Roberto Mignone's Bridger Management Files 13G On Cardiome Pharma Corp (CRME)

This is the first time we've detailed portfolio changes of hedge fund Bridger Management so we felt it necessary to provide a bit of background first. Bridger Management is the hedge fund firm founded by Roberto Mignone in 2000. They currently have around $4 billion in assets under management and run a long/short equity and event driven strategy focused on intensive fundamental research. Before Bridger, Mignone actually co-founded Blue Ridge Capital with John Griffin in 1996. And before that, Mignone (like Griffin) worked at Julian Robertson's Tiger Management and as such joins the ranks of other prominent 'Tiger Cub' hedge funds. Mignone attended Harvard for both undergrad and his MBA.

In a 13G filing with the SEC, hedge fund Bridger Management has disclosed a 5.1% ownership stake in Cardiome Pharma Corp (CRME). The filing was made due to activity on November 23rd, 2009 and they now own 3,096,709 shares. They've boosted their holdings because back on September 30th, 2009 they owned 2,837,246 shares as per their 13F filing. This means in the past two months they've added an additional 259,463 shares, a 9% increase. We will be covering Bridger's entire long US equity portfolio in our hedge fund portfolio tracking series so stay tuned.

Taken from Google Finance, Cardiome Pharma is "a life sciences company focused on developing drugs to treat or prevent cardiovascular diseases. The Company’s drug development efforts are focused on the treatment of atrial arrhythmias, a Phase I program for GED-aPC, an engineered analog of human activated protein C, and a pre-clinical program directed at improving cardiovascular function. As of December 31, 2008, Cardiome had five wholly owned subsidiaries: Rhythm-Search Developments Ltd., Cardiome, Inc., Artesian, Cardiome Development AG, and Cardiome UK Limited"

Bill Ackman & Pershing Square Enter Nestle (Investor Letter)

If you haven't seen it already, here's the latest investor letter out of Bill Ackman's hedge fund Pershing Square Capital Management courtesy of Dealbook. In it, we learn that Pershing has started a new position in Nestle as they previously did not own it. They think the company will boost margins going forward and has possible catalysts ahead. This all comes in addition to Pershing's recent entrance into Landry's Restaurants (LNY). (For the rest of Pershing's positions, we covered their portfolio earlier as well).

Arguably, the most important part of Ackman's investor letter is the section on General Growth Properties. Since it is no longer a reportable security for SEC filing purposes, it did not appear on Pershing Square's 13F filing. However, they still own unsecured debt and are also one of the largest equity holders in the name. Ackman overall provides very positive commentary and his position on the board of GGWPQ means he has been very much in the loop regarding all the bankruptcy emergence activity.

Ackman writes, "Once GGP has extended the substantial majority of its secured debts, the company will be well positioned to emerge from bankruptcy as an independent company. Alternatively, it might be sold to a strategic buyer or a private equity firm, or a U.S., foreign or other investment consortium, if a sale would achieve a higher value for GGP stakeholders. Despite this dynamic, we believe the stock trades at a substantially lower valuation than Simon Property Group because many market participants and other analysts have incorrectly assumed that GGP's unsecured creditors will meaningfully dilute shareholders' ability to achieve a substantial recovery ... We expect that GGP will be the second or third largest REIT by market cap once it emerges from bankruptcy and will therefore be a must-own company for all of the various REIT funds and index portfolios."

Pershing was up 12% for the third quarter of 2009 and is now up 24% as of the end of September. Embedded below is the entire investor letter from Bill Ackman's hedge fund firm Pershing Square Capital Management. Email readers you have to come to the blog to view the document:




As always, a nice in-depth look at the latest portfolio developments from Ackman's hedge fund and close followers of the General Growth Properties situation will be glad to see their positive comments on the ongoing situation. While Ackman is very upbeat overall, he does mention that there are still risks involved (obviously).

One last thing caught our eye in their investor letter and it pertains to their exposure levels. We found it worth pointing out that Pershing Square listed their long exposure at 93% and short exposure at 9%. While they typically have high net long exposure, we still found it interesting that they did not include credit default swaps (CDS) in their short exposure figures. As we've mentioned in our profile on Ackman & Pershing, they typically like to put on their short positions via CDS and their omission of CDS from their exposure levels throws us for a bit of a loop. In the letter, Ackman cites improving credit markets as a reason for CDS being less attractive and that they've seen a "substantial reduction in (their) CDS notional exposure." However, he also makes special note that this is not a macro bet and this is just how things have played out currently.

For more on Ackman's hedge fund Pershing Square, you can read up on how they've boosted their stake in McDonald's (MCD), you can check out their presentation on Corrections Corp of America (CXW), as well as their case for a short of Realty Income (O).

Whitney Tilson's T2 Partners Reveals Some Short Positions

The latest investor letter out of Whitney Tilson's hedge fund T2 Partners gives us a nice in-depth look at their portfolio. In particular, we're interested to learn of some of their short positions because let's face it, this kind of information is often scarce in hedge fund land. In their letter, we see that T2 Partners has been short Herbalife, InterOil, Regions Financial, VistaPrint, PMI, Radian, MBIA, and Palm. They also note that as the market has headed higher practically all year, they've begun to trim their longs and expand their short book. So, those of you looking for some possible short candidates might examine those listed above to do some due diligence on. And, for more thoughts from Tilson and company, we've posted up their October letter and their thoughts from the Value Investing Congress as well.

