Monday, July 30, 2012

Chase Coleman's Tiger Global Sells Some LinkedIn (LNKD)

Chase Coleman's tech-oriented hedge fund Tiger Global Management has filed an amended 13D with the SEC regarding its stake in LinkedIn (LNKD).  Per the filing, Tiger Global has reported a 3.3% ownership stake in LNKD with 2,421,981 shares.

This marks a decrease in their position size and the footnotes reveal that Tiger disposed beneficial ownership of 1,620,947 class A shares.

Tiger sold shares on June 18th & 19th, as well as on various dates between July 20th and 27th.  The bulk of their sale came in blocks at $108.67 and $106.57, though they also sold shares as low as $100.99 (shares now trade around $104).

We previously detailed when Coleman's fund took a 1% stake in LinkedIn back in 2010 for $20 million (a $2 billion valuation).  Nowadays, LNKD trades at a $10.7 billion market cap.

The remaining reported shares are mainly held in their "Private Investment Partners" vehicle.  In the past, we've highlighted how Tiger has allocated capital to private investments in the tech sector and have done extremely well there.  LinkedIn completed its initial public offering a year ago.

Chase Coleman was named one of the top 25 highest earning hedge fund managers of 2011.

Per Google Finance, LinkedIn is "a professional network on the Internet with more than 90 million members in over 200 countries and territories. Through the Company’s platform, members are able to create, manage and share their professional identity online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities. Its platform provides members with solutions, including applications and tools, to search, connect and communicate with business contacts, learn about career opportunities, join industry groups, research organizations and share information."

For more on this hedge fund, head to Tiger Global's Burger King stake.

David Einhorn Boosts Marvell Technology Position

David Einhorn's hedge fund Greenlight Capital filed a 13G with the SEC regarding its position in Marvell Technology (MRVL).  Per the filing, Einhorn has revealed a 5.3% ownership stake in the company with 29,595,179 shares.

This means he's boosted his holdings by 61% since the end of the first quarter.  The filing was made due to portfolio activity on July 16th.  Einhorn talked about his stake in MRVL in Greenlight's Q2 letter.

He likes that the company only trades at "roughly 5x next year's earnings net of the cash on the balance sheet."  Einhorn hopes the company's latest repurchase program will be aggressive and he used weakness in shares to add to his position.  Over the past three months, shares are down 24%.

Per Google Finance, Marvell Technology is "a fabless semiconductor provider of application-specific standard products.The Company develops complex System-on-a-Chip (SoC) devices. Its product portfolio includes devices for data storage, enterprise-class Ethernet data switching, Ethernet physical-layer transceivers (PHY), mobile handsets and other consumer electronics, wireless networking, personal area networking, Ethernet-based personal computer (PC) connectivity, control plane communications controllers, video-image processing and power management solutions. Its products serve diverse applications used in carrier, metropolitan, enterprise and PC-client data communications and storage systems."

For the latest on this hedgie, head to Einhorn on Apple, Green Mountain Coffee and Amazon (interview).

Larry Robbins' Glenview Capital Adds to Rovi Stake

Larry Robbins' hedge fund firm Glenview Capital just filed a 13G with the SEC regarding its position in Rovi Corp (ROVI).  Per the filing, Glenview has revealed a 7.09% ownership stake in Rovi with 7,866,100 shares.

This means they've increased their share count by over 1000% since the end of the first quarter.  Robbins' firm initiated a new position in the first quarter of this year, but only owned 711,000 shares at that time.

Glenview's original purchase in Q1 could have ranged from $25 to $37.  But the bulk of their stake seems to have been bought anywhere between $10 and $30.

However, given the drop in shares the past few weeks (from $18 down to $9), and the timing of this filing, they certainly took advantage of the recent volatility.  The 13G was required due to activity on July 18th.

Per Google Finance, Rovi is "focused on powering the discovery and enjoyment of digital entertainment by providing a set of integrated solutions that are embedded in its customers’ products and services and used by end consumers to simplify and guide their interaction with digital entertainment. The Company’s offerings include content discovery, video delivery and advertising."

For more on this hedge fund, we've posted Larry Robbins' Ira Sohn presentation on THC, HMA, HCA, LPNT and ITC.  We've also highlighted why Larry Robbins likes Life Technologies as well.

Wednesday, July 25, 2012

What We're Reading ~ 7/25/12

On hedge fund managers and publicity [Reformed Broker]

Dark pools and broken markets [Abnormal Returns]

Are investors just waiting for QE3? [Pragmatic Capitalism]

Profile of Seth Klarman, the oracle of Boston [Economist]

First year analyst dress codes [FINS]

Can John Paulson bounce back? [Pensions & Investments]

Why your brain is killing your portfolio [WSJ]

Is Johnson & Johnson cheap enough? [ValuePlays]

The book Hedge Fund Market Wizards: 19 notable quotes [Ivanoff] 

What were the 10 best & worst times to invest in equities [World Beta]

JANA shifts co-founder to advisory role [AR+Alpha]

Ackman's protege leaves to start fund [BusinessWeek]

Earnings surprises, price reaction & value [Aswath Damodaran]

Focusing on emerging hedge fund managers [FINalternatives]

Decline of Google (and the internet's) ad business [AtlanticWire]

Dan Loeb Adds to Yahoo! Stake

Dan Loeb's Third Point LLC filed a Form 4 with the SEC late yesterday indicating they'd increased their stake by 2.5 million shares.  Third Point bought 1.696 million shares at a weighted average price of $15.82 on July 20th and 804,000 shares at a weighted average of $15.67 on July 23rd.

After these purchases, Third Point now owns 73 million shares of YHOO.  Yahoo just recently named top Google executive Marissa Mayer as its new CEO in a move largely applauded by investors.  As we detailed in Third Point's latest exposure report, YHOO is their top holding.

And back in May, YHOO also made Goldman Sachs' VIP list of most important stocks to hedge funds.  While Loeb's activist campaign is moving along nicely, the core Yahoo business still faces one obstacle: getting more people to come back and use their services daily like most people use Google.

Tuesday, July 24, 2012

Corsair Capital's Investment Thesis on DigitalGlobe: Q2 Letter

Jay Petschek and Steve Major's Corsair Capital is out with its Q2 2012 investor letter.  In it, they outline their investment thesis on a core position: DigitalGlobe (DGI).  Additionally, they provide updates on Six Flags (SIX), Innophos (IPHS), Aperam (APAM), and TNS (TNS).

Corsair's DigitalGlobe Thesis

Note: the below was written before the announcement that Digital Globe would be merging with GeoEye (GEOY).  Under the terms, GeoEye shareholders will elect either 1.137 shares of DigitalGlobe and $4.10 per share in cash, or 100% of the consideration in cash ($20.27), or 100% of the consideration in stock (1.425 shares of DGI for each share of GEOY owned).  The transaction marks a 34% premium to to GEOY's previous closing price.

For those interested, here's Corsair's original DGI thesis:

One of the hedge fund's core positions is US satellite imaging company, DigitalGlobe (DGI), which provides real-time and archived images from 3 satellites.  DGI co-developed Google Earth as well as Apple's new Maps product.  The company received a takeover offer from competitor GeoEye (GEOY) for $17 per share but DGI rejected it.

Corsair sees strong leadership and expects the company to create value via dividends, share repurchases and "disciplined M&A."  The government effectively represents 50% of their revenue, so that is certainly a risk and is why the stock sold off so hard in February (government spending cuts).  Corsair's view was that the stock already reflected a worst-case scenario and 2012 is a transformational year.  You can read their full case in the letter below. 

