mostly,” because there were losses in some 3-month periods), generating among the highest returns on capital (averaging low-teens over the last 15 years) of all European airlines. Under O'Leary's guidance, management has acted as capable stewards of capital, opportunistically retiring 15% of the company’s share count over the last 5 years at attractive prices - with nearly 30% of that reduction taking place during the Brexit vote, when the company increased its share repurchase authorization to seize on the stock’s ~25% decline - all while maintaining a pristine balance sheet, which carries less than €600mn in net debt against €2bn in LTM EBITDA. The stock trades at 16x trailing earnings with a long runway for growth as passenger volumes, per management's guidance, expand by ~9%/year (about 2x the industry) from 119mn in FY17 to 200mn by FY24, and assuming flat fares, earnings should grow meaningfully faster than that on lower costs per passenger (as the more efficient MAX comes on line) and higher per-passenger ancillary revenue.

Since Ryanair announced that membership in myRyanair for all online bookings would be mandatory last November, membership has surged and is expected to reach 20mn by March 2017. Besides the immediately obvious revenue and cost opportunities from upselling reserved and upgraded seats (which has prompted management to raise medium- term guidance on ancillary sales) and disintermediating costly OTA and metasearch traffic, there are significant advantages from directly interfacing with a huge customer base, like fostering loyalty through customized services and even, just maybe, scaling an in-house OTA, linking travelers to car rentals and hotel rooms. Over the last decade, passenger fares haven't really budged much at all; however, ancillary revenue per passenger has nearly doubled, from ~€8 to ~€15 per passenger, driving all of the per-passenger EBITDA growth over that period, and now that Ryanair has made myRyanair membership mandatory, its burgeoning captive audience should translate into still greater ancillary sales/passenger.

Brexit has prompted Ryanair to pivot away from the UK and concentrate its growth ambitions in continental Europe. The UK represents about 2% of the company's capacity and 3 out of its 1,800 routes, so it seems like a manageable risk, though who can fully handicap the destabilizing consequences of creeping populist/isolationist sentiment? It's a risk. Still, pick a year, any year and you’ll find that there has almost always been a sound macro, political, or industry- specific reason not to invest in Ryanair stock: ATC strikes, terrorism, austerity measures, economic contraction, fuel shocks, low-cost competition from incumbents, low-cost competition from upstarts, foot and mouth disease, the Iraq War, Avian flu, Volcanic ash clouds. Just as GEICO’s structural cost advantage remained intact despite the company’s reckless underwriting practices during the ‘70s, so has Ryanair’s persisted through these destabilizing exogenous events. And besides, through it all, it turns out that for the right price folks still want to explore different cultures, get away during holidays, and visit loved ones in distant locations. I suspect this will continue to be true over the next decade.

So if you're a shareholder, the next time you find yourself on a Ryanair flight, as you recline comfortably squirm perpendicularly in your squeaky, navy blue seat, carapaced by overhead compartment doors littered with tacky revenue-generating ads, feel free to silently cheer through your discomfort.

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Wednesday, April 5, 2017

What We're Reading ~ 4/5/17

Modern Monopolies: What It Takes to Dominate the 21st Century [Alex Moazed]

How moats make a difference [Intrinsic Investing]

Boyar Research's thesis on QVC and Madison Square Garden [Barrons]

Autonomous cars and second order consequences [Benedict Evans]

The hardest question in portfolio management [A Wealth of Common Sense]

Diversification, adaptation, and stock market valuations [Philosophical Economics]

Noise: how to overcome the high, hidden cost of inconsistent decisions [Harvard Biz Review]

How Domino's built a $9 billion empire [Bloomberg]

How do winning consumer goods companies capture growth? [McKinsey]

Airlines make more money selling miles than seats [Bloomberg]

At Blackrock, machines are rising over managers to pick stocks [NYTimes]

What's next for malls? [Fashionista]

Andrew Ng on what AI can and can't do [Harvard Business Review]

Margin debt hit all time high in February [WSJ]

The 1% rule: why a few people get most of the rewards [James Clear]

Chuck Akre's Talk at Google: Three-Legged Stool Investment Construct

Chuck Akre of Akre Capital Management recently had a talk at Google about investing entitled "The Peregrinations of an English Major Trying to Solve the Investment Puzzle."