Here's the November commentary from Whitney Tilson's hedge fund T2 Partners courtesy of the great folks over at MyInvestingNotebook:

"December 2, 2009

Dear Partner,

Our fund declined 1.4% gross and 1.2% net in November vs. 6.0% for the S&P 500, 6.9% for the Dow and 4.9% for the Nasdaq. Year to date, our fund is up 31.0% gross and 24.8% net vs. 24.1% for the S&P 500, 21.5% for the Dow and 37.0% for the Nasdaq. If the year ended with these numbers, it would be our best year ever and nearly all of our investors would earn 30.0% net, reflecting the benefit of the high-water mark.

We made money during the month on the long side, led by General Growth Properties (up 59.8%), American Express (20.1%), Huntsman (19.7%), Pfizer (6.7%) and Microsoft (6.1%), offset by Borders Group (-27.8%), dELiA*s (-22.2%), Helix Energy (-14.3%), and Iridium stock (-8.0%) and warrants (-4.9%).

Not surprisingly in such a strong month for the markets, our short book dampened our returns, thanks mainly to Herbalife (up 24.6%), InterOil (22.6%), Regions Financial (21.1%) and VistaPrint (11.7%). Partially offsetting these positions were PMI (-24.0%), Radian (-22.8%), MBIA (-14.8%) and Palm (-6.0%).

Overview
In his 2004 letter to Berkshire Hathaway shareholders, Warren Buffett wrote that investors “should try to be fearful when others are greedy and greedy when others are fearful.” We believe in this maxim and have had ample opportunity to implement it over the past year: we started getting greedy a year ago after Lehman’s collapse and the resulting market panic, buying ever-cheaper stocks all the way down to the market’s final capitulation in early March. Since th then, during one of the biggest, fastest rallies in history (the S&P 500 rose 64.6% from March 9 through the end of November), we have steadily become less greedy and more fearful by doing three things: trimming our longs, adding to our shorts, and repositioning our long portfolio toward more defensive, big-cap stocks such as Berkshire Hathaway, Microsoft and Pfizer.

Today, our net long position is down to approximately 20%, the lowest it has ever been, reflecting both our top-down macro concerns (outlined in our August and September letters) as well as our core bottoms-up analysis, which is uncovering many great shorts and a paucity of attractive longs. That said, we like our long positions a great deal and are still net long, so we’re certainly not perma-bears and aren’t predicting Armageddon.

Speaking of our long positions, we wanted to share brief thoughts on a few of them.

General Growth Properties
The stock soared during the month for two reasons: first, rival mall giant Simon Properties Group announced that it had hired both Lazard and Wachtell, Lipton to “help it formulate a strategy for possibly bidding for all or part” of General Growth (see article in Appendix A). Then two days later, General Growth announced that (quoting from the article attached in Appendix B):
...it had reached a deal with lenders and servicers to restructure $8.9 billion of mortgages on 77 malls in hopes of removing them from bankruptcy by year end.” The pact is the first step for General Growth in extracting from bankruptcy court the 166 malls it put under Chapter 11 bankruptcy protection in April. The company still must strike similar pacts with lenders on another $6 billion of secured debt as well as $6.5 billion of unsecured debt.

"This moves up the entire timetable for getting out of bankruptcy," said Kevin Starke, an analyst with CRT Group LLC, which monitors distressed securities. "These guys could be out [in entirety] in the April-June timeframe."

General Growth appears to have won on some key points in the restructuring, of which details were outlined in a bankruptcy court hearing in New York.

December is off to a good start for General Growth, as it announced this morning (see Appendix C) that 92 of its properties, representing $9.7 billion of restructured debt (up from $8.9 billion less than two weeks ago), will exit bankruptcy by the end of the year, a remarkably quick timetable. This announcement also puts pressure on the remaining debtholders to accept similar terms.

When we first purchased the stock earlier this year at under $1/share, we thought there was upside potential of $20-$30, but we kept it a small position, reflecting the high risk that the equity could be worthless. Today, the best-case scenario appears to be playing out and the risk of a catastrophic outcome for the equity is far lower, but the stock price doesn’t reflect all of the positive developments in our opinion, so this is now among our largest positions

dELiA*s
dELiA*s recently reported a mildly disappointing third quarter and gave conservative guidance for the critical fourth quarter, which triggered a sell-off of the stock. Since the company doesn’t communicate with Wall Street as frequently as most retailers and doesn’t report monthly comps, the stock is often volatile around its earnings releases.

Netting out the projected year-end cash balance of $1.50 per share, the core retail business is today essentially being valued at zero. We believe that dELiA*s business is worth at least $3 per share (plus an additional $1.50/share in cash), and would expect this value to be recognized over the next year as the company turns the corner to profitability. In the meantime, we are comfortable that the cash balance makes a further stock price decline unlikely. In addition, based on recent transactions, we have little doubt that the company could be easily sold for at least double its current share price of $1.68, but we actually hope the company remains independent because we believe there’s far more upside if management executes on its growth plan.

