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 Ctrip.com'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]


Monday, March 20, 2017

Pat Dorsey Interview With Young Investors Society

Pat Dorsey was recently interviewed by Young Investors Society.  He's the founder of Dorsey Asset Management and prior to that worked as the Director of Equity Research for Morningstar. 

He's also the author of two books:  The Little Book That Builds Wealth and then The Five Rules for Successful Stock Investing.  Here's some takeaways from his talk:


- His book talks about moats and competitive advantage.  He wished he put more in his book about the business that is building the moat, versus one that already has one.  A younger biz with a longer runaway and each dollar of incremental cashflow is being invested at an increment ROIC.

- If you've got long-term time horizon, smaller pool of capital, and investors ok with volatility, your returns are probably gonna be superior. 

- For companies, the ability to reinvest is where you really maximize things

- On short selling:  Highlighted the not-so-great risk/reward of only being able to make 100% on your position but the potential to lose an infinite amount (if the short just keeps going up and up).  "Shorting is tough because time is not on your side."

- Short selling is very hard and the few good short sellers he's met never ever ever short because of valuation.  They short because a business is fraudulent or fundamentally flawed.  For shorting candidates, look for businesses that both raises equity and pays a dividend.

- On Snapchat (SNAP): Thinks it could be a smoking hole in the ground after a while.  Mentioned to look at the company's growth rate once Facebook (FB) rolled out its 'stories' copycat feature on its Instagram platform.  Said SNAP needs to find a monetization model over time.

- Said investing in DryShips (DRYS) is kind of like playing poker with Kim Jung Il.

- Make sure it's a business you can understand, don't ignore management.

- On Facebook (FB), which Dorsey owns: seems almost too obvious; has huge topline but still growing at over 50%.  Global advertising market is huge (opportunity).  Advertising grows a little bit more than global GDP but digital ads have grown even faster.  Advertisers follow attention.  2 companies get 80% of incremental ad spend: FB and Alphabet (GOOGL).  But if you had to take the stock and lock it up and not touch it for 10 years, you probably can't do that with FB because the landscape changes too much.  FB is hyper-aware of the risk of declining user engagement.  The current valuation does not assume dominance 10 years from now.  Close to 17-18x EBIT now, growing over 50%.

- "We worry about all our positions.  If you ever have a position you're not worried about, you're probably in trouble."

- Single biggest lesson is to avoid endowment bias.  Just because he owns it doesn't mean he should trust management more.  "My biggest mistakes have definitely come when I've not kept the bar as high as it should be with management quality or business quality."

- You can never have too high of a hurdle rate for businesses you evaluate.  You don't need to own 100 stocks, you're not running a Fidelity mutual fund.  Maybe 10 in your personal account, or 30 if you're running a fund

- Sticky note on his computer: "No FOMO"  or No Fear Of Missing Out.

- Ask yourself: Does it fit your personality?  Does it fit what you're trying to do as an investor?

The publisher disabled the ability to embed the video but you can view it here at the Young Investors Society YouTube channel.

We also recently posted up Mark Cuban's interview with Young Investors Society as well.


Tiger Global Starts Apollo Global Management Stake

Chase Coleman's hedge fund firm Tiger Global has filed a 13G with the SEC regarding shares of Apollo Global Management (APO).  Per the filing, Tiger Global now owns 7% of APO with over 13 million shares.

This is a newly disclosed equity position for the firm and the filing was made due to activity on March 8th.

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

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."


Fairholme Capital Buys More Sears Holdings

Bruce Berkowitz's investment firm Fairholme Capital has filed a Form 4 with the SEC regarding its position in Sears Holdings (SHLD).  Per the filing, Fairholme acquired 222,100 SHLD shares in total across March 15th, 16th, and 17th at prices of $8.75, $8.76, and $8.86.

After these purchases, Fairholme now owns over 27.98 million shares.

This is the second time Fairholme has acquired SHLD shares this month as we previously highlighted Berkowitz's SHLD activity.

Per Google Finance, Sears Holdings is "an integrated retailer. The Company is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). It operates through two segments: Kmart and Sears Domestic. It operates approximately 940 Kmart stores across over 50 states, Guam, Puerto Rico and the United States Virgin Islands. Kmart stores carry an array of products across various merchandise categories, including seasonal merchandise, toys, lawn and garden equipment, food and consumables and apparel, including products sold under labels, such as Jaclyn Smith, Joe Boxer and Alphaline and certain Sears brand products (such as Kenmore, Craftsman and DieHard) and services. Its Sears Domestic segment's operations consist of full-line stores, specialty stores, commercial sales and home services. Full-line stores offer an array of products and service offerings across various merchandise categories, including appliances, consumer electronics/connected solutions and tools." 


Friday, March 17, 2017

Glenn Greenberg's Brave Warrior: Long Financials (CNBC Interview)

Glenn Greenberg of Brave Warrior Advisors sat down with CNBC for a rare interview.  Here's some key takeaways:

- He looks to buy stocks that will have around a 10% free cashflow yield 1-2 years from now

- Focused on 2-3 years ahead, less concerned about short-term swings or quarterly volatility. Likes to focus on companies that build wealth.

