Friday, May 18, 2012

Coatue Management's Philippe Laffont on Facebook, Apple, Equinix, Virgin Media & His Portfolio

Coatue Management's hedge fund founder Philippe Laffont gave his first-ever interview to Bloomberg Television yesterday and talked about Facebook (FB), Apple (AAPL), Equinix (EQIX), Virgin Media (VMED) and his portfolio in general.

On Facebook's IPO (FB)

"It is clearly an incredible company and it also has an incredible management team. One of the things to respect about Mark [Zuckerberg] is that he has surrounded himself with great executives. The tough part about an investment is you are looking for good businesses, good management team, but it is different if you buy a stock at 30 or at 100." 

"I would like to get as many shares as possible. That's what probably everyone wants to do.  I'm sure the stock is incredibly oversubscribed. The real decision is what will happen.  We have lots of previous examples (of risks), both in the year 2000, 1999, but even as recently as LinkedIn. LinkedIn had a small float. The stock started at a low IPO price. The stock moved all the way up, came all the way back down, and in a few months later it's back to where it started. It is possible the same happens to Facebook. I do not know.  It is a great business. Not only do they have the potential to grow their advertising a lot, but in addition they are making money with mobile games. They have a lot of new potential growth products."

On Apple (AAPL)

"[We invested in Apple] 2003. When we got involved with Apple, the stock was at $10. We did not get involved until maybe it was at $100. We missed the whole iPod. When the iPhone came in, we thought it would be a repeat of the iPod. Today you still have the iPhone 5 coming out, which I think will be an incredible product and then potentially Apple TV. This is an amazing company. They have so much growth going on. They represent 5-10% of the market and they can get a much bigger market share."

On His Concentrated Portfolio

"Concentration is a problem over the short-run, but it sort of goes away over the long run. We try to invest over the long-run and are willing to take the volatility. The less concentrated you are, the more your returns will look like the S&P or the Nasdaq. If you want to try to outperform, you have to focus on your best ideas. it is something we transmitted to investors from day one. They understand the risk. It puts a premium on being right."

On Equinix (EQIX)

"We pitched it at the Ira Sohn conference yesterday Equinix. It's a great story.  Basically, if I am Bloomberg, I want to get my news feeds from the NASDAQ and the New York Stock Exchange very close to me so I have the prices immediately.  By putting my servers right next to them, I can get those prices and send them out to all of my customers. Bloomberg needs to have their servers right next to the servers of these other companies, and that is what Equinix allows you to do." 

"I think the demand for the internet will continue to grow. We are in the early innings.  The company is growing 25-30% revenues and EBITDA. It should continue to do that…We started buying it years ago really and have just been adding on to the position. I think right now we might be the largest shareholder of the company."

MarketFolly note: What's interesting here is how Laffont mentions "we started buying it years ago really and have just been adding on to the position."  However, EQIX has only just now shown up as a 'new' position for them in the first quarter of 2012.  They did not disclose owning a stake in the fourth quarter of 2011.  

So, we searched through their previous 13F's filed with the SEC.  Going back a few years, we found that the last time they disclosed owning a stake in Equinix was in the first & second quarters of 2010.  EQIX then disappeared from their filings in the third quarter of 2010 as they apparently sold the stake.  And it hasn't shown back up in their 13F's. Until now.  

As such, Laffont's statement is a bit puzzling as his filings show they just re-entered the position.  The reason we bring this up is because there's a big difference between buying a position "years ago" versus establishing an entire stake in the first quarter.  

Maybe he simply meant to say that they've been involved in the name in the past and have recently acquired it again.  We've asked Coatue for clarification and will update if there's a response.

On Virgin Media (VMED)

"Virgin Media, whereas Equinix solves the problem at the core, Virgin Media solves the problem at the edge. Right now wifi enables many people to share the internet together in a household. Virgin Media has that pipe from the home back to the core back to Equinix.  It's the fastest pipe out there and with HD streaming and online games, you just need to have this fast pipe."

Coatue's Current Exposure

"Right now we have a conservative exposure to the market. It's sort of hard to dissociate. We have great equity valuations in the U.S. in some of the big tech names. But I can't ignore what is going on in Europe and China and elsewhere. I would say we are reasonably conservatively positioned.  It would be done though a combination that just in the way that we're looking for winners, we are also looking for losers, and we're hoping that our portfolio of winners and losers balances itself out. We also have some options of tail risk protection."