Unrelated, but also worth highlighting from the letter: they cite Jim Grant of Grant's Interest Rate Observer, pointing out a potential contrarian signal for equities, noting that "this is the first time in 12 years that pension managers are putting more money into fixed income securities than equities, whereas, just a few years ago they were putting twice as much into equities than in bonds."

Embedded below is Corsair Capital's full Q2 letter:

For more on this hedge fund, head to Corsair's thesis on SunCoke Energy.

Ken Griffin's Citadel Reveals New Marriott Vacations Position

Ken Griffin's Citadel has started a brand new stake in Marriott Vacations (VAC).  Due to a 13G just filed with the SEC, Citadel has revealed a 5% ownership stake in VAC with 1,714,349 shares. 

The filing was made due to portfolio activity on July 18th.  We highlighted back in March how Steve Cohen's SAC Capital was buying VAC.  However, since they move in and out of positions faster than most of the other funds we track, it's hard to say if they still own a stake (and we won't know until mid-August when the latest 13F disclosures are released).  But for now, Citadel has started a new stake in the name.

Per Google Finance, Marriott Vacations is the worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. The Company is also the global developer, marketer and seller of vacation ownership and related products under the Ritz-Carlton Destination Club brand, and it has the right to develop, market and sell whole ownership residential products under the Ritz-Carlton Residences brand."

David Einhorn Sells Best Buy & Dell, Buys Cigna & Coventry Health: Q2 Letter

David Einhorn's Greenlight Capital is out with their Q2 2012 investor letter and Dealbreaker has it posted.  In it, they reveal that they no longer own Best Buy (BBY) or Dell (DELL).  Additionally, they started new stakes in Cigna (CI) and Coventry Health Care (CVH), playing the managed care sector.  Here are some excerpts from the letter:

On Best Buy:  "We thought that the core debate was whether or  not the company could compete with Amazon.  The answer at this point is that maybe it can and maybe it can’t.  (Despite the consensus view, our store surveys have repeatedly shown  that there is no price benefit for consumers to browse at BBY and then purchase at Amazon.)   There has been some deterioration in BBY’s domestic performance, which we attribute to a  lack of a “must have” consumer electronics  product, rather than  an erosion of BBY’s  competitive position.  While we held the shares, three unexpected problems emerged:  First,  BBY depleted $1.3 billion of its cash resources by paying a double-digit multiple for  Carphone Warehouse’s share of the Best Buy Mobile profit stream.  The market promptly revalued those earnings to BBY’s mid-single digit multiple.  Second, in the most recent quarter,  BBY’s international profits collapsed.  In particular, comparable sales in its Chinese business  fell 28% as the Chinese economy appears to have hit a wall.  Finally, the company dismissed  its CEO over his personal conduct, and also removed the Chairman for failing to respond  properly to the CEO’s misbehavior.  As a result, the company has an interim CEO and is  trying to come up with a strategy.  We worried  that this could lead to additional business  disruption so we exited with a loss."

On Dell:  "We had thought that the growth in the non-PC business would be enough to
offset the deterioration in the PC business.  The non-PC growth was smaller than we’d hoped
and the PC deterioration was worse than we’d anticipated.  While DELL has a good balance
sheet, it appears likely that management will try to use much of the cash to try to buy its way
into better businesses.  At a minimum, this will erode some of the value cushion that the cash
balance creates."

On Cigna:  "CI is a managed care company with three primary divisions:  Cigna HealthCare, Cigna Group  Disability and Life, and Cigna International.  Cigna HealthCare, which comprises about 70%  of CI’s profits, offers medium and large companies traditional risk-based insurance, in  addition to administering plans for those that prefer to self-insure.  Cigna HealthCare recently  bought HealthSpring to enter the fast-growing Medicare Advantage market.  Cigna Group  Disability and Life is a low-growth, stable  business. Cigna International, which provides  insurance policies for individuals, as well as insurance and administrative services for multinational companies and governments, is growing at more than 20% per year.  We believe that  CI deserves a higher multiple because the plan administration business is a service business  that doesn’t take risk, and the other divisions do not warrant discounted values.  Our purchase  price of $45.42 per share valued CI at less than 8x estimated 2012 EPS and approximately 6x  our forecast of post Obamacare 2014 EPS.  CI shares closed the quarter at $44.00 each."  Note: CI has since fallen further and you can currently buy it at cheaper prices than Greenlight.

On Coventry:  "CVH is a regional managed care company with operations in the mid-Atlantic, Midwest and  parts of the South.  The company offers commercial risk-based insurance and has an  expanding business in the government-sponsored Medicaid and Medicare programs.   Problems with a recently-acquired three-year contract to provide managed care services to the  Medicaid population in Kentucky caused the company to  significantly reduce earnings  guidance for 2012.  This led to a large drop in the stock price.  We believe the issues related  to the Kentucky contract are manageable and finite, and CVH will return to breakeven or a  profit on this contract in 2013 from a loss this year.  Our average purchase price of $31.22  represents 8x our forecast  for 2014 earnings net of $6 per share of cash and reflects our  estimate of the negative impact of Obamacare.  CVH closed the quarter at $31.79 per share."

We've also recently highlighted some of Einhorn's thoughts on Apple, Green Mountain and Amazon.

Einhorn's top five largest long positions at the end of the quarter (in alphabetical position) were: Apple (AAPL), General Motors (GM), gold, Marvell Technology (MRVL), and Seagate Technology (STX).  We highlighted how Greenlight was adding to their STX position last month.

Instead of waiting for a copy of the letter, we'll send you over to Dealbreaker who already has it posted here.

Friday, July 20, 2012

Howard Marks on His Current Favorite Idea & Investment Strategy

We've long posted commentary from Oaktree Capital's Howard Marks (see his recent letter here) due to the amount of wisdom he often shares.  Warren Buffett has even said Marks' letters are the first thing he reads when they come in.  So today we wanted to highlight a longer conversation with Marks on Bloomberg recently.

His Current Favorite Idea: "We think the current combination of good opportunities and good quantity of dealflow is in real estate and real estate related debt"  (both in the US and abroad, but but the US looks a bit better currently).

He thinks there's more of an aversion to real estate today than other areas.  Marks has bet on single family rental properties, believing that there will be a comeback in housing.  The key is to have patient capital, he says.  Numerous other prominent investors also liked this idea at this week's Delivering Alpha conference real estate panel.

On Investment Strategy:  "In order to get above average results, you have to think different and better.  It doesn't always work to do the opposite of what the herd is doing.  You have to know what they're doing, know why they're doing it, know what's wrong with it, and then do the opposite."

He says that everyone is looking at the macro and it's very hard to make calls like that.  He points to great investors like Warren Buffett not making macro calls and instead focusing on specific company fundamentals.

On Opportunities:  He says opportunities usually exist because the sellers are making a mistake (because they're forced to sell, or panicking or they get a margin call).  He penned his entire last memo on mistakes.

On Europe:  "It's a complex area, very murky, very uncertain."

Embedded below is the video of Marks' appearance on Bloomberg:

For more from the Oaktree manager, we've posted an excerpt from his book on contrarianism.