While dELiA*s has not yet been a profitable investment, it represents today exactly what we like in a stock: a low probability of permanent loss of capital and a good chance of making multiples of our money.

Borders Group
Speaking of sub-$100 million market cap retailers, we have recently been buying Borders Group, a stock we’ve had a very up and down experience with over the years. Initially it was a disaster, falling well below $1 earlier this year, at which point we bought quite a bit more and were quickly rewarded, as it rose dramatically in less than five months to $4.34. We sold most of our position, but are now getting another bite at this apple as the stock has tumbled anew (it closed yesterday at $1.29).

This is a tough business and the odds appear stacked against Borders in light of threats from Barnes & Noble, Amazon.com, and discounters like Wal-Mart. That said, we like the current management and believe that Borders can succeed.

At today’s price, Borders has a market cap of a mere $77 million, a tiny fraction of annual revenues, which exceed $3 billion. We view this stock as a mispriced option: the company could go bankrupt and wipe out our investment, but if it merely survives – which is likely, we believe – the stock should rise many-fold.

Iridium
Iridium reported a strong quarter recently, but this wasn’t enough to offset the poor trading conditions that the SPAC structure created nor mitigate concerns about the risks associated with funding the new generation of satellites, Iridium Next. Based on conversations with management and the primary sponsor, Greenhill, we are confident that the company will be able to access the capital necessary for Iridium Next via existing cash on the balance sheet, operating cash flow, shared payload fees, vendor financing, and external debt and/or equity.

We continue to believe that this is an excellent company and that the stock is extremely undervalued. Comparable businesses are trading at 10x EV/EBITDA, while Iridium, which is growing significantly faster than and taking share from its competitors, trades at under 5x EBITDA. Finally, we are encouraged by the recent large insider purchases by both the CEO and Chairman of the company.

Berkshire Hathaway
In last month’s letter, we wrote that “Berkshire Hathaway reports earnings on Friday and we are confident that it will be a blowout quarter.” Sure enough, Berkshire reported strong operating earnings and an unprecedented 10.1% increase in book value during the quarter.
The other big news during the month was the acquisition of Burlington Northern Santa Fe, which is by far Buffett’s biggest investment ever. At $100/share, equal to 19x trailing earnings, he paid a full price for the 77.4% of the company that Berkshire didn’t already own, so this was a good deal for BNI shareholders – but it’s a good deal for Berkshire shareholders as well.
Paying a full price for this business makes no sense for most buyers, but we think the acquisition makes sense for Berkshire – and only for Berkshire – because of the company’s low cost of capital, in the form of float ($62 billion worth as of the end of Q3) from Berkshire’s vast insurance operations.

The correct way to think about this acquisition, in our opinion, is that Buffett bought a business with utility-like characteristics. Burlington Northern generates consistently decent (but not spectacular) mid-teens returns on equity and will likely grow a bit more than the overall economy, basically forever. There will be no new competitors and this business won’t go offshore. If anything, as energy prices rise over time, railroads will become more competitively advantaged vs. trucking.

Our view of Berkshire’s intrinsic value is unchanged: we continue to believe it’s worth approximately $135,000/share, a 34% premium to the current price of $100,600."


So, interesting thoughts from hedge fund T2 as they clearly have upped their cautionary stance to the markets. The fact that their net long position is at the lowest it has *ever* been stuck out to us. While many fund managers have been skeptical of the monster rally continuing, Tilson has definitely joined the ranks as they believe fundamental problems still remain unsolved. To see more thoughts from hedge fund T2 Partners, you can read their October letter to investors and their remarks from the Value Investing Congress.

Holiday Wishlist: Gift Ideas For Those In Finance

It's time again for our annual recommendations of gift ideas for those of you involved in the wonderful world of finance. If you're in need of holiday gift ideas for colleagues, clients, bosses, friends, or just yourself, then we've got some items lined up below. Our first recommendation is a 40% discounted ticket to the Value Investing Congress in Pasadena California on May 4th & 5th where you can hear investment ideas from some of the smartest hedge fund managers out there. Here are some more suggestions:


Gadgets:

Amazon Kindle: These 6-inch e-book readers are on fire right now as some hedgies we know can't stop raving about them. Instead of lugging around all those financial reads, just opt for the portable Kindle and have tons of books at your disposal.

Amazon Kindle DX: The same as the Kindle above, except it's 9.7 inches rather than 6.

Apple iPod Touch: Listen to music, watch movies, play games, download apps... you name it.


DVDs / Blu-ray:

Wall Street (Blu-ray): With Wall Street 2: Money Never Sleeps set to come out next year, brush up on the original storyline and see Gordon Gekko at his finest in high definition.

Wall Street (20th Anniversary DVD): "Greed is good." A nice commemorative edition of the epic movie on finance that is still being quoted to this day.

Boiler Room on Blu-ray and also on DVD: Another one of the movies focused on stock brokers and the finance industry.


Electronics:

Asus Black Netbook: 10.1 inch black netbook with Windows 7. These are great for 'on-the-go.' Enough said.

Dell Adamo Laptop: Dell's new 13.4" sleek laptop that looks unlike anything they've ever made.

Apple MacBook Air: Or if you/they prefer Mac to Windows, here's Apple's 13.3 inch laptop that's highly portable & is ideal for those who travel frequently.