If you're unfamiliar with Akre, he focuses on finding long-term compounders and runs a somewhat concentrated portfolio.  Here's notes from his talk:

Chuck Akre's Talk at Google

- Reads voraciously to this day.  Cited one of the very first books he liked: The Money Masters.  Also noted that 100:1 in the Stock Market is the book he took the idea of compounding from.  Said he read The Intelligent Investor as well as business biographies.

- What makes a great investment?  "Rate of return is the bottom line of all investing."

- Looks at free cashflow return and focuses on valuation as the key to compounding; buy it right.

- How do they identify investments that will generate above average returns?  "We like to fish in the pond of high return businesses."  Asks: what kind of returns on capital?  What are the net margins?  Thinks an 'average' business returns high single digits.  Cites Mastercard (MA) and Visa (V) with 30% margins.  "What is it about the essence of that business that allows them to earn returns that cause them to have a big bullseye on their back?"

- Three-legged stool:  Their investment construct that lets them think in simple terms.  First leg is the quality of a business: a high return business.  Second leg is operations: want management to have skill and integrity (a demonstrated record) and treat investors as partners.  Third leg is reinvestment: would love the company to put cash back into the business if there's great opportunity.  Cited the book Dear Chairman (which we've reviewed here).

- "I have never been able to learn from other people's mistakes.  I have to make my own."

- Wants to be an investor in a business rather than a speculator in shares.

- His goal is to compound capital at an above average rate while incurring a below average level of risk.  Volatility is only a risk in the short run.

- Akre's separately managed accounts over 27 years have compounded at 12.7% versus S&P at 9.4%.  Also has a partnership that's done 15.25% versus S&P 9.2% and mutual funds that have done 13.2% annual.

- Mastercard: originally purchased in 2010 at around $22 with regulatory worries around Durbin amendment.  Business has fantastic returns, had a low valuation (13-14x at the time).  "Their returns are so high they can't possibly find a place to reinvest their money, so our compounding is diminished modestly because of that."

- Moody's (MCO): Bought in January 2012 at $39.  Any company that wants debt has to get a rating on it and it's basically an oligopoly: MCO, S&P (SPGI), and Fitch.

- Enstar (ESGR): Been involved for 10 years.  They buy insurance that's in run-off.  Paid 3 times book when he bought shares. 

- Quotes Einstein: "You should make everything simple as possible but no simpler."  "We cannot solve our problems with the same thinking we use to create them."  "The only source of knowledge is experience."  "Imagination is more important than knowledge."  That last quote is what's on the front of Akre's book:

- Two of his best investments (100 baggers): Berkshire Hathaway (BRK.A) and American Tower (AMT).  "Most of the time you can buy these businesses at reasonable valuations... sometimes you can buy them at a steal."

- On selling: "The most difficult thing to do in our business is not sell, if you're a long-term investor."

- Bought Visa (V) because they have concentration limits in their funds and were bumping into that with their stake in MA.  Did the same with SBA Communications (SBAC) as it relates to their AMT position.  Gaining more exposure to the themes via competitors since individual position limits kicked in.

Embedded below is video of Chuck Akre's talk at Google:

We've covered many other investor talks at Google, including:

- Howard Marks' talk at Google

- Michael Mauboussin's talk at Google

- Jim Grant's talk at Google

Joel Greenblatt's Talk at Google

Joel Greenblatt is the founder of Gotham Capital and also author of the book The Little Book That Beats the Market.  He recently gave a talk at Google and here are the takeaways:

Joel Greenblatt's Talk at Google

- He thinks the vast majority of investors should index rather than pick stocks.  That said, he doesn't index and Warren Buffett doesn't either.

- Greenblatt said people are still crazy (human behavior) and the market has wild rides (50% drops in recessions, tripling in value afterwards, etc).  So there's an opportunity.  The key is obviously to buy when valuations are below average and sell when they're above average.

- He tells his MBA students at Columbia Business School: "If they do good valuation work, I guarantee the market will agree with them... I just don't know when."