What We're Reading ~ 7/20/12

Muddy Waters negative report on New Oriental Education [Muddy Waters]

Great drought driving food prices higher [Big Picture]

Conversation on potential secular themes [Reddit]

Longleaf Partners Q2 shareholder letter [Longleaf]

The wisdom of crowds in financial markets [Resource Investor]

Tail risk and hedge fund returns [SSRN]

Tech debate between Peter Thiel and Eric Schmidt [Fortune]

A look at the company Square's future [NYTimes]

Profile of Yahoo's new CEO, Marissa Mayer [Spectrum]

Marissa Mayer is in over her head [Slate]

Tons of other great reads from this week [Abnormal Returns]

Thursday, July 19, 2012

Whitney Tilson Becomes Sole Manager of T2 Partners, Glenn Tongue Starts Deerhaven Capital

Whitney Tilson recently sent out a letter detailing that his hedge fund T2 Partners will be losing its dual-portfolio manager structure.  Tilson will continue to manage the fund as its sole manager.  Glenn Tongue, the former co-manager, will takeover the former T2 SPAC Fund and rename it Deerhaven Fund, to be managed by his new firm, Deerhaven Capital Management.

As we tweeted out earlier today, in the letter Tilson says "I will adopt a much lower public profile and let my investment returns speak for themselves."  He will also be adopting a much more concentrated portfolio approach, targeting 15 longs and 25 (smaller) shorts.

Also worth noting is the fact that he sold all of T2's positions and will be re-building the portfolio (but will still buy old holdings like BRK).  Certainly there will be tax consequences for this decision.

Tongue, with his new firm, will be focusing on high quality businesses, special situations (mergers, workouts, SPACs), and mispriced options.  He'll also run a concentrated long book and diversified short book.

Embedded below is the T2 Partners letter detailing the changes:

It remains to be seen whether or not T2 will invest in AIG again, but we'd assume so given that they gave a presentation on AIG only two months ago.

Notes From Delivering Alpha Conference

Here's an index of notes from the various panels at CNBC & Institutional Investor's Delivering Alpha Conference:

- Best Ideas Panel featuring Omega's Leon Cooperman, Kynikos' Jim Chanos, BlueMountain's Andrew Feldstein, BlackRock's Robert Kapito, and Queen Anne's Gate Capital's Kathleen Kelley.

- Global Opportunities Panel featuring Richard Perry (Perry Capital), Fortress' Peter Briger, Harvard Management's Jane Mendillo, and JPMorgan's Mary Callahan Erdoes

- Less Than Zero Panel featuring Avenue's Marc Lasry, Marathon's Bruce Richards & Morgan Stanley's Gregory Fleming

- Real Estate Panel featuring Pershing Square's Bill Ackman, Starwood's Barry Sternlicht, and Blackstone's Johnathan Gray

- Commodities Panel featuring Ospraie's Dwight Anderson, Arbalet's Jennifer Fan, and Taylor Woods Capital's Beau Taylor

Delivering Alpha Real Estate Panel: Ackman, Sternlicht & Gray

Continuing coverage of CNBC & Institutional Investor's Delivering Alpha Conference, we're now shifting to the real estate panel featuring Pershing Square's Bill Ackman, Starwood Capital Group's Barry Sternlicht and Blackstone Group's Johnathan Gray.

If you missed it, we've also posted up notes from the other panels at the conference.

Bill Ackman (Pershing Square):  Ackman's been in the news recently regarding a new stake in Proctor & Gamble (PG) so naturally he addressed that first saying, "We think it's a great company ... it's a cheap stock, but it's cheap for a reason.  We own the stock, we like the company, we own about $1.8 billion in equity in options."

That's a lot when you frame it in the context of a $10 billion dollar fund.  Recently, Ackman was also saying his PG bet is the largest initial bet on a company he's ever made.  Many have postured that he'll look to shake-up management and examine splitting the business up.

Ackman also touched on his stake in J.C. Penney (JCP), whose shares have been in steady decline.  He argued that it's the only company that can make 15-20x return (seems awful high), attributing the sell-off to a PR problem versus fundamentals.

On the subject of real estate, he advocated buying single family homes, arguing that it's a good business and an "asset class where institutions are underrepresented."  For more from this investor, we just posted up Ackman's recommended reading list.

Barry Sternlicht (Starwood Capital):  He noted that there's enough debt financing and that spreads are tight.  He also pointed out that you don't really see foreign banks here.

Echoing Ackman, Sternlicht says they've been buying houses and thinks the market could even possibly be overbought.  On Europe, he thinks it's still the first inning there so if you get involved, you've got to buy and hold.  We've highlighted thoughts from Sternlicht before in investing lessons learned from Richard Rainwater.

Johnathan Gray (Blackstone):  They bought a lot of commercial real estate near the top of the market but said it's not painful because rents are improving (due to lack of new construction).  He believes there's some opportunity out there to buy things that others aren't interested in.  The caveat, is that financing is harder to obtain than in the past.

Blackstone obviously likes Ackman's notion of buying homes as that's what they've been doing.  Two thousand for $300 million, saying execution is key.  He especially seems to like European deals and thinks the continent is not going into an abyss.  In summary, he wants to buy hard assets at a discount to replacement cost.

Be sure to check out more insights from top investors from the conference:

- Best ideas panel

- Global opportunities panel

- Chase for yield panel

Delivering Alpha Commodities Panel: Dwight Anderson, Jennifer Fan & Beau Taylor

The last set of notes from CNBC & Institutional Investor's Delivering Alpha Conference comes from the commodities panel featuring Ospraie's Dwight Anderson, Arbalet Capital's Jennifer Fan, and Taylor Woods Capital's Beau Taylor.

Be sure to check out notes from the Delivering Alpha conference for all the other panels.

Dwight Anderson (Ospraie):  The legendary commodities man thinks there's risk in corn, wheat and grain markets (corn has spiked insanely higher, trading limit up on numerous occasions).  He argued more investors should look into farmland.  We've highlighted in the past how Michael Burry likes farmland (yes, the Michael Burry of subprime shorting fame).  Two months ago at the Ira Sohn Conference, we also highlighted how Anderson was long palladium, short platinum.

Jennifer Fan (Arbalet Capital):  She was named one of Institutional Investor's rising stars in 2011 and Arbalet was one of the biggest fund launches this year.  Her comments included that being a farmer is harder than being a hedgie.  She also echoed Anderson's sentiment that corn is risky.  She also pointed out that Chinese GDP numbers are volatile (much more-so than what's reported).

Beau Taylor (Taylor Woods Cap): He feels that crude oil could go much higher ($200 per barrel), citing violence in countries like Syria, Iraq, Iran and some African countries.  He likes Brent over WTI.  He also likes farmland, but says it's hard to scale.

Sources: Notes from readers, II's blog@ldelevingne

Be sure to check out all the other notes from the Delivering Alpha Conference.

East Coast's Q2 Letter: What Defines A Great Business & A Look At IBM

Christopher Begg's is out with East Coast Asset Management's Q2 letter entitled, "The Beekeepers" where he makes an excellent analogy to investing.  In it, he also delves into what defines a great business and discusses IBM (IBM) as one of their new holdings in context of a larger theme.

Before diving into the IBM idea, we wanted to highlight a few of his salient points from the letter.  He makes a great analogy in the letter writing, "Bees also suffer from the biggest problem of most investors - the inability to sit in a room and do nothing."  Indeed, many great investors have extolled the virtues of patience in investing.

And on the topic of crowded trades, Begg writes,

"We observe that many investors appear to share similar behavior.  Too much demand chasing too little supply will eventually drive prices to extremes, diminishing the resources or future returns for a particular asset class.  We are witnessing this today with money markets and fixed-income securities where yields hover near all-time lows and the crowded hive has to swarm to find more resources."