- Long financial stocks JPMorgan (JPM), Primerica (PRI), and Charles Schwab (SCHW).  "We made a big bet that normal interest rates would not stay at zero.  It was that simple and we didn't know when they would change, but the payoff we felt would be substantial so we have had a lot of financial stocks in our portfolio the last few years."

- On JPM: "They should be earning $8-9 in a couple of years if rates track at the moderate increases that are in the dot plot (of the Federal Reserve)."

- On SCHW: "Amazing franchise" and sees it largely as a bet on interest rates normalizing ... 175 bps now versus 350 bps back in 2007 on client cash positions.

- On Freddie Mac: "Best business model I have ever seen."

- "(Interest) rates could go a lot higher, Inflation could go a lot higher."

- Also owns Airbus (AIR.PA), Express Scripts (ESRX)

- Says Valeant Pharmaceuticals (VRX) was "biggest investment mistake over last 30 years" for him.  But still broke even on it.


If you missed the interview on TV today, it looks like the video replay is behind CNBC's paywall.


ValueAct Capital Buys More Valeant Pharmaceuticals

Jeff Ubben's activist firm ValueAct Capital has filed a 13D and Form 4 with the SEC regarding its position in Valeant Pharmaceuticals (VRX).  Per the 13D, ValueAct now owns 5.2% of the company with over 17.99 million shares.

They purchased 3 million shares in total on March 14th, with the bulk of the trade coming at $10.81 per share with some shares coming at $10.88.

This comes on the heels of Bill Ackman's Pershing Square exiting its Valeant investment entirely.

Per Google Finance, Valeant Pharmaceuticals is "a pharmaceutical and medical device company. The Company is engaged in developing and marketing a range of branded, generic and branded generic pharmaceuticals, over-the-counter (OTC) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices). It operates through two segments: Developed markets and Emerging markets. In the Developed Markets segment, it focuses on the areas of dermatology, neurology, gastrointestinal disorders, and eye health therapeutic classes. In the Emerging Markets segment, it focuses on primarily on branded generics, OTC products and medical devices. Its pharmaceutical products include Xifaxan, Solodyn and Glumetza. Its OTC products include PreserVision, Biotrue and Boston. Its other generic products include Latanoprost and Metronidazole. Its ophthalmic surgical products include intraocular lenses, such as Akreos, enVista, Crystalens and Trulign." 


Thursday, March 16, 2017

Paulson & Co Trims Extended Stay America / ESH Hospitality Position

John Paulson's hedge fund firm Paulson & Co filed a 13D with the SEC regarding its position in Extended Stay America (STAY).  Per the filing, Paulson now owns 10.3% of STAY with over 20 million shares.

This is a decrease of over 8.54 million shares since the end of 2016 when they previously owned 28.6 million STAY shares.  These are paired shares with ESH Hospitality which Paulson also owns and they trimmed that position proportionately as well. 

Paulson sold some STAY shares on March 10th at $16.70 per a Form 4 filed with the SEC.  We previously highlighted that Paulson trimmed this position back in November as well.

Per Google Finance, Extended Stay America is "an integrated owner/operator of Company-branded hotels in North America. The Company operates in hotel operations segment. The Company's business operates in the extended stay sector of the lodging industry. As of December 31, 2016, the Company owned and operated 629 hotels comprising approximately 69,400 rooms located in 44 states across the United States and in Canada. The Company owns and operates its hotels under its brand, Extended Stay America, which serves the mid-price extended stay sector. As of December 31, 2016, the Company also owned and operated three Extended Stay Canada hotels. The Company operates its hotels owned by ESH Hospitality, Inc. (ESH REIT). The hotels are operated by the Operating Lessees, subsidiaries of the Company and are managed by ESA Management LLC (ESA Management), a subsidiary of the Company. ESH Strategies, a subsidiary of the Company, owns the brands related to its business."


Tiger Global Shows Teladoc Position

Chase Coleman's hedge fund firm Tiger Global has filed a 13G with the SEC regarding shares of Teladoc (TDOC).  Per the filing, Tiger Global now owns 9% of TDOC with over 4.89 million shares.

This is a newly disclosed position and the filing was made due to activity on March 14th.  We recently highlighted another stock Tiger Global has been buying as well.

Per Google Finance, Teladoc is "a telehealth company. The Company offers telehealth platform, delivering on-demand healthcare anytime, anywhere, through mobile devices, the Internet, video and phone. The Company operates through health services segment. Its solution connects its Members, with its over 3,000 board-certified physicians and behavioral health professionals who treat a range of conditions and cases from acute diagnoses, such as upper respiratory infection, urinary tract infection and sinusitis to dermatological conditions, anxiety and smoking cessation. Its enterprise scale platform is offered for real-time sharing of clinical and non-clinical data in real time among the Teladoc constituents, which include Members, Providers, physician network operations center staff, nurses, SureScripts for electronic medication prescription writing, routing and fulfillment and health plans for claims processing, clinical summaries and clinical alerts."