Embedded below is the video from Bloomberg TV's interview with Laffont:

For more from this manager, be sure to check out Laffont's presentation from Ira Sohn Conference two days ago.

Howard Marks on Oaktree's IPO

Oaktree Capital's Chairman and founder Howard Marks was recently on Bloomberg TV talking about his company's recent initial public offering (IPO).

On pricing an IPO and investing in general: "You can't ignore your environment when you take investment action." He mentions this because he had to reduce Oaktree's offering and it priced at the lower-end due to the rough market as of late.

His thoughts on the environment: "We're not at the bottom.  I don't think we're at the top. I don't detect frothy psychology.  I don't see peak valuations, if you look at things like P/E ratios on stocks or yield spreads on riskier bonds. I think we're on some middle ground."

On how he's approaching things now: "Our mantra is move forward... but with caution.  We do have a good level of caution, primarily because of the macro concerns."

We also highlighted how David Einhorn's Greenlight Capital disclosed a stake in Oaktree after it went public.

Embedded below is Marks' interview with Bloomberg TV:

Be sure to also check out an excerpt from his book we've posted up: Marks on contrarianism.

What We're Reading ~ 5/18/12

Since we're busy writing the brand new issue of our Hedge Fund Wisdom newsletter that is due out early next week, here are some links for the mean time:

If you missed it, notes from the Ira Sohn Conference [Market Folly]

Putting lipstick on the pig at Chesapeake Energy [Footnoted] 

Peter Thiel on what 2 areas he'd short right now [Business Insider]

Will soaring rents lead to higher core inflation? [Big Picture]

Investment analysis of PHH Corp [Above Average Odds]

Scott Cottier: 3 places to find value in muni bonds [Learn Bonds]

On Wall Street's summer [Forbes]

Ben Graham then and now [Forbes]

Jeff Gundlach: bond savant [Business Week]

2012 US investment management award winners [Institutional Investor]

Buy bullion, not gold stocks, top hedge fund manager says [Globe & Mail]

Good old interview with Seagate's CEO [Forbes]

Investors missing rally dump bearish bets most since 08 [Business Week]

What happened to First Solar? [Technology Review]

Wednesday, May 16, 2012

Notes From Ira Sohn Conference Presentations 2012

The hedge fund mecca known as the Ira Sohn Conference in New York is over and we've posted up notes from all the speakers.  Below are the links to each presentation:

- David Einhorn's Ira Sohn Presentation on Tons of Stocks

- John Paulson's Three Long Ideas

- Lone Pine's Stephen Mandel On What He Likes

- Larry Robbins: Long THC, HMA, HCA, LPNT. Short ITC

- Jeffrey Gundlach's Ira Sohn Presentation

- Philippe Laffont on Equinix (EQIX) & Virgin Media (VMED)

- Hoplite Capital's John Lykouretzos on Starbucks (SBUX)

- Bill Ackman's Ira Sohn Presentation

- Dwight Anderson (Ospraie): Long Palladium, Short Platinum

- Michael Price on J.C. Penney & Contest Winner on Xerox (XRX)

- Meryl Witmer on Viacom (VIA.B) & Gildan (GIL)

- Johnathan Kolatch: Long Argentina Sovereign Debt

- Dan Ariely's Presentation on Psychology

- John Wilder on Natural Gas

- Kenneth Rogoff: This Time is Different


David Einhorn's Ira Sohn Presentation on Martin Marietta Materials, Apple & More

We're posting up notes from the Ira Sohn ConferenceGreenlight Capital's David Einhorn gave a presentation on a ton of different stocks.

He screamed through 100 slides and provided very little detail, more of a way to touch on several ideas, so people can do their own work.

Short Martin Marietta Materials (MLM): priced at 35 p/e. One time fiscal stimulus has goosed earnings. Multiple too high.

Short France: exposure to Italy and Spain. Default or return to Franc not out of the question. Spain, retailers.

On China: "Big trouble in little China" Big knowledge gap, and cultural gap. Shows all the RTO frauds, no specific names to short. Overbuilding outside of main cities in China, projects don't pay off the debt service. Now USD not coming in anymore, so the gig is up. Banks are in trouble. Chinese elites are taking money out of the country.