Why East Coast Likes IBM

Begg highlights that Warren Buffett's Berkshire has become the largest shareholder of IBM (over $13 billion).  East Coast added the name to their books in the quarter and here's some of the rationale as to why:

- IBM has averaged unlevered returns on net tangible assets over the last five years of greater than 20%.

- Their durable competitive advantage exists in the sheer depth of their proprietary intellectual knowledge with which they can solve their customer's complex problems.

- They've targeted four key areas of market opportunity: developing markets, cloud and smarter computing, business analytics and optimization, and smarter planets/smarter cities.

- Perhaps one of the most important: pricing power.  As we all know, Buffett loves pricing power.

- Effective management.

Read their full thoughts in East Coast's Q2 letter embedded below:

For more from this firm, be sure to also check out their Q1 letter on mispricings as well as their thoughts on competitive advantage.

Wednesday, July 18, 2012

Delivering Alpha Less Than Zero Panel: Lasry, Richards & Fleming

Continuing coverage of CNBC and Institutional Investor's Delivering Alpha Conference, next up is the Less Than Zero Panel featuring Avenue Capital's Marc Lasry, Marathon Asset Management's Bruce Richards, and Morgan Stanley's Gregory Fleming in a talk on the hunt for yield.

If you missed previous posts from the conference, check out a summary of the best ideas panel as well as the global opportunities panel.

Marc Lasry (Avenue Capital):  He argued that 10 year Treasuries will be around 2.5% to 3% in 5 years.  He talked about investing in European debt, saying that you're getting (over)paid for the risk premium.  We've highlighted Lasry on European opportunities recently.  He said that he's buying bank debt in private markets (in Europe), saying that you want to be in regions where "everyone's nervous."  Lasry also argued that 10% plus annual returns are doable if there's a 7-year lockup.

Bruce Richards (Marathon Asset Management):  He said that government bonds = highest risk, lowest return.  He likes structured credit as he thinks the hunt for yield will get insane through 2014 as he made a Hunger Games reference.  He also says that everyone knows inflation is the way out for the US government.  Additionally, he argued he could make 12-14% in high yield.

Gregory Fleming (Morgan Stanley):  He highlighted the retail investor's demand for yield while still having major risk aversion.  It's difficult to combine the two, obviously.  Citing Jim Grant, he also called Treasuries "return free risk."

Sources: Notes from readers, II's blog, @iimag, @ldelevingne, @footnoted, @aarontask

For more from the Delivering Alpha Conference, head to a summary of the best ideas panel (including Leon Cooperman, Jim Chanos and more) as well as the global opportunities panel (featuring Richard Perry).

Delivering Alpha Global Opportunities Panel: Perry, Briger, Mendillo & Erdoes

Today we're posting up highlights from CNBC & Institutional Investor's Delivering Alpha Conference.  We've already posted up the best ideas panel and the chase for yield panel, now we're posting up the global opportunities panel featuring Perry Capital's Richard Perry, Fortress' Peter Briger, Harvard Management's Jane Mendillo, and JPMorgan's Mary Callahan Erdoes.

Richard Perry (Perry Capital):  The hedge fund founder thinks the ECB will keep pumping liquidity into the system, straight to banks rather than governments.  He actually feels the crisis in Europe has been blown out of proportion (at least the extent of it) and it will be a smoother recovery than expected.  Perry feels the euro will survive.

Perry said he likes Italy and Spain sovereign debt but emphasized that he's a trader and could change his mind as fast as tomorrow and also said that "at the end of the quarter, you can't have Spain and Italy on your books."  (Related: we've highlighted how Dan Loeb's Third Point has been long Portuguese sovereign debt.)  Perry noted they've been worried about Spain for three years now.  He also says that in Washington they need to focus on spurring mortgage lending and focusing on immigration reform.

Peter Briger (Fortress):  Briger disagrees with Perry and feels that European bank balance sheets have lots of risk assets that haven't been priced appropriately, saying there's still a lot to work through (debt).  He basically wants to get excited about these opportunities but says prices aren't intriguing enough (cash is still king right now for him).  He says we're in a "period of transitional finance."  His favorite play is financial services "garbage collection" over the next 5 years.  He also mentioned that if he was a long-only investor, he'd be intrigued by the US mortgage market.

Jane Mendillo (Harvard Management Co):  She noted how she's seeing a lot of investors looking for distressed credit in Europe, almost in a frenzy, as there's more dollars than opportunities.  They are not piling in now but are indeed looking at long-term opportunities.  Her favorite space right now is natural resources as she thinks there's still inefficiencies there: farmland, energy, water, timberland, infrastructure.

Mary Callahan Erdoes (JPMorgan):  The CEO of JPMorgan Chase Asset Management said her top pick is to short the Euro.  Coming off a trip to Asia, she notes that investors over there are still looking at US opportunities. She also said that "buy and hold" is definitely dead.  Erdoes made the case for European equities (with an emphasis on luxury), calling it a stock picker's market.

Sources: Notes from readers, II's blog, @iimag, @ldelevingne, @footnoted, @aarontask

For more from the Delivering Alpha Conference, head to a summary of the best ideas panel featuring Leon Cooperman, Jim Chanos as well as the hunt for yield panel featuring Marc Lasry.

Delivering Alpha Best Ideas Panel: Cooperman, Chanos, Feldstein & More

CNBC and Institutional Investor's Delivering Alpha Conference is going on today and we wanted to aggregate the highlights.  The "best ideas" panel included Omega Advisors' Leon Cooperman, Kynikos Associates' Jim Chanos, BlueMountain Capital's Andrew Feldstein, Queen Anne's Gate Capital's Kathleen Kelley, and BlackRock's Robert Kapito.

From the conference, we've also posted up the global opportunities panel as well as the chasing yield panel.

Leon Cooperman (Omega Advisors):  He pitched going long US stocks and called them the best house in the financial neighborhood, a tune he has been singing for well over a year.  However, he did make an excellent point that the maximum "pain trade" is going higher as tons of people are sitting on large sums of cash earning nothing. 

As for specific names he likes: Capital One (COF), Express Scripts (ESRX), Halliburton (HAL), Gannett (GCI), Kinder Morgan (KMI), MetLife (MET), Qualcomm (QCOM), Watson Pharma (WPI) and Western Union (WU).  He also likes AIA Group (1299.HK) traded in Hong Kong.

The Omega Advisors founder also continued to bash bonds, saying "buying US bonds right now is like walking in front of a steam roller and picking up dimes.  It's just not a good policy."

As far as the election goes, he thinks that if Romney wins, the market will spike by 150 points, but if Obama wins, it drifts lower. For more from the Omega man, we just posted up Leon Cooperman on 14 attributes that make a good portfolio manager.

Jim Chanos (Kynikos Associates):  The noted short-seller was out again negative on tech companies.  He mainly pitched the bear case on Hewlett Packard (HPQ), calling it a value trap.  We just recently highlighted Chanos' presentation on global value traps where HPQ was highlighted among other names.

He says that "when you lose the paradigm shift, you spend an awful lot of money defending what you have."  He compared HPQ to Eastman Kodak as the company is in declining businesses.

Chanos also touched on how instead of giving cash back to shareholders, companies will make value-destroying acquisitions.  He cited HPQ's buy of Autonomy last year.  The Kynikos man argues that HPQ has overspent on acquisitions and they're hiding research & development expenditures through them.

He's also negative on Dell (DELL) saying that the company finances its subprime customers (financing their revenue growth).  For more on Chanos we just recently posted up his thoughts on the psychology of short selling.