Dell 22" Widescreen Monitor: Dell's UltraSharp monitors are great and are used at hedge funds and trading floors all over. Setup two or three of these badboys together and you've got quite the market command center.


Books:

Too Big Too Fail by Andrew Ross Sorkin: In his brand new book, The New York Times Dealbook Editor details the inside story of how Wall Street and Washington fought to save the financial system - and themselves.

Hedge Hunters by Katherine Burton: The Bloomberg author provides us with in-depth profiles on some of the hedge fund masters in the industry.

Bailout Nation by Barry Ritholtz: The popular financial blogger's take on how greed and easy money corrupted Wall Street and shook the world economy.

Market Wizards by Jack D. Schwager: One of our favorite reads because it interviews some of the top traders and hedge fund managers in the game.

The Sellout by Charlie Gasparino. In his brand new book, the CNBC reporter tells us how three decades of Wall Street greed and government mismanagement destroyed the global financial system.

Margin of Safety by Seth Klarman: If you can get your hands on a copy we highly recommend reading it because it is THE premier text on risk averse investing.

The Greatest Trade Ever by Gregory Zuckerman: Here's your chance to go inside hedge fund Paulson & Co as John Paulson devised and placed his trade against subprime that made him billions.

And as always, there are a ton of other great books out there that we've compiled in our recommended reading lists including picks from Warren Buffett, Dan Loeb of hedge fund Third Point, as well as selections from hedge fund Blue Ridge Capital.


Publications:

Wall Street Journal: For someone who doesn't already have a subscription, you can now pick one up for an 80% discount.

The Economist: A 12 month subscription to one of the best reads left in financial print.


Smartphones:

Practically everyone in the finance industry has a Blackberry in their pocket these days. Here's some of the popular models. The Blackberry Tour (Verizon) is one of their latest smartphones. You can also get the Tour with Sprint. Additionally, the Blackberry Curve Javelin is a big favorite these days. And if you want to go with the larger model in their smartphone lineup then check out the Blackberry Bold (AT&T).

HTC Droid Eris (Verizon): The latest phone with Google's Android system.

Motorola Droid (Verizon): Motorola's hardware combined with Google's software.

Palm Pre (Sprint): Palm's new creation for the smartphone market.


-----

And that wraps up our list!

Philip Falcone's Harbinger Capital Trims Two Positions

Philip Falcone's hedge fund firm Harbinger Capital Partners just recently filed two separate amended 13D filings to detail changes to two of their portfolio positions. Firstly, we see that Falcone and his hedge fund have sold even more New York Times (NYT) shares. We just recently covered their NYT sale and it seems they are selling for the third time in the past four months. Most recently, they have sold 2,651,635 shares at a price of $8.35 according to Form 4 and amended 13D filings with the SEC. The transaction took place on December 1st, 2009 and they are now left with 18,386,799 shares in total which translates to a 12.79% ownership stake. So while they definitely still have a sizable stake in NYT, their two recent sales are notable.

In the past, we've taken a step back and wondered whether or not newspapers are a dying industry. Their business model uncertainty still continues and many are concerned. Yet again, Harbinger has sold shares at a loss. They initially acquired their stake between $15-20 per share almost two years ago when they invested over $500 million. Their current stake is down from their previous high of around 20% ownership of the company. We'll have to see if they continue to sell going forward, as in the past they had sought suitors for their NYT stake. We also note that Mexican billionaire Carlos Slim has a hefty position in NYT as well, so there are definitely some prominent players in NYT.

Secondly, Harbinger Capital Partners has again sold more shares of Solutia (SOA). This wind down has seemingly been in slow motion as they have been selling shares in SOA since back in June of this year. Their most recent sales were at the beginning of November and this time is no different. As per their recent amended 13D filing with the SEC, Philip Falcone's hedge fund now shows a 4.4% ownership stake in Solutia (SOA) with 5,391,200 shares owned. This means that within the past month, Harbinger has sold 2,867,853 more shares.

Philip Falcone runs his $6 billion hedge fund with a focus both on distressed and equity plays and often takes concentrated positions in companies. For more of their recent activity, we put up a post detailing a portfolio update and also covered the execution of their Calpine offering (CPN) as well. For more on Harbinger, you can check out some of their UK positions too.

Taken from Google Finance, The New York Times Company is a "diversified media company, including newspapers, Internet businesses, a radio station, investments in paper mills and other investments. The Company is organized in two segments: News Media Group and the About Group. Additionally, the Company owns equity interests in a Canadian newsprint company, a supercalendered paper manufacturing partnership in Maine, and Metro Boston LLC, which publishes a free daily newspaper in the greater Boston area."

Solutia is "a global manufacturer and marketer of a variety of chemical and engineered materials that are used in a range of consumer and industrial applications. The Company maintains a global infrastructure consisting of 25 manufacturing facilities, six technical centers and over 29 sales offices globally, including 14 facilities in the United States. The Company’s segments are Saflex, CPFilms and Technical Specialties."