- "Stocks are ownership shares in businesses."  Looks at how relatively cheap they are compared to other businesses, to history, etc.  Measure in absolute and relative value.

- Emphasizes being patient; market oscillates back and forth over the years.  Time horizons are shrinking so we're playing time arbitrage. 

- "Almost never have I bottom-ticked a stock."  That means most of the time he'll be down on a stock at some point.  There's two reasons why: he's either wrong or just needs more time for the thesis to play out.

- Greenblatt also wrote a book called The Big Secret that he joked is still a secret since no one read it.  But he's also authored a wildly popular investing book with a cheesy title: You Can Be a Stock Market Genius

- "To beat the market you have to do something different."

- Runs 100% net long but it's typically achieved via 170% long and 70% short.  They determined the leverage amount based on returns.

- The market's been cheaper 83% of the time based on current valuations.  Based on this, market could see 3-5% returns over the next year and then 8-10% over the next two.  Not a prediction though he said.

- "Stock investing is figuring out what a business is worth and paying less."

- Harped on the importance of compound interest tables.  Start investing as early as possible.

- Thinks there's still a lot of groupthink going on.  If you're good at taking 'unfair bets' in obscure places that other people aren't looking, you can do well.  But eventually you'll have too much money to play in that arena anymore to have it move the needle.

- On Apple (AAPL): "I think it's cheap relative to other choices right now."

- "Your job is to be cold and calculating, and unemotional.  Unfortunately, people are human.  That's good news for us, but the stats are against you."

- "The last man standing is patience.  We call it time arbitrage.  That's in really short supply.  It's not getting better, things are moving faster... and less patience." 

- For more from this investor, we've also posted up Greenblatt's interview with Consuelo Mack

Embedded below is the video of Joel Greenblatt's talk at Google:

We've also posted a bunch of other investor talks at Google, including:

- Howard Marks' talk at Google

- Michael Mauboussin's talk at Google

- Jim Grant's talk at Google

Tuesday, April 4, 2017

Phil Fisher's Investment Checklist: 15 Things to Look For In A Stock

Phil Fisher was a noted investor who founded investment firm Fisher & Company back in 1931.  He was basically a pioneer in the field of growth investing by buying great companies at reasonable prices while focusing on the long-term.  He's also the author of the popular investing book, Common Stocks and Uncommon Profits.

In the book, Fisher outlined what he deemed to be 15 things that investors need to look for in a common stock.

Phil Fisher's Investment Checklist: 15 Things To Look For

1.  "Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?"

2.  "Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?"

3.  "How effective are the company's research and development efforts in relation to its size?"

4.  "Does the company have an above-average sales organization?"

5.  "Does the company have a worthwhile profit margin?"

6.  "What is the company doing to maintain or improve profit margins?"

7.  "Does the company have outstanding labor and personnel relations?"

8.  "Does the company have outstanding executive relations?"

9.  "Does the company have depth to its management?"

10.  "How good are the company's cost analysis and accounting controls?"

11.  "Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?"

12.  "Does the company have a short-range or long-range outlook in regard to profits?"

13.  "In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?"

14.  "Does the management talk freely to investors about its affairs when things are going well but 'clam up' when troubles and disappointments occur?"

15.  "Does the company have a management of unquestionable integrity?"

If you want to explore the usage of checklists further, many investors have recommended Atul Gawande's book, The Checklist Manifesto.  While it's not an investing book, it is about incorporating checklists into your process.

For guidance from other prominent investors, be sure to also check out Viking Global's Andreas Halvorsen on investment process as well as Fairholme Capital's Bruce Berkowitz investment checklist.

Tiger Global Adds To Apollo Position

Chase Coleman's hedge fund firm Tiger Global has filed a Form 4 and an amended 13G with the SEC regarding its position in Apollo Global Management (APO).  Per the filing, Tiger Global now owns 12.5% of the company with 23.36 million shares.

The Form 4 indicates their recent trading activity includes buying 300,000 APO shares on March 30th at $23.65, 34,900 shares at blended average of $24.022 on March 31st, and then another 26,900 shares on April 3rd at $24.565. 