Andrew Feldstein (BlueMountain Capital):  He likes less liquid credit, angling for 8-12% returns over a 3-7 year time horizon.  He says you have to be patient as this opportunity is available due to everyone's obsession with liquidity (i.e. don't put your money here if you don't have an appropriate time horizon).  He mentioned bonds such as Prospect Medical if you can buy and hold.  Feldstein also mentioned he's less excited about legacy distressed assets in Europe.

Kathleen Kelley (Queen Anne's Gate Capital):  Formerly of Tudor and Kingdon, she pitched two ideas: short the British pound (against long US dollar) as well as short platinum, targeting 20-30% moves to the downside.  She wants to be long the USD against the sterling because the USD can be a commodity currency.

She also likes shorting platinum as there's an oversupply due to slowing Euro auto sales.  At the Ira Sohn conference two months ago, Ospraie's Dwight Anderson pitched going short platinum as well (in addition to going long palladium).

Robert Kapito (BlackRock):  He's going for the "income hog" approach by focusing on equity dividend funds, dividend stocks like AT&T (T), Verizon (VZ), Merck (MRK), Johnson & Johnson (JNJ), high yield bond funds (or individual issues from Sprint, Ally) and municipal bonds such as the San Francisco Airport, New Jersey Tolls.  He thinks that default worry surrounding munis is "overrated."

Sources: Notes sent by readers, II's blog, @iimag@ldelevingne, @footnoted, @aarontask

For more from Delivering Alpha, head to the global opportunities panel (featuring Richard Perry) as well as the hunt for yield panel (featuring Marc Lasry)

What We're Reading ~ 7/18/12

Jack Schwager's new book: Hedge Fund Market Wizards [Amazon]

Make or break time for China [Bespoke Investment Group]

Investors' 10 most common behavioral biases [Above the Market]

Don't let models doom your portfolio [Rick Ferri]

Mega cap stocks may be poised to outperform [Disciplined Investing]

Are there secrets in SEC filings? [footnoted]

Why Windows 8 made one investor sell Microsoft [Institutional Investor]

Lone Pine Asia Chief launches hedge fund [FINalternatives]

How to get a job at a hedge fund [Forbes]

Hedge funds: mastered by the universe [The Economist]

Passport Capital winds down materials hedge fund after loss [Bloomberg]

Harbinger Capital announces second permanent capital vehicle [FINalternatives]

4 reasons the hedge fund industry is structurally dead [Minyanville]

Value investors at Research in Motion annual meeting [Barel Karsan]

Jack Welch: Corporations are people [WSJ]

Tuesday, July 17, 2012

Strategist Jeff Saut: Same Recession "Head Fake" Third Year in a Row

Market strategist Jeff Saut is out with his weekly commentary entitled "Cognitive Dissonance."  He titled his piece as such due to certain economic readings softening while others strengthened.  Saut also addresses how it can often pay to go against the crowd, likening the current market action to that of the past two years.

He argues that just like the past two years, the markets have peaked in May/June and will decline for a few months before surging higher into year-end as no evidence of a recession emerges.

However, Saut isn't sure if the current decline is over yet.  He won't be completely comfortable until the S&P 500 breaks 1366 to the upside and holds it (it's currently around 1358).

In the mean time, he's been recommending slow accumulation of select stocks such as decent dividend payers like Allstate (ALL), Covanta (CVA), Johnson & Johnson (JNJ), Plum Creek Timber (PCL), Rayonier (RYN) and Stonemor (STON).

And on the topic of cognitive dissonance Saut writes, "in order to reduce the anxiety of decision making, people perceive things in ways that may or may not be logical.  Simply stated, people talk the way they bet.  From a stock market perspective this means that the interpretation of economic and market news varies in direct relationship to the investor's bullish, bearish, or cautious market position."

Embedded below is Jeff Saut's latest commentary where you can read why he thinks this year is just like the past two:

You can download a .pdf copy here.

For more from the strategist, we've also highlighted some of his rules for position sizing as well as profit-taking and loss prevention.

Trian Fund Sells Some Family Dollar (FDO)

Nelson Peltz's Trian Fund Management was the largest institutional holder of Family Dollar (FDO) shares at the end of the first quarter.  However, according to a recent Form 4 filed with the SEC, Trian has sold some shares.

Per the SEC filing, Trian's co-manager Ed Garden (who sits on FDO's board) sold 597,000 shares at prices between $69.75 and $70.71 on July 10th and 11th.  After these sales, Trian was left owning 9,369,201 shares.  We've posted up the firm's thoughts on FDO in Trian's Q1 letter.

Readers who have followed this name will recall that Trian actually made a bid to take the company private at $60 per share.  Many assumed this was posturing to induce other bids, which never materialized. 

A few months ago, we highlighted how Bill Ackman's Pershing Square sold out of FDO to allocate capital to more compelling opportunities.  While Trian has sold some shares, it could merely be profit taking as they're up on their position.

At the end of the first quarter, Family Dollar counted numerous institutional firms as top shareholders, including: Alan Fournier's Pennant Capital, Scout Capital, Dan Loeb's Third Point, Paulson & Co, and many more.  We'll have to wait and see who continues to own FDO when the second quarter filings are released in August.

Per Google Finance, Family Dollar is "operates a chain of more than 7,000 general merchandise retail discount stores in 44 states, providing primarily consumers with a selection of merchandise in neighborhood stores. The Company merchandise assortment includes Consumables, Home Products, Apparel and Accessories, and Seasonal and Electronics. A Family Dollar store is between 7,500 and 9,500 square feet, with an average of approximately 7,100 square feet of selling space."

For more from this investment firm, we've posted up Trian's recent presentation on Lazard.

John Griffin's Blue Ridge Capital Buys Colfax (CFX)

John Griffin's hedge fund firm Blue Ridge Capital filed a 13G with the SEC after market close yesterday disclosing a brand new position in Colfax (CFX).

Per the filing, Blue Ridge now owns 5.73% of the company with 5,370,000 shares due to portfolio activity on July 6th.  They did not own a position at the end of the first quarter, so they've built this position somewhere between April and July.

In other activity from this fund, we've detailed how Blue Ridge was buying Martin Marietta Materials as well.

Per Google Finance, Colfax is "a global industrial manufacturing and engineering company. The Company provides gas- and fluid-handling and fabrication technology products and services to commercial and governmental customers worldwide under the Howden and ESAB brand names and by Colfax Fluid Handling. Colfax’s products are marketed principally under the brand names Allweiler, Baric, Fairmount Automation, Houttuin, Imo, LSC, COT-Puritech, Portland Valve, Tushaco, Warren and Zenith."

For more from John Griffin's firm, check out Blue Ridge's recommended reading list.

Friday, July 13, 2012

Berkshire Hathaway Buys Phillips 66 (PSX) Shares

Warren Buffett this morning on Bloomberg TV said that his Berkshire Hathaway has invested in Phillips 66 (PSX).  We've also posted up a summary of Buffett's lengthy interview.

PSX was spun-off from ConocoPhillips (COP) on May 1st and Buffett said one of his portfolio managers (either Todd Combs or Ted Weschler) have reduced holdings in COP and bought into the refining operations ~ PSX.

Owners of COP shares received 1 share of PSX for every 2 shares of COP owned as of April 16th.  Berkshire owned just over 29 million COP shares as of March 31st (before the spin-off).  Assuming that number, that would mean they received just over 14.5 million shares of PSX in the spin.

But it sounds like they've gone a step further by selling some of their post-spin COP shares and adding to their PSX stake.