On Japan: bad demographics. Sales of adult diapers outsold those for babies this year. Shorting the yen.  Long DeNA, Gree: Japan's two largest social network companies are in the cellar. Games under regulatory scrutiny. Better than FB.

Long Apple (AAPL): Hedge funds actually have less than 2% of assets. Says Trillion Dollar market caps aren't prohibited. Other bear case is hardware company, it's not, it's a software company. iOS platform sticky, "captured the customer" Also long Microsoft (MSFT), Marvell Technologies (MRVL).

Perpetual Preferred Stocks: Advocates use of perpetual preferred stocks. 4-6% dividend, taxed at preferential tax rates. Some special form of preferred. "Some will object that there is no precedent for this idea. That is because this is a new idea."

Thoughts on Tons of Other Stocks:  Short Zara/Inditex. Long DIA. Long Norway. Long Cairn Energy, small cap E&P. has cash in USD. Negative words on (AMZN): Revenue growth, no op profits; criticized company's weak profit growth... didn't say he was shorting? "Is Jeff Bezos Batman?" Impact on other retailers is clear. Hint at other shorts. Short Dicks Sporting Goods (DKS)? He says co is in big trouble with Amazon's big push into the category. Trades at 20x, could be left in the dust. Short US Steel (X). Likes Norway's GJF.

David Einhorn will also be presenting investment ideas at the Value Investing Congress in NYC in October.  Market Folly readers can receive a discount to the event by clicking here and using discount code: N12MF3

P.S. - Don't miss other presentations from John Paulson, Bill Ackman, Larry Robbins & more: notes from Ira Sohn Conference 2012.

John Paulson on Caesars, AngloGold Ashanti, & CVR Energy: Ira Sohn Presentation

We're posting up notes from the Ira Sohn ConferencePaulson & Co founder John Paulson gave a presentation on three long ideas: Caesars (CZR), AngloGold Ashanti (AU) and CVR Energy (CVI).  Paulson is featured in the book, The Greatest Trade Ever.

Paulson's Three Long Ideas

Caesars (CZR): Stock with high option value. Was LBO. Common is only 7% of valuation, $1.7B, Opco Debt $16.9B, Net PropCo debt $4.8B. $23B total cap. So equity gets the upside. LBO guys put $6B in, now equity only $1.7B. Says they are turning around.

Stock owners have not only gaming properties, but Social gaming company worth $6-9, Online gaming could be $24 per share. Key is growth. Are seeing RevPAR growth. Added Octavius Tower. Adding Cleveland. 2013 LINQ in Vegas, Cincinnati.

Online gaming upside option. No debt due until 2015. Three years runway. 2007 they did $2.8B EBITDA, LBO at 11x. Guess they get back, adjusted to new facilities, $3.2B Likes hotels because the rates increase with inflation. Online gaming may be another $300M, so total to peak, get to $3.5, with 11x multiple stock is $138, a 10x upside. (that's way too rosy)

AngloGold Ashanti (AU): Pure gold upside. Been getting crushed, much worse than gold price, correlation has broken down. Bears say just buy the ETF. He says, you're paying more by doing that. Says you're getting the company at only $133 per proven reserves.  It's also worth highlighting that Paulson was buying fellow gold miner NovaGold Resources (NG) in April as well.  We've also previously posted a look at Paulson's gold fund.

CVR Energy (CVI): "A gift from Carl Icahn" Merger Arb transaction. Buy stock at $30.35, tender to offer at $30.00, cost of CCP is $0.35. "Contigent Cash Payment" rights. If they sell company for $36.15 CCP could be worth $6.15, with cost of $0.35, that's a 17.6x return.

P.S. - Don't miss other presentations from David Einhorn, Bill Ackman, Larry Robbins & more: notes from Ira Sohn Conference 2012.

Stephen Mandel's Ira Sohn Presentation: Long Kohl's, Bearish on Fixed Income

We're posting up notes from the Ira Sohn ConferenceLone Pine Capital's Stephen Mandel gave a presentation on how he's bearish on fixed income and how he likes Kohl's (KSS) & companies that shrink their share counts, as well as tech leaders.