Third Point Adds To Kadmon Holdings

Dan Loeb's hedge fund firm Third Point has filed a Form 4 with the SEC regarding its position in Kadmon Holdings (KDMN).  Per the filing, Third Point bought 1.48 million shares of KDMN on March 13th at $3.36 per share.  After this transaction, they now own over 9.4 million shares.  Included in the transaction were 595,238 warrants to purchase 0.40 shares of common stock each.  These have an expiration date of April 13, 2018 and an exercise price of $4.5.  We've posted other recent portfolio activity from Third Point here.

Per Google Finance, Kadmon Holdings is "an integrated biopharmaceutical company engaged in the discovery, development and commercialization of small molecules and biologics to address disease areas of various unmet medical needs. The Company is developing product candidates in a number of indications within autoimmune and fibrotic disease, oncology and genetic diseases. Its product pipeline consists of KD025, Tesevatinib and KD034. The Company's other products include Ribasphere RibaPak, Ribasphere, Qsymia, Tetrabenazine and Valganciclovir. KD025 is an orally available, selective small molecule inhibitor of Rho-associated coiled-coil kinase 2 (ROCK2), a molecular target in multiple autoimmune, fibrotic and neurodegenerative diseases. Tesevatinib is an oral tyrosine kinase inhibitor (TKI) designed to block key molecular drivers of tumor growth, metastases and drug resistance. KD034 is the Company's portfolio of enhanced formulations of trientine hydrochloride for the treatment of Wilson's disease."


Fairholme Capital Buys Some Sears Shares

Bruce Berkowitz's investment firm Fairholme Capital has filed a Form 4 with the SEC regarding its position in Sears Holdings (SHLD).  Per the filing, Berkowitz bought 84,200 SHLD shares on March 10th at $8.33 and then bought another 197,700 shares on March 14th at $8.82.

Fairholme owns over 27.7 million shares of SHLD and keep in mind they own warrants as well with an expiration of December 15th, 2019 and exercise price of $25.686.

Per Google Finance, Sears Holdings is "an integrated retailer. The Company is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). It operates through two segments: Kmart and Sears Domestic. It operates approximately 940 Kmart stores across over 50 states, Guam, Puerto Rico and the United States Virgin Islands. Kmart stores carry an array of products across various merchandise categories, including seasonal merchandise, toys, lawn and garden equipment, food and consumables and apparel, including products sold under labels, such as Jaclyn Smith, Joe Boxer and Alphaline and certain Sears brand products (such as Kenmore, Craftsman and DieHard) and services. Its Sears Domestic segment's operations consist of full-line stores, specialty stores, commercial sales and home services. Full-line stores offer an array of products and service offerings across various merchandise categories, including appliances, consumer electronics/connected solutions and tools."


Tuesday, March 14, 2017

Elon Musk's Recommended Reading List

If you haven't noticed before, on the right sidebar of the website we've catalogued various recommended reading lists from top investors.  Many of these investors have recommended expanding your horizons beyond just books on investing.

So this time around we're taking a look at a recommendations from an entrepreneur.  Elon Musk is the founder of electric car company Tesla (TSLA), space exploration company SpaceX, and he also previously co-founded online payments firm PayPal (PYPL).

Here are books Elon Musk has recommended over the years, as well as books he said shaped him into who he is today.


Elon Musk's Recommended Reading List

  Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel

  Superintelligence: Paths, Dangers, Strategies by Nick Bostrom

  Merchants of Doubt by Naomi Orestes and Erik M. Conway

  Structures: Or Why Things Don't Fall Down by J.E. Gordon

  Nikola Tesla Biographies: Musk didn't specify which one but there's The Tesla Autobiography as well as Tesla: Inventor of the Electrical Age by W. Bernard Carlson

  The Autobiography of Benjamin Franklin

  Benjamin Franklin: An American Life by Walter Isaacson

  Einstein: His Life and Universe by Walter Isaacson

  Howard Hughes: His Life and Madness by Donald L. Barlett and James B. Steele

  Ignition!: An Informal History of Liquid Rocket Propellants by John D. Clark  


Musk has also recommended various fiction books such as The Foundation Trilogy by Isaac Asimov, as well as The Hitchhiker's Guide To The Galaxy by Douglas Adams, and The Lord of the Rings by J.R.R. Tolkien.


If you're looking for more investing-focused books, be sure to check out Charlie Munger's recommended reading list as well as Seth Klarman's favorite books.


Pershing Square Exits Valeant Pharmaceuticals

Bill Ackman's activist firm Pershing Square Capital Management has announced it sold 27 million shares and options in Valeant Pharmaceuticals (VRX). 

Per the release, "We elected to sell our investment and realize a large tax loss which will enable us to dedicate more time to our other portfolio companies and new investment opportunities."

Around the time of sale, Pershing's VRX position size was smaller by their standards, between 1.5% to 3% of their funds.  Like many hedge funds involved, they suffered sharp losses.