For more from Berkshire Hathaway's leading man, head to notes from Buffett's meeting with MBA students.

Warren Buffett on the Economy, Wells Fargo, Newspapers & More (Lengthy Interview)

Warren Buffett co-hosted Bloomberg TV's "In the Loop" this morning and we wanted to summarize his interview with the main talking points.  One of the main takeaways is that Berkshire has invested in Phillips 66 which we broke down in a separate post.

Here are some takeaways from Buffett's interview:

On the Housing Market:  "It is starting to recover. The general economy has probably slowed down a little in the last few months. The bank the housing market is recovering…We are seeing an improvement. We have moved noticeably in the last few months. It was just a question of getting households in balance with housing units. That happens at different paces in different parts of the country. You have seen a much better balance developing here in recent months. That is why you are seeing a pickup in prices.”

Will the US Fall Off the Fiscal Cliff?  “It depends on the election, but I think people are quite disgusted with Congress. The idea of having a debt ceiling -- as this country grows, our debt capacity grows. To go through this charade, we are going to increase the debt ceiling, so why Congress does not do it in five minutes instead of spending weeks and weeks posturing and complaining and holding other things hostage, I think it is disgusting. I think they ought to do it this afternoon. They know they are going to do it, and they are all just sitting around using it as a little pond in the game to try to embarrass the other side. Only Congress passes bills, and the debt ceiling is up -- to me it is the most obvious of all. I do not know why the majority and minority leaders of both houses do not say we are going to do that this afternoon. I think it would give the American public the confidence that at least these people will not use everything in the world as a political.”

On Wells Fargo (WFC): “I like Wells Fargo better than anything by far. It complicates life when I and buying things as opposed to the Berkshire Hathaway. I get what is left over…I like Wells Fargo better [than JPMorgan]. We have been buying Wells Fargo month after month for a lot of years. Among the big banks, I think it is the best. “

On Why He's Investing in Newspapers:  “These are smaller newspapers generally. Newspapers used to be primary virtually everything. They have lost their primacy in many areas. If you lived in Nebraska and you are interested in at Nebraska football or your high school and what is going on with your neighbors, you are only going to find it in the independent papers. The smaller paper is still primary to many areas of interest.”

Would He Invest in News Corp's Publishing Unit?  “I would rather buy newspapers myself directly…I like buying individual papers at the right price. The prices should be low because their revenues are going to decline over time. We are not buying into a business where revenues are going to increase. We have to buy them at the right price. We have to buy papers that are subject to less erosion because they have lost their primacy.”

And embedded below is the video of Warren Buffett's full appearance this morning on Bloomberg TV:

 For more on the Oracle of Omaha, head to a tour of Warren Buffett's office as well as Warren Buffett's recommended reading list.

Leon Cooperman on 14 Attributes That Make a Good Portfolio Manager

Leon Cooperman founded hedge fund Omega Advisors in 1991 and is now worth $2 billion.  The hedgie has listed 14 attributes that make a good portfolio manager in an article by Julie Steinberg over at FINS.  We wanted to highlight a few of the key attributes below and add some commentary:

Attributes That Make a Good Portfolio Manager

1.  The desire and commitment to be the best.  Cooperman lists this as his top reason and Julian Robertson of Tiger Managment would certainly agree.  In an in-depth interview, Robertson listed competitiveness as the top quality he looks for when seeding a manager.

2. Can identify his or her comparative advantage.  Cooperman asks, "What is that person's knowledge base? Are they knowledgeable about structured credit?  Where is their skill set the greatest?  Where does their expertise lie?  How can they capitalize on that expertise?"

This is right along the lines of what Warren Buffett has been preaching for years: invest in your circle of competence.  Not to mention, longtime fund manager Peter Lynch has also said to invest in what you know and even wrote a book about it.

3.  Thorough and penetrating analysis/in-depth research with a strong analytical foundation.  This, of course, is the backbone of managing investments. Dig into company filings, read the footnotes, do channel checks, talk to other investors. 

Third Point's founder Dan Loeb also said to get out in the real world and see what's going on.  He listed that as one of the lessons he's learned as an investor.  And of course, research both the bull and the bear case. Which leads us to Cooperman's next attribute:

4. Identify variant perception.  Cooperman asks, "Where does your view differ from the consensus that could spark the reason you're getting the return you're looking for?  You see things that someone else doesn't see."  This is also what Baupost Group's Seth Klarman attempts to do everyday.  It's important to distinguish between the herd's activity and the contrarian view.

Also, more often than not, investors seek out confirming information that reinforces their viewpoint.  Don't.  Instead, seek out the alternative view.  Berkshire Hathaway's Charlie Munger also favors this approach, saying to "invert, always invert."  Lastly, we've also highlighted thoughts from Oaktree Capital's founder Howard Marks on contrarianism.

5.  Have conviction with respect to investment recommendations and confidence to add to a position if fundamentals are intact but stock is down.  Cooperman says, "When a stock goes down and is not performing in a manner that's anticipated, you capitalize on the weakness.  If you know what you're doing, buy more ... be able to defend your ideas."

This one is easier said than done.  You have to be able to set emotion aside (seeing unrealized losses) and buckle down and do the work to confirm your thesis is still in tact.  This one almost certainly applies more-so to value investors as falling knives can be dangerous to catch.

6.  Good communication skills are critical.  Can easily write a several page summary of his or her investment views.  The Omega founder says, "People need to be able to communicate effectively.  They have to sell me on their ideas.  When I read something, I write questions in the margin and discuss them.  If you can't write, you're at a disadvantage."

This applies more to analysts than portfolio managers as the analysts are the ones pitching ideas to the PM.  In Sam Zell's advice on investing, he said that something is only worth buying if you can explain the thesis in a few sentences.

7.  Unbiased and willing to admit mistakes, skeptical, creative, curious, bold/edgy, able to take risk.  Cooperman has bundled a lot of adjectives in there but they're all relevant to the field of investing.  This harkens back to the old adage, "cut losses quickly" if your thesis is not working out.

While the ability to take risk is key, you also need to know your level of risk tolerance and how to manage risk.  This tolerance is often discoverable under the point of most stress when a position is moving against you.  Can you still sleep at night?  Set emotion aside and think rationally.  It certainly helps if you always look at things on a percentage basis rather than in absolute dollars. 

For the other 7 attributes Leon Cooperman says make good portfolio managers, head over to the full list at FINS.

And for further resources on how to become a better investor, head to these posts:

- George Soros' best investment advice

- Notes from Seth Klarman's Margin of Safety

- Bruce Berkowitz's checklist for investing

- Lessons Dan Loeb learned as an investor

- Jim Chanos on the psychology of short selling

- Sam Zell's advice on investing

- Chuck Akre on good judgment in investing

Thursday, July 12, 2012

George Soros' Best Investment Advice

Today we have a guest post from Williams Equity Analysis who have graciously allowed us to post their piece in its entirety from Seeking Alpha: The Best Investment Advice George Soros Ever Gave.  Here it is:

"Economic history is a never-ending series of episodes based on falsehoods and lies, not truths.  It represents the path to big money.  The object is to recognize the trend whose premise is false, ride that trend and step off before it is discredited."  ~ George Soros

Think about that statement for a minute. For everyone who is in the so-called bear camp, and thinks the current "recovery" belongs in quotation marks, this is an exceptionally meaningful quote.

