Notes From Great Investors' Best Ideas Symposium (Einhorn, Ackman, Grant & More) ~ market folly

Thursday, October 15, 2009

Notes From Great Investors' Best Ideas Symposium (Einhorn, Ackman, Grant & More)

This is part 1 of our post, so check back in tomorrow for part 2! Last week the Great Investors' Best Ideas symposium took place in Dallas, Texas and some prominent hedge fund managers presented actionable investment ideas which we wanted to cover. Notable presenters included David Einhorn of Greenlight Capital, Bill Ackman of Pershing Square Capital Management, Mario Gabelli of Gamco Investors, and James Grant of Grant's Interest Rate Observer, amongst others. We've already detailed a separate post on Bill Ackman's latest short position which he revealed at this conference. So this time around we also wanted to touch on what other hedge fund players presented.

David Einhorn, hedge fund Greenlight Capital

Since we cover David Einhorn's Greenlight Capital fairly extensively on Market Folly, we figured he would be an appropriate place to start. Einhorn's presentation centered around his worry over Japan and the potential for a global currency crisis, noting that Japan has too much debt and an aging population. Specifically, he says, "Should the market reprice the Japanese credit risk, it's hard to see how Japan would avoid government default or a hyperinflationary currency death spiral." Well, 'death spiral' certainly sounds pleasant, doesn't it?

As such, Einhorn recommended buying gold, options on gold, and gold stocks in order to reduce risk to this potential calamity. This is by no means new advice from him, as we've covered Einhorn's physical gold investment much earlier on. It does seem though that his conviction in this play has steadily grown over time. Einhorn also mentioned that he was buying interest-rate options that he will profit from should yields head higher on US Treasuries. This is very likely a similar inflationary bet to that of hedge fund legend Julian Robertson's curve caps play. We have seen a lot of hedge funds in this type of bet over the past 6 months, although some funds have recently lightened up on the play as noted in our recent post on what hedge funds are buying & selling.

In terms of other positions Greenlight Capital has on, we've detailed their short thesis on the ratings agencies here. Lastly, make sure you check out the Value Investing Congress where you can hear Einhorn present more investment ideas next week.

James Grant, Grant's Interest Rate Observer

Grant focused on his forecast of inflation. He said, "The Fed is in the business of price-fixing. It fixes interest rates and then tries to predict the future. Well, price-fixing doesn't work, and the future cannot be predicted. Other than that, I love the business model." Grant went on to add that he is only mildly enthused by gold, at best. He does, however, see the eventual recovery as a bountiful one and is bullish on the stock market as a whole.

Bill Ackman, hedge fund Pershing Square Capital Management

As cited in the introduction, we detailed Ackman's presentation in more detail last week so check out the specifics there. However, for the sake of cohesion in this article, we note that Ackman presented a short thesis on REIT player Realty Income (O). His case is largely contingent upon Realty Income's poorer credit quality tenants. He also notes that the company continually engages in equity raises and he thinks that eventually they will have to cut their dividend, which will send the large retail investor base fleeing. Head here for the rest of the specifics on this play.

For more on Ackman and Pershing Square, check out their Q2 investor letter. In addition to Einhorn, you can also hear more investment ideas from Ackman at the upcoming Value Investing Congress, which we highly recommend attending.

Michael Price, MFP Investors LLC

In a very contrarian play, Michael Price recommended buying beaten down newspaper stocks, as his $1.6 billion firm has a large stake in The Washington Post. The vast majority of money he manages is his own, so he has certainly done well for himself. For his thesis, Price hopes that newspapers will turn to foundations, hopefully luring some brave souls (Bill Gates or Warren Buffett?) to the rescue who can absorb the losses newspapers are seeing. Then, the newspapers could give these foundations a percentage of their online revenue. What's interesting is that he thinks this all plays out over the next few years. If so, the ball better start rolling. In the past, we've discussed whether newspapers are a dying industry as it seems they are in desperate need of saving. Price is not alone in his play as Philip Falcone's hedge fund Harbinger Capital Partners also has a large stake in a newspaper: The New York Times (NYT). However, Harbinger has recently sold some of their stake.

Overall, a great symposium with some interesting investment ideas. Lots of general investing advice was given out as well, including to know the management team you're investing in. So many investors often pay attention to the financials and valution, but you need to make sure to also hone in on the management team to ensure the company is headed in the right direction. Also, some presenters noted that it pays to be contrarian. When everyone is already leaning one way, trends tend to start heading in the opposite direction. One presenter noted that a contrarian play can be "like a mudslide after a heavy rain. The more it rains, the more unstable the hillside becomes; eventually a landslide ensues." Lastly, we'll end on an interesting fact that Mario Gabelli presented, as he noted that almost all major market indexes are now almost back where they were a year ago. Imagine that.

Note that we wanted to get this out quickly so it's not as in-depth as we'd like. We'll be posting up an addendum to this post tomorrow so stay tuned.

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