With this news, the only other major funds involved with Valeant as of the end of 2016 include ValueAct Capital (who have now roundtripped their investment) and Paulson & Co.

Per Google Finance, Valeant Pharmaceuticals is "a pharmaceutical and medical device company. The Company is engaged in developing and marketing a range of branded, generic and branded generic pharmaceuticals, over-the-counter (OTC) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices). It operates through two segments: Developed markets and Emerging markets. In the Developed Markets segment, it focuses on the areas of dermatology, neurology, gastrointestinal disorders, and eye health therapeutic classes. In the Emerging Markets segment, it focuses on primarily on branded generics, OTC products and medical devices. Its pharmaceutical products include Xifaxan, Solodyn and Glumetza. Its OTC products include PreserVision, Biotrue and Boston. Its other generic products include Latanoprost and Metronidazole. Its ophthalmic surgical products include intraocular lenses, such as Akreos, enVista, Crystalens and Trulign."


Monday, March 13, 2017

8th Annual March Madness Bracket Contest: Enter For Free

It's the most wonderful time of the year!  March madness is back with college basketball's championship tournament.  It's time for the 8th annual Market Folly Madness.  Entry is completely free, so sign up below!


Enter Market Folly Madness For Free

To join the free contest, click here: http://marketfolly.mayhem.cbssports.com

If it asks you for a group password, enter: folly

(If you don't have a CBS Sports account, simply create a free account to join the contest)


Contest Prizes

1st place:  1-year subscription to our Hedge Fund Wisdom quarterly newsletter ($300 value)

2nd place: A copy of the first season of Showtime's show about a hedge fund manager: Billions

3rd place:  Your choice of either a copy of Howard Marks' book The Most Important Thing or a copy of the recent financial movie The Big Short


To be eligible, you must fill out your bracket before the start of the main games on Thursday, March 16th.  Only one entry person.  Good luck!




Carl Icahn Buys More Herbalife & Navistar

Activist investor Carl Icahn has submitted two SEC filings regarding his positions. 

Icahn Buys More Herbalife

Icahn added to his Herbalife (HLF) position, per SEC filings.  In a 13D filing, Icahn disclosed he now owns 24.57% of HLF with over 22.87 million shares.

This means he purchased 372,324 shares at a price of $51.35 on March 10th per the 13D.

For more on this investor, we also highlighted how Icahn started a Bristol-Myers Squibb stake.

Per Google Finance, Herbalife is "a global nutrition company. The Company develops and sells weight management, healthy meals and snacks, sports and fitness, energy and targeted nutritional products, as well as personal care products. The Company's segments include North America; Mexico; South & Central America; Europe, Middle East, and Africa (EMEA); Asia Pacific, and China. The Company markets and sells over 140 products, encompassing approximately 5,000 stock keeping units (SKUs) globally. Its product categories include Weight Management; Targeted Nutrition; Energy, Sports and Fitness; Outer Nutrition, and Literature, Promotional and Other. The Company's representative products include Formula 1 Healthy Meal, Herbal Tea Concentrate, Protein Drink Mix, Personalized Protein Powder, Total Control, Prolessa Duo, Protein Bars, Aloe Concentrate, Niteworks, Garden 7 phytonutrient supplement, Best Defense for improved immune system, COQ10 Plus and Herbalife SKIN line."


Icahn Adds To Navistar Position Too

Second,  Icahn now owns 17.02% of Navistar (NAV) with over 16.69 million shares, per a 13D filed with the SEC.

The filing notes Icahn bought 423,404 shares in total across March 8th, 9th, and 10th at prices of $25.47, $25.37, and $25.92.

Per Google Finance, Navistar is "a holding company whose principal operating entities are Navistar, Inc. and Navistar Financial Corporation (NFC). The Company's segments include Truck, Parts, Global Operations (collectively, Manufacturing operations) and Financial Services, which consists of NFC and its foreign finance operations (collectively, Financial Services operations). The Truck segment manufactures and distributes Class 4 through 8 trucks, buses and military vehicles under the International and IC Bus brands, along with production of engines. The Parts segment supports its brands of International commercial trucks, IC buses and engines. The Global Operations segment includes operations of its subsidiary, International Industria de Motores da America do Sul Ltda. (IIAA). The Financial Services segment provides and manages retail, wholesale and lease financing of products sold by the Truck and Parts segments and their dealers."


Market Strategist Jeff Saut on Being Wrong and Still Making Money

Raymond James market strategist Jeff Saut is out with his latest commentary entitled, "Being Wrong and Still Making Money."  It's been a while since we checked in with Saut, so here's what he's saying these days.

He has been cautious over the past month or so and admits his stance has been 'too cautious.'  Saut then dove into the concept of being wrong and still making money.  He quotes Peter Bernstein, who wrote:

"The trick is to survive!  Performing that trick requires a strong stomach for being wrong because we are all going to be wrong more often then we expect. The future is not ours to know. But it helps to know that being wrong is inevitable and normal, not some terrible tragedy, not some awful failing in reasoning, not even bad luck in most instances. Being wrong comes with the franchise of an activity whose outcome depends on an unknown future (maybe the real trick is persuading clients of that inexorable truth)."