Per Google Finance, Apollo Global Management is "an alternative investment manager in private equity, credit and real estate. The Company raises, invests and manages funds on behalf of pension, endowment and sovereign wealth funds, as well as other institutional and individual investors. The Company's segments include private equity, credit and real estate. The private equity segment invests in control equity and related debt instruments, convertible securities and distressed debt investments. The credit segment invests in non-control corporate and structured debt instruments, including performing, stressed and distressed investments across the capital structure. The real estate segment invests in real estate equity for the acquisition and recapitalization of real estate assets, portfolios, platforms and operating companies, and real estate debt, including first mortgage and mezzanine loans, preferred equity and commercial mortgage backed securities."

Wednesday, March 29, 2017

Pershing Square's 2016 Annual Report: VRX, APD, FNMA, HLF, HHC, MDLZ, NOMD, PAH, QSR

Bill Ackman's hedge fund firm Pershing Square Capital Management is out with its 2016 annual report.

Pershing Square lost 13.5% net in 2016.  The bulk of this loss was attributed to its previous position in Valeant Pharmaceuticals (VRX).

Ackman writes about why they ended up selling VRX:

"If the stock price had increased even very substantially from here, the impact on our overall performance would have been modest, and would not compensate  us for the human resources and substantial mindshare that this investment had and would have continued to consume  if we had remained a shareholder.  Furthermore, while Valeant has made significant progress and we expect  management to continue to do so, there is still a lot of work to be done.  

Clearly, our investment in Valeant was a huge mistake.  Th e highly acquisitive nature of Valeant’s business required  flawless capital allocation and operational execution, and th erefore, a larger than no rmal degree of reliance on  management.  In retrospect, we misjudged the prior management team and this contributed to our loss.  We deeply  regret this mistake, which has cost  all of us a tremendous amount, and whic h has damaged the record of success of  our firm." 

Despite the poor 2016, Pershing points out that they've generated a compound annual return of 14.8% compared to S&P returns of 7.7% over the same time period.

The report also details portfolio updates on numerous positions, including: Air Products & Chemicals (APD), Fannie Mae (FNMA) / Freddie Mac (FMCC), their short of Herbalife (HLF), Howard Hughes (HHC), Mondelez (MDLZ), Nomad Foods (NOMD), Platform Specialty Products (PAH), and Restaurant Brands (QSR).

They also touch on some of the positions they've exited.

Embedded below is Pershing Square's 2016 annual report:

You can download a .pdf copy here.

Tuesday, March 28, 2017

Greenlight Capital's General Motors Presentation: Unlocking Value at GM

David Einhorn's hedge fund Greenlight Capital has put out a slide deck on its large position in General Motors (GM).  The presentation is entitled: "Unlocking Value at GM: Two Classes of Common Shares."

Basically, Greenlight has asked the company to change its capital structure in order to unlock 'substantial shareholder value.'  The hedge fund has proposed that GM distribute 'dividend shares' on a tax-free basis.

Greenlight concludes that, "Creating two classes of common stock will unlock GM's value by forcing the market to appropriately value the dividend and give credit for GM's earnings potential.

Regarding how the company responded to these ideas, CNBC's David Faber tweeted that "GM considered Greenlight proposal for and rejected after months of meetings with management and board - sources." 

He also tweeted:  "GM rejected Greenlight proposal citing potential loss of Inv grade rating, governance challenge and uncertain demand for new shares - sources."

Embedded below is Greenlight's presentation: Unlocking Value at GM:

You can download a .pdf copy here.

For more on this fund, be sure to also check out Greenlight Capital's Q4 letter where they drastically increased their GM position.

Friday, March 24, 2017

Hedge Fund Links ~ 3/24/17

Eton Park hedge fund to shut down [NYTimes]

The 34-year old hedge fund manager who bet everything on a stock that tanked [Forbes]

Top 25 highest earning hedge fund managers [Forbes]

What it's like to be a woman in the hedge fund business [Business Insider]

How a $26 billion hedge fund lures the beautiful minds [Bloomberg]

Simon Lack on hedge funds [Ritholtz]

Hedge funds' top secret social network is... Yahoo? [fnLondon]

Preet Bharara: a prosecutor who knew how to drain a swamp [NYTimes]

Viking Global Adds To Gulfport Energy Stake

Andreas Halvorsen's hedge fund firm Viking Global has filed a 13G with the SEC regarding its position in Gulfport Energy (GPOR).  Per the filing, Viking now owns 5.8% of the company with over 9.13 million shares.