Technical Analysis On Crude Oil & Apple (AAPL)

The team over at MarketClub just released two new technical analysis videos. You can check out the video on crude oil here and then the video on Apple (AAPL) here. Starting with crude oil first, Adam has identified a pattern where oil actually pulls back every 70-80 days or so. The gap of time between the last three lows is 70 days, 84 days, and 76 days. The current time elapsed since the last low is around 65 days. So, Adam has hypothesized that in 10 days or so, we'll see the next low in oil before it heads higher. After all, the gradual trend in crude since March has been up and all large dips have been buying opportunities Click the chart below to watch the crude oil video.




Secondly, they also look at the popular stock Apple (AAPL). And, things aren't looking all that rosy for this name. Many have pointed to Goldman Sachs (GS) to show the relative weakness compared to the market as it could be a warning sign. Apple could now be exhibiting similar signs as it could possibly have seen a double top and be headed lower. Normally, every big pullback in AAPL has been met with buying. While that still could potentially happen, their signals currently have them out of AAPL as they are worried it could head lower. So, if you're looking for possible 'tells' in the market, watch the action in some of the industry leaders of Goldman Sachs (GS) and Apple (AAPL). You can see how the guys at MarketClub have been trading AAPL throughout the year in their video.

What We're Reading ~ 12/4/09

Gold goes parabolic [Trader's Narrative]

On what was the biggest market call of the decade [The Reformed Broker]

A developing bull market [The Economist]

On Ray Dalio & Bridgewater's decision to enter 'depression mode' [Pensions & Investments]

Paulson is about performance [Eric Jackson's Breakout Performance]

Could Buffett earn 50% returns in today's market? [Value Investing Fundamentals]

A nice primer on managed futures funds [Lawrence G. McDonald, author of A Colossal Failure of Common Sense]

What do rising interest rates mean for equities [Trader's Narrative]

Hedge Fund Paulson & Co's Latest Portfolio: 13F Filing

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

Next up in our series is current hedge fund icon John Paulson. If you are unfamiliar with Paulson & Co, then here's what you need to know. Before the trade that made him famous in the investment world, John Paulson was a seemingly mediocre merger arbitrage fund manager. All of that changed when Paulson began shorting collateralized debt obligations and buying credit default swaps back in 2005 as he had conviction in his bet against subprime. His Credit Opportunities fund launched in 2006 with $150 million aimed to short subprime mortgage backed securities. This fund enjoyed immediate success, causing him to launch the Credit Opportunities II fund. At the end of 2007, the Opportunities fund was up 590% and his Opportunities II fund was up 353%. Such sterling performance led Paulson's hedge funds to be the #1 and #4 funds as ranked in Barron's hedge fund rankings (top 100). Paulson's funds earned this distinction due to their solid 3 year annualized performance metrics. Additionally, Paulson sits at #3 on Alpha's hedge fund rankings list for 2009, which is compiled based on assets under management (AUM).

After massive returns on that trade he become a hedge fund and investor icon. His latest wager involves starting a brand new gold fund which we examined in-depth earlier in the week as he has turned his sights to now betting against the US dollar. In terms of notable portfolio activity in addition to what you'll find below, we saw that Paulson & Co has a large Cadbury stake (CBY) as they believe they will receive a higher takeover bid. Additionally, they've filed a 13D with the SEC in regards to their new stake in Conseco (CNO). You can see more of Paulson's insight and commentary on their portfolio in their Q3 investor letter.

Keep in mind that the positions listed below were their long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated last quarter):
Citigroup (C)
Varian (VARI)
Cemex (CX)
Starwood Hotels (HOT)
Hartford Financial Services (HIG)
Sunstone Hotel (SHO)
Starwood Property Trust (STWD)
Conseco (CNO)
Old National Bancorp (ONB)
Felcor Lodging Trust (FCH)
Ashford HOspitality Trust (AHT)


Some Increased Positions (Positions they already owned but added shares to)
First Horizon National (FHN): Increased position by 137%
Liberty Media (LMDIA): Increased by 123.8%
Pepsi Bottling Group (PBG): Increased by 19.4%
PepsiAmericas (PAS): Increased by 2.7%


Some Reduced Positions (Some positions they sold shares in)
JPMorgan Chase (JPM): Reduced position by 71.4%
Bank of America (BAC): Reduced by 4.9%


Removed Positions (Positions they sold out of completely)
Petro Canada (PCZ)
Goldman Sachs (GS)
Market Vectors Gold Miners (GDX)
Humana (HUM)
Embarq (EQ)
AT&T (T)
Data Domain (DDUP)
Centennial Comm (CYCL)
State Street (STT)
Centex (CTX)
Kimco Realty (KIM)


Top 15 Holdings by percentage of assets reported on 13F filing

1. Gold Trust (GLD): 15.22%
2. Bank of America (BAC): 13.21%
3. Wyeth (inactive): 12.27%
4. AngloGold Ashanti (AU): 8.54%
5. Schering Plough (inactive): 7.95%
6. Citigroup (C): 7.1%
7. Liberty Media (LMDIA): 6.8%
8. Boston Scientific (BSX): 5.13%
9. Sun Microsystems (JAVA): 3.29%
10. Kinross Gold (KGC): 3.26%
11. Capital One (COF): 2.97%
12. Philip Morris International (PM): 2.14%
13. Pepsi Bottling Group (PBG): 1.78%
14. Gold Fields (GFI): 1.55%
15. Mirant (MIR): 1.46%
    

The last time we looked at Paulson & Co's long equity portfolio, they were buying financials. This time around, they were selling a few of them as they sold some JPMorgan Chase (JPM), slightly trimmed their Bank of America (BAC) stake, and sold completely out of Goldman Sachs (GS). One financial they did add as a new position was Citigroup (C). We actually covered Paulson's rumored purchase of C earlier and so Market Folly readers knew about this back in August. Additionally, they added to their First Horizon (FHN) stake.