Saut then goes on to reference a piece that divides investors into three categories: Rabbits, Hunters, and Assassins, based on how they act in the market.  Written by Lee Freeman-Shor, it states:

"My findings suggest the odds are that an investor's great ideas will lose money. As such, before you invest a cent into an investment idea, it is imperative to have a plan of action as to what you will do if you find yourself in a losing position. When losing, the successful investors I worked with planned to become either Assassins or Hunters. Assassins sold losing investments that fell by a certain percentage or that declined by any amount and showed no signs of recovery after a certain period of time. Hunters invested a lesser amount at the outset and with a plan of buying significantly more shares if the price fell. Hunters were also unafraid to sell if it became clear that they had made a mistake. The bad investors didn't have a plan and consequently turned into Rabbits. When losing money, Rabbits neither bought more shares nor sold their holdings. Once forming an initial perception, Rabbits were achingly slow to change their opinion of a stock. Which tribe will you become a member of?"

As to where Saut is looking to put any money to work on pullbacks, he recommended Hilton (HLT), Flexion Therapeutics (FLXN), Nvidia (NVDA), Iridium (IRDM), and Texas Capital Bancshares (TCBI). 

Embedded below is Jeff Saut's latest market commentary: Being Wrong and Still Making Money



You can download a .pdf copy here.


Friday, March 10, 2017

Jim Chanos Interview With Capitalize For Kids

Noted short seller Jim Chanos of Kynikos Associates recently sat down with Capitalize For Kids for an interview.  They touched on a myriad of topics, from how his firm has evolved over the years to areas he's focusing on now for short selling. 

Here's some key takeaways from the interview:

On how the rise of quants, machine learning, and A.I. can affect hedge funds:

"In our universe companies are actively trying to give you false inputs. They’re trying obscure the numbers. They’re trying to basically make it look better than it really is and so, if you are analysing reams of reams of stocks based on a P/E ratio, momentum, whatever factors are en vogue, you’d better be sure that you don’t have a Valeant that is puffing up their earnings in a bunch of one time ways because that algorithm will kill you. So4, I think it’s one area, where because you’re questioning the actual inputs and not how they interact with the market price, that you might still have an edge. Might. I’m always willing to consider the opposite. You have to."


On today's market environment: 

"Since ‘08, ‘09 I think we’re going to look back and say that it was the advent of central banking, ‘the central bank saves the world and makes you all rich’. So, QE and zero interest rates, I suspect we’re going to look back and say well 8 years of that policy kind of got us to where we are now, so how is that going to change if it does, and how does that change manifest itself? Are we going to see companies that just can’t possibly do well if interest rates go up by 400 bases points or 300 bases points? That’s certainly one thought. On a macro basis, I mean, I’m not positioning the portfolio because that’s what I think but on the other hand I’m keeping an eye out for companies who might get into additional trouble should that regime be ending. And whether it’s in the auto cycle or companies with really, really low returns on capital that have been using financial engineering to bolster their results, those are sort of the things that we’re interested in right now."


On the auto industry:

"Cars are usually the first thing out of the cycle and so now we’ve been at this sort of 17 million SAAR now for a while and what we’re seeing is what you would classical see. You see more incentives. You’re seeing car manufacturers beginning to cut plant production on the margin. We see more aggressive use of credit, lengthening lease terms, lowering residuals. All the sort of stuff that you typically see to keep moving the iron off the lots. I think this will be one area in particular that a run up in rates would probably hit hard, because everybody buying cars is doing so on monthly payments. These applied loan rates really affect the current industry quickly, faster than I think housing.  Well, I’m not going to disclose (the specific security). However, at the peak of the cycle the company was earning about 6% on their capital. It’s a giant company in the industry. It’s not one of the OEM’s and has a finance arm. It earned below its cost of capital when things were good.  What's going to happen when things are bad?  Today, it is trading at its highs right now."



There's much more from Chanos in the full talk and you can read the rest of the interview here.


Eminence Capital Ups Rexnord Stake

Ricky Sandler's hedge fund firm Eminence Capital has filed a 13G with the SEC regarding shares of Rexnord (RXN).  Per the filing, Eminence now owns 6.8% of the company with over 7 million shares.

This is up from the 808,426 shares they owned at the end of 2016, so a significant increase.  The filing was made due to activity on February 27th.

You can view other recent portfolio activity from Eminence Capital here.

Per Google Finance, Rexnord is "a multi-platform industrial company. The Company operates through two segments: Process & Motion Control platform, and Water Management platform. The Process & Motion Control platform designs, manufactures, markets and services a range of engineered mechanical components used within systems. The Process & Motion Control portfolio includes motion control products, shaft management products, aerospace components and related value-added services. Its Process & Motion Control brands include Rexnord, Rex, Euroflex, Falk, FlatTop, Link-Belt, Thomas and Tollok. The Water Management platform designs, procures and markets products that provide and enhance water quality, safety, flow control and conservation. The Water Management product portfolio includes professional grade water control and safety, water distribution and drainage, finish plumbing and site works products. Its products are marketed and sold under various brand names, including Zurn, Wilkins and VAG."