They've boosted their position size by over 2.83 million shares since the end of 2016 when they owned 6.29 million shares.  The filing was made due to activity on March 10th.

We've highlighted other recent portfolio activity from Viking Global here.

Per Google Finance, Gulfport Energy is "an oil and natural gas exploration and production company. The Company focuses on the exploitation and acquisition of natural gas, natural gas liquids and crude oil in the United States. The Company's properties are located in the Utica Shale in Eastern Ohio and along the Louisiana Gulf Coast in the West Cote Blanche Bay (WCBB) and Hackberry fields. The Company also has an interest in producing properties in Northwestern Colorado in the Niobrara Formation and in Western North Dakota in the Bakken Formation. The Company also holds an acreage position in the Alberta oil sands in Canada through its interest in Grizzly Oil Sands ULC and an interest in an entity that operates in the Phu Horm gas field in Thailand. The Company also owns interests in various fields, which includes Deer Island, Fay South, Crest, Squaw Cheek, Green River Basin and Watonga Chickasha Trend."

Eminence Capital Trims Autodesk Position

Ricky Sandler's hedge fund firm Eminence Capital has filed an amended 13D with the SEC regarding its stake in Autodesk (ADSK).  Per the filing, Eminence now owns 3.6% of Autodesk with 8.01 million shares.

Per the filing, Eminence sold 3.47 million shares on March 16th at $88.08.

It notes they sold "solely for portfolio management reasons.  Due to the significant price appreciation of the Shares since their original investment the Reporting Persons’ position in the Shares had significantly increased as a percentage of total assets under management. The Reporting Persons’ position in the Shares remains the largest position owned by the Reporting Persons. The Reporting Persons are pleased with the progress that has been made in both the Issuer’s business model transition and operating fundamentals and remain confident in the Issuer’s ability to continue to create value for shareholders."

We've highlighted other recent portfolio activity from Eminence Capital here.

Per Google Finance, Autodesk is "a design software and services company, offering customers productive business solutions through technology products and services. The Company serves customers in the architecture, engineering and construction; manufacturing, and digital media, consumer and entertainment industries. It operates in four segments: Architecture, Engineering and Construction (AEC), Platform Solutions and Emerging Business (PSEB), Manufacturing (MFG), and Media and Entertainment (M&E). The PSEB, AEC and MFG segments offer a range of services, including consulting, support and training. The M&E segment offers software products to professionals, post-production facilities and broadcasters for a range of applications. Its software products enable its customers to experience their ideas before they are real by allowing them to imagine, design and create their ideas and to visualize, simulate and analyze real-world performance in the design process by creating digital prototypes."

Thursday, March 23, 2017

What We're Reading ~ 3/23/17

Mauboussin: The incredible shrinking universe of stocks [Credit Suisse]

7 traits for active investors to win in the long term [Jim O'Shaughnessy]

How to fight a price war [Harvard Business Review]

Stephen Jarislowsky's secret: buy stocks you never plan to sell [Canadian Business]

The fourth industrial revolution: a primer on artificial intelligence [Medium]

A pitch on Alphabet (GOOGL / GOOG) [Wexboy]

The autonomous vehicle revolution [Rational Walk]

Mohnish Pabrai thinks autonomous vehicles will take 20 years [Benzinga]

Baidu's (BIDU) CEO envisions a spinoff of robot cars arm [Bloomberg]

On Intel's (INTC) purchase of Mobileye (MBLY) [Stratechery]
Apple (AAPL) wants to bring augmented reality to the masses [Bloomberg]

Tech and entertainment in the era of mass customization [Andreessen Horowitz]

How being wrong can help us get it right [Tim Harford]

Advertisers are more interested in Instagram than Snapchat [Fortune]

Interview with's (CTRP) CEO [Skift]

The billion dollar industry of professional video gaming [Bloomberg]

Soda loses its US crown; Americans now drink more bottled water [WSJ]