Hedge fund Paulson & Co's largest holding continues to be gold via GLD. Don't read too much into that because that entire position is purely a hedge for their fund share class denominated in gold. Paulson's inflationary outlook is reflected in his new gold fund, but we want to make sure everyone realizes that his GLD position is purely a hedge for a his gold share class in his other hedge fund. He is betting on inflation with his new fund via gold related equity stakes and derivatives on the price of gold.

Some other notable changes in his portfolio include new positions in Starwood Hotels and the August IPO of Starwood Property Trust. John Paulson's entrance into those as well as Ashford Hospitality Trust and Felcor Lodging Trust is interesting, although we must point out that they make up a very small portion of his portfolio. He also started a stake in Conseco (CNO) but we had already detailed this on the blog. Paulson & Co's background in merger arbitrage is evident in their positions of Wyeth and Schering Plough as those were both taken out in mergers/buyouts and are no longer actively traded.

We've assembled quite a few resources on hedge fund Paulson & Co so make sure to check out their:

- Q3 investor letter
- An in-depth look at Paulson's new gold fund
- Their recent 13D filing on Conseco (CNO)
- Paulson's stake in Cadbury (CBY)
- 2008 annual letter
- The Greatest Trade Ever by Gregory Zuckerman (WSJ Columnist): a detailed account of Paulson's winning bet against subprime that made him billions. See our review here.

Assets from the collective holdings reported to the SEC via 13F filing were $20.4 billion this quarter compared to $17.4 billion last quarter, so an increase of $3 billion. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Realistically, the position percentages are more watered down in their actual hedge fund portfolio.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Dan Loeb's Third Point LLC, and David Einhorn's Greenlight Capital so check back daily as we'll be posting up a new hedge fund each morning.

Top Ten Stocks Held By Hedge Funds

Thanks to the fine folks at FINalternatives, we see the latest quarterly Hedge Fund Monitor Report out of Bank of America Merrill Lynch. These quarterly reports are along the same lines of what we do here at Market Folly in that they examine hedge fund portfolios. Rather than focus on a unique set of funds like we do, they survey the majority of the industry landscape to frame a 'top hedge fund holdings' list.

This data is very useful for those of you wondering which stocks are most widely held amongst hedge funds and we presented the hedge fund data from Q2 earlier on the blog. In the third quarter, hedge funds increased their long equity holdings as gross exposure was up 14% and net exposure was up a whopping 130%.

The ten most popular stocks held by hedge funds include:

1. Bank of America (BAC)
2. Pfizer (PFE)
3. JPMorgan Chase (JPM)
4. Microsoft (MSFT)
5. Citigroup (C)
6. Apple (AAPL)
7. Google (GOOG)
8. Qualcomm (QCOM)
9. Cisco Systems (CSCO)
10. Walmart (WMT)
    

Embedded below is Bank of America Merrill Lynch's Q3 Hedge Fund Monitor Report. RSS & Email readers you will have to come to the blog to view the report & as always we recommend using 'full screen' mode to read the document:






Additionally, you can view the hedge fund trend monitor report from last quarter here.

George Soros Adds Big To One Position, Sells More Of Another

George Soros' hedge fund firm has recently filed two separate 13G's with the SEC to update some of their positions. Firstly, we see that Soros Fund Management has disclosed a 5.26% ownership stake in Dana Holding Corp (DAN) with 7,331,132 shares. The filing was made due to activity on November 20th, 2009 and represents a massive increase in their position in DAN. As per their last 13F filing where they disclosed their positions as of September 30th, Soros owned only 1,500,000 shares of DAN. This means they have heavily boosted their equity stake in the past two months.

Additionally, we see that George Soros has also continued to sell down his stake in Global Ship Lease (GSL). His hedge fund now owns a 1.82% ownership stake in GSL with 864,500 shares as per an amended 13G filing with the SEC on November 24th, 2009. Do note that these shares are represented by warrants they own on GSL. Most recently, Soros Fund Management had a 7.45% ownership stake and before that a 13.66% ownership stake. They first sold their common shares and have now begun to sell the vast majority of their warrants. And as you can see, with only a 1.82% stake left, they are all but out of this name as they continue to sell down their position. You can check out our initial coverage of Soros' GSL position from back in early November.

This recent activity comes right after a portfolio update we did on Soros where he had adjusted three positions in his portfolio. As we've noted in our hedge fund news updates, Soros cautiously believes the market is overdue for a correction. He and many other fund managers have been expecting this for a while, yet the market continues to rally higher. More of Soros' thoughts on the financial markets are detailed in his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means.

Taken from Google Finance,

Dana Holding Corp is "a supplier of axle, driveshaft, structural, sealing and thermal products for global vehicle manufacturers. The Company designs and manufactures products for vehicle producer. It operates 113 major facilities worldwide. Dana serves three primary markets: automotive market; commercial vehicle market, and off-highway market. "

Global Ship Lease "acquires and charters vessels to container shipping companies. The Company was incorporated to acquire a fleet of containerships of diverse sizes."