Senator Investment Group Adds To Whiting Petroleum

Alex Klabin and Doug Silverman's hedge fund firm Senator Investment Group has filed a 13G with the SEC regarding its position in Whiting Petroleum (WLL).  Per the filing, Senator now owns 5.93% of the company with 21.5 million shares (broken down into 10 million shares and 11.5 million shares underlying call options).

This is up from the previous 7 million shares they owned at the end of 2016, so a 14.5 million increase in net exposure.  The filing was made due to activity on February 22nd.

For more on this hedge fund, we also posted up how Senator disclosed a Forest City Realty Trust position.

Per Google Finance, Whiting Petroleum is "an independent oil and gas company. The Company is engaged in development, production, acquisition and exploration activities primarily in the Rocky Mountains and Permian Basin regions of the United States. The Company operates in the segment of exploration and production of crude oil, natural gas liquid (NGLs) and natural gas. The Company's estimated proved reserves totaled approximately 820.6 Million Barrels of Oil Equivalent (MMBOE). The Company has interests in approximately 5,889 gross (3,177 net) productive wells on approximately 948,600 gross (593,900 net) developed acres across all its geographical areas. The Company's Rocky Mountains operations include assets in the states of Colorado, Montana and North Dakota. The Company's Permian Basin operations include its North Ward Estes field in the Ward and Winkler counties of Texas. Its other operations primarily relate to non-core assets in Colorado, Mississippi, North Dakota, Texas and Wyoming."


Thursday, March 9, 2017

Chris Hohn & TCI Fund's Presentation on Safran / Zodiac

Chris Hohn's hedge fund firm TCI Fund Management has put together a campaign trying to block Safran's takeover of Zodiac. 

TCI has owned Safran for 5 years and as of the date of the letter owned 3.87% of the company.  They also own a much smaller position in Zodiac.  Basically, they're looking for a shareholder vote on the merger in an attempt to stop it. 

Hohn writes, "In our opinion the fair value of Zodiac is around €20, which is way below the offer of €29.5 and so Safran’s  shareholders will suffer massive value destruction. The deal represents a  terrible return on investment (ROI) for Safran. Even in a best - case scenario, with  Zodiac’s margins recov ering  from  5%  to  14%,  the  after - tax  ROI  would  be  only  6%,  a  long  way  below  Safran’s cost of capital. At Zodiac’s current level of profitability the ROI of the deal would be just 2%."

Embedded below is TCI Fund's presentation on Safran / Zodiac:


Also embedded below is Chris Hohn's letter to Safran:


You can view the rest of TCI's materials at the website they've established for their campaign: A Stronger Safran.

For more on this hedge fund, we've posted up Chris Hohn's presentation on Charter Communications from the Sohn London conference.


Connor Leonard of Investors Management Corp on Portfolio Construction

Today we're presenting commentary from Connor Leonard of Investors Management Corporation (IMC).  IMC is a holding company located in Raleigh, NC and modeled after Berkshire Hathaway, with the goal of being good long-term owners of excellent businesses.

Connor is the Public Securities Manager for IMC where he runs a concentrated public market portfolio utilizing a value investing philosophy.  While IMC is a privately-held company, they have allowed Connor to share his annual thoughts with Market Folly readers.

Some of his past guest posts over at Base Hit Investing have been featured in our "What We're Reading" links and many readers enjoyed those. 

This letter dives into investment process and portfolio construction and is an excellent read discussing concepts of intrinsic value, variant perception, portfolio concentration, and defining businesses by type of moat.  It's an excellent letter which we'd recommend reading in its entirety.

Embedded below is Connor's annual letter for IMC:







Senator Investment Group Discloses Forest City Realty Trust Stake

Doug Silverman and Alex Klabin's hedge fund firm Senator Investment Group has filed a 13G with the SEC regarding shares of Forest City Realty Trust (FCE/A).  Per the filing, Senator now owns 5.69% of the company with 13.75 million shares.

This is a newly disclosed equity stake for Senator and the filing was made due to activity on February 27th, 2017.

You can view additional recent portfolio activity from Senator here.

Per Google Finance, Forest City Realty Trust is "engaged in the ownership, development, management and acquisition of commercial, and residential real estate and land throughout the United States. The Company's segments include the Commercial Group, Residential Group, Land Development Group and Corporate Activities. The Commercial Group segment owns, develops, acquires and operates regional malls, specialty/urban retail centers, office and life science buildings, and mixed-use projects. The Residential Group segment owns, develops, acquires and operates residential rental properties, including upscale and middle-market apartments, re-use developments, for-sale condominium projects and subsidized senior housing. The Land Development Group segment acquires and sells both land and developed lots to residential, commercial and industrial customers at its Stapleton project in Denver, Colorado. It conducts all of its business, through the Operating Partnership, Forest City Enterprises, L.P."