Of course, everyone who has been bearish on the markets since 2009 has largely lost money, and been quite aggravated in the process. Had trillions in stimulus and quantitative easing not been injected into the economy (the big banks for the latter), our economy would have simply restructured and our markets would have bottomed at values far lower than they did. Bearish market participants have been investing with the philosophy that this will still happen.

Many bearish market participants have recognized the dynamic that there are long-term structural deficit and various economic issues, and that the economy is simply being goosed by trillions in cash and dangerously low interest rates. In other words, the bears scream that "the economy is unsustainable;" If and when rates rise, servicing trillions in debt is going to require even more debt issuance, leading to ever higher rates and a crowding out of the private sector. At this point, people draw different conclusions as to what happens next.

Others note that the euro is going to break apart, and it too is only being held together by programs like LTRO and other central bank intervention.

Regardless, many have come to the conclusion that our equity markets are fundamentally overvalued and do not discount the structural issues we face. The best argument I've heard for overvaluation is that corporate profit margins will contract rapidly when the U.S. government needs to start cutting its budget; we may be approaching that day with the creeping "fiscal cliff" at the end of the year.

With lower margins and lower aggregate demand (less government spending), both sales and bottom lines will contract. The earnings of companies in the S&P 500 (SPY) will decline, and stock prices will follow them downwards. With analysts currently expecting at least $100 in earnings for 2012, and $113 in 2013, the market is definitely not discounting any type of drop in aggregate demand or corporate profit margins.

Utilizing Mr. Soros' Advice

The important factor, however, is what this means for traders and investors trying to make money. After all, making money is a lot more important than being right, isn't it?

What we're seeing today isn't anything new at all. While the Fed's intervention this time around may be unprecedented, it's fair to say that FDR's government programs following the Great Depression were unmatched as well. How about interest rates of 1% following 9/11 to stimulate demand and get everyone shopping again? It contributed to a housing bubble, widened the wealth gap, and harmed our political system.

During those periods, the bears complained about the same things: the unsustainability of low rates, government intervention, and huge deficits.

However, markets boomed for most of the 1930s, set record highs right before the recession, and have doubled since all these actions have started taking place. There have been three camps of market participants during these times:

1. "Everything is great, the economy has clearly restructured and the bears are just whining that they missed out."

2. "We're doomed.  Markets are going to zero, another Great Depression is near, and unconstitutional government intervention has made things far worse."

3. "I don't care.  I'm either going to keep buying my dividend stocks, buy assets that do well when governments print money, or go long the broader market until the government either gives up or can't prop it up any longer."

The last of these three, of course, is George Soros. Over the past several years, Soros has made money owning gold, equities, bonds, and currencies. He knows Europe really is doomed. The EU is going to have to at some point write down trillions in private and public sector debt, and an actual, painful restructuring will finally take place. He knows gold's price moves in cycles, that it's not a compounding investment, and that it will plummet once the macro landscape shifts to a more positive one. He also knows that investors buy gold at times like these.

Jim Rogers hates the US dollar. He is certain that the U.S. government has spent its way into a hole so deep it'll have to default either by printing or not paying its creditors. Jim Rogers also knows that the market perceives the dollar as a safe haven right now, so he owns millions in US dollar currency futures for the time being. My bet is that he'll sell long before the dollar loses its safe haven status.


One of the best things you can do as an investor or trader is to have a sober, analytical, pragmatic view of the economy. Always invert your thinking, and try to understand all possible viewpoints. The obvious macroeconomic dynamics are obvious because they're true. What's not so obvious is the underpinnings of market perceptions. The beauty of markets, though, is that you don't have to understand the reasons for why investors buy certain assets or equities to be profitable.

Jim Rogers can't understand why investors have been flocking to the USD recently instead of gold. Instead of whining about "the manipulated price of gold", however, he's been hedging his positions in gold and buying the dollar to take advantage of its rising value.

George Soros' quote sums up what the best investors and traders know about macroeconomic and market dynamics: most of it is noise, all that matters is the trends and a few indicators and analytical skills to tell when the train is slowing down.

Next time you think you've got the economy figured out, ask yourself if your long-term viewpoint has matched up with the market trend. If not, then you're not making money, and not taking advantage of everything you know.

Thanks again to Williams Equity Analysis for allowing us to re-post their piece from Seeking Alpha.

What We're Reading ~ 7/12/12

7 factors to watch for a slowing economy [Big Picture]

Recession risk in perspective [Capital Spectator]

10 reasons to like stocks for the second half of the year [Reformed Broker]

Tiger Global leads outperforming funds this year [Institutional Investor]

Hedge fund withdrawals highest since 2009 [HedgeWorld]

The strange takeover limbo of CVR Energy [Dealbook]

Kyle Bass' timing on Japan is a little off [Institutional Investor]

Are hedge funds burning investors? [Pension Pulse]

The challenges in hedging tail risk [Dealbook]

Longacre co-founder plans spinoff [WSJ]

Paolo Pellegrini caught in Paulson's fund slide [WSJ]

Bruce Berkowitz bounces back after rough 2011 [WSJ]

SAC's Cohen starts reinsurer for capital [Bloomberg]

Bank fees squeeze retailers [WSJ]

Square: the mega-disrupter everyone wants to be in [PandoDaily]

On Microsoft's downfall [Vanity Fair]

Bill Ackman's Pershing Square Cleared To Take Stake in Procter & Gamble (PG)

Bill Ackman's hedge fund firm Pershing Square Capital Management looks as though they're taking a stake in Procter & Gamble (PG).  The Federal Trade Commission (FTC) cleared Pershing to take a stake in the company via this page on their site.

There's no way to know how big Pershing's investment is/will be.  We'll have to wait until SEC filings for clarification.  However, this would be a new stake for the firm.  In Pershing Square's Q1 letter, Ackman said that they had identified their latest investment but declined to name it at the time.  It seems as though PG is the mystery candidate.

The logical play here given Ackman's style would be to break-up the company, but with no formal plans announced we'll have to wait and see.  Ackman already has activist investments in Canadian Pacific (CP) and J.C. Penney (JCP) so it will be interesting to see how many corporate campaigns he can take on at once.

Per Google Finance, Procter & Gamble is "focused on providing consumer packaged goods. The Company’s products are sold in more than 180 countries primarily through mass merchandisers, grocery stores, membership club stores, drug stores and high-frequency stores, the neighborhood stores, which serve many consumers in developing markets."

For more on this manager, we just yesterday posted Bill Ackman's recommended reading list.

Wednesday, July 11, 2012

Bill Ackman's Recommended Reading List

Bill Ackman is the founder of Pershing Square Capital Management and he is the subject of the book Confidence Game.  In it, Ackman lists his recommended books on investing which he sent to an analyst. Here are his picks:

Security Analysis by Benjamin Graham (with foreword by Warren Buffett):  This is the classic text on analyzing companies and has been recommended by countless other top investors.

One Up on Wall Street by Peter Lynch: Written by one of the top fund managers in the past, this book teaches you how to use what you already know to make money in the market.

Quality of Earnings by Thornton O'Glove: A lesser-known but excellent recommendation that teaches you how to understand the various financial information companies provide.

The Essays of Warren Buffett:  This is a fantastic compilation of Buffett's letters to Berkshire Hathaway shareholders over the years containing tons of wisdom.

The Intelligent Investor by Benjamin Graham: "The definitive book on value investing" written by one of the greats.