Check back in as we'll soon be detailing George Soros' entire portfolio in our hedge fund portfolio tracking series.

Market Folly Custom Portfolio: November 2009 Performance

If you're unfamiliar with our portfolio, check out our introduction here. Today we're back with the latest performance metrics from our Market Folly custom 'hedgefundesque' portfolio created with Alphaclone:

November 2009
MF: -2.2%
S&P 500: +6.0%

YTD 2009
MF: +9.4%
S&P 500: +24.1%

Since Inception (1/03/00)
Total Return
MF: +848.6%
S&P 500: -10.0%

Annualized
MF: +25.5%
S&P 500: -1.1%

(click to enlarge)

The clone had a horrible month comparatively speaking. Not to mention, the hedge continues to drag on portfolio performance for the year as the never-ending rally continues. The long-only version of our portfolio is +25.2% year-to-date, compared to the hedged version which is +9.4%. So, you can see the vast majority of the underperformance is due to the hedge this year. In our mind, it has always been imperative to first: protect from losses, and second: to outperform over the long-term. The clone has definitely succeeded in those regards, but we're obviously disappointed with this year's performance.

Needless to say, a rally of over 60% from the lows in one year is quite abusive to our hedge. When you get a rare and vicious rally like that, the hedge will always drag you down. We of course will continue to run our strategy as designed because its long term outperformance speaks for itself. And after all, we're in this for the 3-year, 5-year, and inception metrics. (Keep in mind that you can also run a long-only version of the portfolio).

We're providing monthly performance updates on the Market Folly clone in the interest of full transparency. After all, that word has taken centerstage in the industry as of late. While we aren't focused on month-to-month gyrations, many readers like to see how it is faring near-term and we're happy to oblige. As always, head over to Alphaclone to see our portfolio in action and to see what positions it is currently invested in. We're proud to be ranked #1 on Alphaclone's leaderboard despite this year's poor showing. Create your own hedge fund portfolios over there and let us know how your results look.

Carl Icahn Guest Lecture At Yale University

In a recent video courtesy of AcademicEarth, Yale University's renowned Professor of Economics Robert Shiller welcomed Carl Icahn to his classroom for a guest lecture.

Embedded below is the video of Carl Icahn's lecture on his career in finance, shareholder activism, and the economies and markets of today. RSS & Email readers come to the blog to view the video:

Carl Icahn runs hedge fund Icahn Partners and focuses on activist investing where he seeks to implement change at various companies. We've covered his movements in-depth here on the blog and in October he laid out the idea to short real estate. In addition, we've also detailed some of his portfolio activity. There have been some recent developments out of the Icahn camp and we'll present those in a separate post shortly.

Paulson & Co's Hedge Fund Investor Letter: Q3 2009

Dealbook has the latest investor letter from John Paulson's hedge fund firm Paulson & Co. In their third quarter 2009 letter, they give us an inside look at some of their portfolio holdings as well as a performance update on their hedge funds.

Unfortunately, the tools for the document have been disabled so you have to view it via the embedded version below (we recommend using the 'full screen' option). RSS & Email readers: you have to come to the site to read the Paulson letter.



As per the letter, Paulson executed many arbitrage and event driven plays given their background in that strategy. In particular, they reference the Wyeth/Pfizer deal which we've noted as a play that was ripe with hedge funds. Interestingly enough, Paulson & Co also had been playing arbitrage with Pepsi (PEP) and Pepsi Bottling Group (PBG). We highly recommend reading the letter above. And if you're looking for more material out of John Paulson's hedge fund, check out their 2008 annual investor letter as well.

Just two days ago, we took an in-depth look at Paulson's new offering, a gold fund. This is his latest wager and we'll have to see if he can win big twice in a row. In terms of other recent portfolio moves, we saw John Paulson beef up his stake in Cadbury (CBY), as well as file a 13D on Conseco (CNO). Stay tuned later this morning as we'll be doing our quarterly 13F analysis on Paulson & Co and will update all of their long equity portfolio holdings.

Most Popular Articles On MarketFolly.com

We haven't updated our list of the most popular articles on Market Folly so we figured we should list the current favorites now that a new month is upon us. Since it's the holiday season, make sure to also check out our Holiday Wishlist: Gift Ideas For Those In Finance.


1. Warren Buffett's Recommended Reading List

2. John Paulson's Gold Fund: Betting Against the US Dollar

3. Market Wizards: Advice From 15 Top Hedge Fund Managers & Traders

4. MarketFolly's Custom Portfolio Ranked #1 On AlphaClone's Leaderboard

5. David Einhorn & Greenlight Capital's Portfolio Holdings

6. Review of Gregory Zuckerman's The Greatest Trade Ever, the Story of John Paulson's Subprime Play

7. Stephen Mandel's Hedge Fund Lone Pine Buys a Basket Full of Apple (AAPL)

8. Jim Chanos' Presentation: Ten Lessons From the Financial Crisis

9. Hedge Fund Lansdowne Partners Favors Large Caps In Developed Countries

10. The Third Quarter Edition Of Our Hedge Fund Portfolio Tracking Series

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Thank you as always to our readers. If you enjoy our work, please consider making a donation (via PayPal or credit card). It's definitely very time consuming to run a site on the side and we appreciate your support! If you aren't already, make sure you're getting our daily hedge fund updates for free via email or for free via RSS reader.