Wednesday, March 8, 2017

David Tepper: Market Multiple Kind of Full, Short Bonds, Long European Equities

David Tepper, founder of hedge fund Appaloosa Management, was interviewed on CNBC this morning.  Here's the highlights. 

Regarding the markets in general, Tepper said "Listen, I don't think the market is cheap by any stretch of a multiple, you can't say that.  On the other hand, with that backdrop of growth around the world, with the potential we'll do other things here, with the sugar that's still being put on by the ECB, BOJ and let's face it, the Fed is way low ...  You can't be short in that kind of setup.  I'm not suggesting the market is really cheap, but listen, it's hard to go short when you still have the 'drugs' being given.  The punch bowl is still full."  He went on to add, "On a multiple basis it's kind of full... I don't think the market's cheap." 

Regarding bonds, Tepper continues to be bearish and is short them: "If we're short US bonds, we're betting on a stronger economy here.  That's the bet.  Listen... bonds are really hard to own, the yields are really low."

Tepper also noted he bought Snap Inc (SNAP) shares in the IPO but sold on the spike higher.  "I'm not jumpin' through the hoop to buy it at $21.80.  But if it trades back down to the original offer price, I'd love to buy the stock there.  I'm a believer in the company, it's a valuation question to me.  Up near $30 it's too high for right now ... My youngest daughter loves the thing.  Anybody between 12 and 25 loves it, it's kind of anti-Facebook in that generation."

On Apple (AAPL): Trimmed the position due to concerns over China policy, but that shoe never dropped.  "I wouldn't be adding at $139."

He also likes Europe:  "I am long European equities, I could lose my behind.  There's upside people aren't recognizing.  It's a probability game to me.  (Valuations) are much much lower (than the US). 

On the Federal Reserve, he thinks they will raise interest rates more quickly.

Appaloosa now manages around $17 billion.  You can see the rest of their portfolio in the new issue of Hedge Fund Wisdom.

Embedded below are videos from David Tepper's interview with CNBC:

Video on the market:


Video on shorting bonds:


Video on the Federal Reserve:


Video on Snap Inc (SNAP):


Video on Europe & ECB:


Video on Apple (AAPL):


Video on regulation / tax cuts:


Bridgewater's Ray Dalio on Radical Transparency & Building a Culture

Ray Dalio of Bridgewater Associates sat down with Charles Duhigg at The New York Times New Work Summit to talk about building culture and how it relates to his hedge fund where he encourages radical transparency.
    
Dalio says: "I want an idea meritocracy.  I want independent thinkers who are gonna disagree.  The most important thing I want is meaningful work and meaningful relationships and the way to get that is through radical transparency."

Dalio also notes he gave everyone at Bridgewater a copy of Duhigg's book, The Power of Habit

The Bridgewater founder feels this transparency (once you get over the emotional reaction of the 'naked truth') develops much deeper, more meaningful conversations.

On markets, he went on to add: "The markets teach you humility and they teach you what works.  You have to be an independent thinker in markets to be successful because the consensus is built into the price.  You have to have a view that's different from the consensus.  When you have a view that's different from the consensus, you're gonna be wrong a certain number of times.  It teaches you humility.  The most important thing is to have humility and to think about 'how do I get the best decision?' It doesn't have to come from me, I just want to be right."

Dalio concluded:  "Decision making should be two steps: the first step is taking in information, particularly if there's disagreement, and then to make a decision ... it's so stupid not to take the time to take in and explore disagreement that might help you prevent yourself from being wrong."

Embedded below is video of Ray Dalio's interview:



Mark Cuban Interview On Business, Investing, Entrepreneurship: Young Investors Society

Entrepreneur and investor Mark Cuban recently sat down for an interview with the Young Investors Society.  In it, they talked about a wide range of topics focused on business: entrepreneurship, investing, risk, and more.  Here's some highlights:


- "I avoid risk by trying to know more about what I'm trying to do than anybody."

- Talked about advocating the Peter Lynch method of investing by focusing on what you know.  He was always using tech hardware and knew which companies' products worked and which didn't.  Parlayed that into a hedge fund based on his research/picks and then sold that.  Noted there's less companies going public these days so "there's more money chasing fewer choices."

- On what he thinks is going to be different in 5-10 years: "Artificial intelligence is gonna eat the world."

- Owns a lot of Amazon.com (AMZN) stock.  Mainly because they're involved in a lot of the areas he was discussing (A.I. etc)

- Also a previous article said he owns a lot of Netflix (NFLX).  In the interview, Cuban talked about how their content aggregation and focus on data allowed them to be able to recommend content to users.  (And then they obviously took that a step further by seeing what was being watched the most and then created their own content based on those metrics.)

- Big time screw ups in investing: he liked the Uber idea but didn't like how they were pricing it.  "Sometimes you make it and sometimes you miss 'em."

- "There's a hundred apps that let you sell your time."  Thinks there's never been a better time to be an entrepreneur.