And if you've missed them in the past, be sure to check out picks from other top investors:

- Seth Klarman's recommended reading list

- David Einhorn's suggested reading

- Warren Buffett's top picks

- Dan Loeb's favorite books

- Blue Ridge Capital's recommendations

Tuesday, July 10, 2012

Jim Chanos on Psychology of Short Selling, China & More (Interview)

Noted short seller and founder of hedge fund Kynikos Associates Jim Chanos was recently interviewed by Opalesque.  In it, Chanos talks about the psychology of short selling and his first great short idea in Baldwin United.

The hedgie also talked about the asymmetries between the long and short side of investing.  While both sides of the table require a similar skillset (ability to analyze companies), good short sellers have to be able to withstand the "giant positive reinforcement machine." 

Chanos says that this is where most managers fail on the short side as most cannot withstand all the positivity.  Along the same lines, we've in the past highlighted Chanos on the power of negative thinking.

Chanos has been very vocal about his stance on China and we've detailed his bearish view on China.  In the interview, he continued to voice caution as he thinks they're in trouble due to bad credit and credit extension.  And just recently we posted up a summary of hedge fund bearish China thesis.

Embedded below is Jim Chanos' video interview:

For more from this manager, we've detailed what stocks Chanos has been shorting recently.

David Einhorn on Apple, Green Mountain Coffee & Amazon (Interview)

Fresh off taking third place in a World Series of Poker tournament with a $1 million dollar buy-in (and donating winnings to charity), David Einhorn of hedge fund Greenlight Capital gave a rare appearance on CNBC this morning talking about a myriad of topics.

Here are the major takeaways from his talk with the full video below:

- Einhorn thinks near-zero interest rates are depriving savers and raising prices on food and other necessary items.  He'd tell Bernanke to raise rates.

- It would appear that he's still short Green Mountain Coffee Roasters (GMCR) as he said "Yeah, the Keurig is on the way out."  Einhorn talked about some of his other short positions in his Ira Sohn Conference presentation.

- Thinks he'll be in the Apple (AAPL) investment for "a good while longer" and he thinks it's "substantially undervalued ... it's the best big growth company we have ... and it trades at a multiple below the average of the S&P 500."  He's already been in the investment for 2-3 years.

- On Amazon, Einhorn is not long or short.  He made comments about Amazon in his Ira Sohn presentation that caused confusion a few months ago.  Today he said that "AMZN is very tough on its competitors... it doesn't feel compelled to make a profit ... it's very hard to compete against someone who doesn't want to make a profit."  He clarified that he was mainly talking about how AMZN is negatively affecting other companies.

- On Herbalife (HLF):  Commentators pressed Einhorn on whether or not he was invested in Herbalife.  Einhorn showed up on one of the company's recent earnings calls and asked some questions.  The stock sold off heavily as many assumed Einhorn was short or was planning to short HLF.  Today, Einhorn declined to talk about whether he had a position in the name long or short.  But he did so with a big smile, so all you poker players out there can try to read into his body language to see if he might be giving a "tell."

Embedded below is the video of David Einhorn's video interview:

For more on this manager, we've highlighted how Einhorn recently added to his Seagate stake and you can also check out Greenlight Capital's Q1 letter.

SAC Capital Increases Wellcare Health Stake (WCG)

Steve Cohen's hedge fund firm SAC Capital yesterday after market close filed a 13G with the SEC on shares of Wellcare Health Plans (WCG).  Per the filing, SAC has revealed a 5% ownership stake in the company with 2,155,721 shares.

This marks a 105% increase in their position size since the end of the first quarter.  The filing was required due to portfolio activity on July 6th.

Shares of WCG have recently seen two surges higher.  First, under the Supreme Court's upholding of Obamacare, WellCare Health Plans shares surged from $50 to $55 on the news.

Then, just yesterday, it was announced that Amerigroup (AGP) would be acquired by Wellpoint (WLP).  It seems shares of WCG rose in tandem on hopes that the company could also potentially be a takeover target in the space.  WCG traded from $59 up to $62.

Per Google Finance, Wellcare Health Plans "provides managed care services to government-sponsored health care programs. WellCare operates in three segments: Medicaid, Medicare Advantage (MA) and Prescription Drug Plan (PDP), which are within its two main business lines: Medicaid and Medicare."

For more on this hedgie, head to more recent portfolio activity from SAC Capital.

Friday, July 6, 2012

What We're Reading ~ Investor Profile Edition

A look at John Paulson's very bad year [BusinessWeek]

The latest look at Omega's Lee Cooperman [Bloomberg]

Why David Herro is betting big on Europe [Fortune]

John Thaler's JAT Capital has a rough year [Dealbook]

If you missed it 2 years ago: in-depth interview with Steve Cohen [Vanity Fair]

Tuesday, July 3, 2012

Third Point Starts Chesapeake Energy & News Corp Stakes: June Exposure Report

Dan Loeb's Third Point Offshore Fund finished June up 0.2% and is up 3.9% for the year.  The big takeaway from their June exposure report is a large new holding in Chesapeake Energy (CHK).

Third Point's Top Positions

1. Yahoo!
2. Gold
3. Delphi
4. Chesapeake Energy
5. Apple

This is the first time Chesapeake has appeared under their top holdings' column.  They did not disclose a position back in the first quarter.  Mason Hawkins' Southeastern Asset Management has a 13.9% activist stake in the company as well.

Noted activist investor Carl Icahn has also taken over a 7% ownership stake in CHK and sees it as an undervalued company.  Icahn argues that they can turnaround the story "if you clean this company up ... and natural gas prices go higher, which I think they will."

We've also posted up Third Point's Q1 letter which details their thesis on Apple and other positions.

Top winners from the quarter include Yahoo, Gold, as well as News Corp, Portugal Obrigacoes do Tesouro and Progress Energy (multiple securities held), the last three of which are newly disclosed positions as well.

News Corp recently announced that it would be splitting into two: an entertainment business (FOX properties) and a newspaper/publishing business (Wall Street Journal, book publishing etc).  This is obviously an event-driven trade for the hedge fund with a catalyst that shareholders and management hope unlocks value.

Third Point's top losers from the second quarter included Delphi, Sara Lee (which completed its spin-off), two healthcare shorts and an ABS short.

Third Point's Latest Exposure Levels

In equities, they are now net long 27.3% (50.2% long, -22.9% short).  This is a slight decrease in net exposure from last month.  Their largest sector exposure comes in technology, media & telecom (largely due to their YHOO stake) at 16.9% net long.  Geographically, they are net long the Americas 65%, net short EMEA -11% and net short Asia -4%.

In credit, Loeb's fund is net long to the tune of 29.8% (long 38.5%, short -8.7%).  This is a decisive increase from the month prior where they were only net long by 14.2%.

Dan Loeb is featured in the new book The Alpha Masters and you can check out our review here.

What We're Reading ~ 7/3/12

3 mega caps with big value to be unlocked [Economic Musings]

The case for shorting Conns [Enterprising Investor]

Stocks that UBS clients are short [Business Insider]

How hedge funds analyze earnings calls [IR Web Report]

Hedge fund manager skill is misperceived [aiCIO]

Hedge fund boost bets against the euro [Reuters]

Tudor opens first macro hedge fund in a decade [Bloomberg]

The digital wallet's future is now [TheStreet]

Focus on how not to lose money [AAII]

Investment management fees are higher than you think [CFA Institute]

Simon Lack responds to AIMA's hedge fund cheerleading [AR+Alpha]

Kodak investor forms shareholder committee [PR]

5 mega trends shaping tomorrow's customers [BBC]

The smart money is on big data [All Things D]

25 stocks for the long haul [CNNMoney]

Player folds quad 8's at World Series of Poker [WSOP]