Key Levels In the S&P 500

MarketClub just posted up a new video examining the S&P 500 and in it they've outlined two key levels in the market. They highlight that while the trend is up, you still have to be cautious and know when to switch from long to short. So, they've identified a level at which to exit longs (S&P 1072) and then they've identified a separate level which would signify a trend break where you would want to then get short (S&P 991). These are obviously important areas to watch because the trend is your friend... until it's not. Hear what they have to say in their S&P 500 video.

Use those levels to help you place your stops or know when to exit your longs as the market continues to melt up higher. It's never a bad thing to have an exit strategy in place.

Dan Loeb Sees Favorable Investing Environment: Third Point's Investor Letter

Dan Loeb's hedge fund firm Third Point LLC recently sent out their third quarter 2009 investor letter and we're here to provide you with the highlights. Third Point currently manages $2.4 billion and was up 19.8% for Q3 and year-to-date as of September 30th was up 27.6%, outperforming the S&P 500 over the same timeframes.

Loeb mentions that their biggest gainers were Delphi (now inactive), Dana Holding (DAN), Bank of America (BAC), Fortis, Popular (BPOP), and RMBS securities in their mortgage portfolio. We've long known of their BAC position as he detailed it in his past letter to investors. Interestingly enough, we see that Loeb saw nice gains from Dana Holding (DAN) and we also make note that George Soros' hedge fund recently filed a 13G on that company which we'll detail in a separate post.

Just recently we covered Loeb's portfolio and noted Popular (BPOP) was a large new position. His letter provides more clarity on their position as they bought preferred shares around $0.64 per share and converted them into common at an implied cost of $1.50 per share. They believe it is undervalued relative to its peers and is positioned well in Puerto Rico.

Given that Loeb and Third Point often focus on event driven and arbitrage plays, it's interesting to see them currently have close to no risk arbitrage positions. They had previously had in excess of 20% of their capital invested in these strategies. This is mostly due to the fact that the Pfizer/Wyeth and Merck/Schering mergers closed, two arbitrage situations that hedge funds were playing heavily.

Loeb's investment outlook for the next six to twelve months is 'favorable' in both the equity and debt markets. He thinks that interest rates will remain low as the government continues to fight unemployment and get us on the road to recovery. On a corporate level, he expects to see "anemic revenue growth but continued margin expansion, increased corporate restructuring activity (spin-offs, mergers, and the like), and earnings that will frequently surprise to the upside. Thus, for equity investors, it is a stock picker's market on both the long and short sides." To see what equity positions Third Point is currently investing in, we recently checked out their portfolio.

We've covered hedge fund Third Point in-depth in the past and have compiled some nice resources including Dan Loeb's recommended reading, a recent video speech by Dan Loeb, and Third Point's second quarter letter.

Embedded on this page below courtesy of Dealbreaker is Dan Loeb & Third Point's third quarter 2009 investor letter:



You can also download the .pdf here.

Weak Dollar Offset By Rising Stocks Says Jeff Saut

Raymond James' chief investment strategist is back with his weekly market commentary and this time he is focused on the weak dollar. Jeff Saut outlines that early in his career he had been concerned about a weak dollar, but then he learned a valuable lesson: stocks go up to offset it. So while some of you may be worried about the dollar for economic reasons, his argument is you shouldn't be worried from a market perspective. We do know one thing though, hedge fund icon John Paulson is worried about the dollar because he's betting against it with his new gold fund. Saut points out that a weak dollar has been very helpful to precious metals and commodities positions, a situation that plays right into Paulson's theme and strategy.

Based on the weak-dollar infused rally and the charts, Saut's team has outlined a price target on the S&P 500 of 1200 to 1250 so we'll have to see how it plays out. At the same time though, Saut points out again that we are still not out of the woods as we begin the road to recovery. They have been cautious recently in the past but have admitted they were wrong by trying to fight the trend. He quotes Lowry's services who says, "no major market top has formed without being preceded by at least several months of rising selling pressure. But, currently, selling pressure has been recording new lows in a downtrend dating from the index's peak in March. Therefore, absent a sustained rise in selling pressure, the probabilities are against the formation of a major top and favor the continuation of the primary trend higher." As such, Saut's team is playing the tape and has laid out the price targets set forth above. And interestingly enough, Saut has also exchanged a few quips with fellow strategist David Rosenberg which is in the letter below. It seems the investment industry is ripe for debate these days.

We've been posting Jeff Saut's thoughts each week and last week he was out claiming that he thinks performance chasing will propel the market higher. He attributes this to underinvested portfolio managers who have underperformed this year and as such are at risk. After all, your track record is your identity and PM's don't want to have two bad years in a row.

Embedded below is Jeff Saut's latest weekly investment strategy (RSS & Email readers click here to read it):



You can also download the .pdf here.

For more from Raymond James' Jeff Saut, check out how he thinks underinvested managers will fuel further upside and some more in-depth thoughts about what exactly the never-ending market rally means.