- On being an analyst:  "Everyone has the same information so it's hard to package it uniquely.  Find the companies where you may have an edge.  Using your unique perspective is what I did when I started investing in stocks."  He talked about how a high school kid's viewpoint on companies like Snapchat or Twitter would be vastly different than someone who's in their 40's or 50's.

- On advice for young investors:  "Understand the hierarchy of return on investment.  Investing in stocks is not the first place you should invest.  Number one is pay off your debt.  Two: save some money.  Life doesn't match up to your returns.  You might have the best investment in the world but find yourself having to sell it to pay for school or to fix your car.  Always have some savings first."

Embedded below is the video of Mark Cuban's interview with Young Investors Society:



h/t A Wealth of Common Sense for the find


Friday, March 3, 2017

Third Point Trims Baxter International Stake

Dan Loeb's hedge fund firm Third Point has filed an amended 13D and a Form 4 with the SEC regarding its stake in Baxter International (BAX).  Per the filing, Third Point now owns 8.5% of BAX with just over 46 million shares.

Per the Form 4, they sold over 5.9 million shares on February 28th at $50.35.  As detailed in our Hedge Fund Wisdom newsletter, Baxter has been Third Point's top position for some time, with a stake worth over $2 billion.  You can view the rest of Third Point's portfolio in the brand new issue.

Per Google Finance, Baxter International is "provides a portfolio of essential renal and hospital products, including home, acute and in-center dialysis; sterile intravenous (IV) solutions; infusion systems and devices; parenteral nutrition; biosurgery products and anesthetics, and pharmacy automation, software and services. The Company operates through two segments: Hospital Products and Renal. Its Hospital Products business manufactures IV solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, IV nutrition products, infusion pumps, inhalation anesthetics, and biosurgery products. The business also provides products and services related to pharmacy compounding, and drug formulation. The Renal business provides products and services to treat end-stage renal disease, or irreversible kidney failure and acute kidney injuries."

For more on this hedge fund, also check out Third Point's Q4 letter.


ValueAct Capital Ups Bioverativ Position

Jeff Ubben's activist investment firm ValueAct Capital has filed an amended 13D on its stake in Bioverativ (BIVV).  Per the filing, ValueAct now owns 7.5% of the company with over 8.13 million shares.

This is up from their previous stake of 7.7 million shares and the filing was made due to activity on February 28th. 

The 13D also notes that ValueAct received 6.48 million shares in connection with physical settlement of the forward contracts we previously outlined that they owned.

For more from this firm, also check out Jeff Ubben on the future of shareholder activism at a recent panel.

Per Google Finance, Bioverativ is "focused on the discovery, research, development and commercialization of therapies for the treatment of hemophilia and other blood disorders. It markets approximately two products, including ELOCTATE [Antihemophilic Factor (Recombinant), Fc Fusion Protein], and ALPROLIX [Coagulation Factor IX (Recombinant), Fc Fusion Protein], extended half-life clotting-factor therapies for the treatment of hemophilia A and hemophilia B, respectively. ELOCTATE and ALPROLIX use a process known as Fc fusion to link recombinant factor VIII and factor IX, respectively, to a protein fragment in the body known as Fc. The fusion of the factor with the Fc protein fragment uses a naturally occurring pathway and is designed to extend the half-life of the factor thereby making the product last longer in a person's blood than various factor therapies. Its pipeline includes BIVV 001(rFVIIIFc-VWF-XTEN) and BIVV 002 (rFIXFc-XTEN)." 


Hedge Fund Links ~ 3/3/17


Ray Dalio is stepping down from managing Bridgewater [Business Insider]

Paul Tudor Jones's new hedge fund pitch: much lower fees [WSJ]

On Bill Ackman's crusade against Herbalife [New Yorker]

Excerpts from Tourbillon's letter [Business Insider]

On expensive research and cheap hedge funds [Bloomberg]

Carl Icahn hires Harvard geneticist [CNBC]

More cash likely to flow out of hedge funds again this year [CNBC]

Shareholder activism at Arconic points to a new wave [Dealbook]


Wednesday, March 1, 2017

What We're Reading ~ 3/1/17


The Tao of Charlie Munger [David Clark]

Excellent write-up on Costco (COST) [Scuttlebutt Investor]

YouTube bets it can convince cordcutters to pay for TV [Bloomberg]

Also, YouTube tops 1 billion hours of video a day [WSJ]

The man who broke Ticketmaster [Motherboard]

Cinemark is undervalued [Forbes]

A pitch on Grupo Televisa (TV) [Barrons]

Grit: a complete guide on how to be more mentally tough [James Clear]

Why facts don't change our minds [New Yorker]

Long-term investing in an age of small attention spans [Safal Niveshak]

How Indian families took over the Antwerp diamond trade [Qz]

The fast rise and slow demise of daily deals company LivingSocial [Washington Post]

3G Capital's purchases and their profit margins [Economist]

Amazon's antitrust paradox [Yale Law Journal]

Student debt in America has hit a new record [Bloomberg]