Mandel runs $12 billion in global equities.  He started in 1997, previously covered retail stocks at Tiger Management and Goldman Sachs.

Where He Doesn't See Value

Fixed income:. "Heads I win very small, tails, I lose very big." Governments printing money, and want to inflate their ways out of debt. Pensions and individuals are using the rear view mirror to flood into fixed income.

Where He Sees Value

Equities have several significant areas of value. Can't mention specific stocks.

Likes "Tech Leaders." Companies that are leaders in their fields, internet search, PCs & mobile devices, travel. (Note: he owns Apple (AAPL), Google (GOOG), and (PCLN)). Generate high ROIC, lots of excess cash, yet trading to less than run of the mill low growth industrial companies. Close to 20% of long portfolio in these.

Likes "Share Count Shrinkers": Modest growth, but using FCF to shrink number of outstanding shares by 8% to 10% annually. 20% of portfolio here too. Kohl's (KSS) as an example. Over last 20 years, gone from 30 stores to national, higher sales than JCP. $46 stock, trades less than 10x 2012E eps, buying back stock. Took markdowns, viewed as obsolete, beaten by internet.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Larry Robbins' Ira Sohn Presentation: Long THC, HMA, HCA, LPNT; Short ITC

We're posting up notes from the Ira Sohn ConferenceGlenview Capital's Larry Robbins gave a presentation on going long/short various equities.

"How to cope with the market's electile dysfunction."
Disclaimer: do your own work.
Stresses now: Economy, liquidity, DC, legal review of Obamacare.
New highs: treasuries, utilities, defense.

He says long hospitals/life sciences, short treasuries/Utilities/defense.  We recently posted up why Robbins likes Life Technologies (LIFE) as well.

Long: Tenet Healthcare (THC), Health Management Associates (HMA), HCA (HCA), & LifePoint Hospitals LPNT

EBITDA has grown every year for hospitals, 9% CAGR, 1% admission growth, 3% pricing, 2% leverage, new hospitals 3%. "Affordable Care Act" is now 2409 pages, has 2 key legal questions: is the individual mandate constitutional? If not, is the rest of the ACA law, or is it all thrown out? If all thrown out, it's good for hospitals because some cuts come out.

Hospitals benefit from medicaid eligibility, reduces bad debt expense. At 6x eps, thinks worth it in any option. Worst case, no reform, 21% CAGR on eps, Medicaid expansion implies 28%, plus individual mandate over 30%. Half of hospitals are non-profit, just get by.

We flagged when Glenview bought more HMA in April as well as when Glenview started its stake in THC back in March.

For profit hospitals- can the government unilaterally take their profits from reimbursements? Not likely. P/E averages are 8.1x for the sector.

Short ITC Holdings (ITC)

Short this utility. Transmission company. FERC regulated. 60/40 equity/debt. Allowed 11% ROE, FERC allows 13.2%, so customers are overpaying by $260M to $550M.

No accounting issues, just getting a "sweetheart deal" that the regulators won't let this go on forever. If you cut their ROE by 194 bp, earnings get hit by 18%. Consensus EPS is $4.00, could really be $2.00, NI down by 20%, and share count up 60%.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Jeffrey Gundlach's Ira Sohn Presentation

We're posting up notes from the Ira Sohn ConferenceDoubleLine Capital's Jeffrey Gundlach gave a presentation on going long: IBEX, 1 year LIBOR, natural gas, and cash.  Short: SPX, Nordstrom (JWN), Apple (AAPL), and 2 year swaps.  He previously ran TCW's bonds but manages $34 billion at DoubleLine now.

"Investment Cubism 2012" Building portfolios that can handle seismic shifts.

Quotes Marx about fight between oppressed and oppressor. Non-cooperation causes bear markets. Invention is a key driver of economic growth, but it alters the existing balance. Massive buildup of worldwide debt. EZ massive unemployment. Spain now 22.9%. Germany has dropped, now only 5.6%. Europe borrowed a lot of money, and gave it all to Germany. Youth under 25 Spain unemployment at 50%. Art sales show that the very wealthy are moving out of currency, into hard assets.

Mocks "Growth plus prosperity" talk. Tax rates on the top have actually dropped over time. Middle class has actually had a tax increase. Debt limit is just a gimmick. 2007 severity in job losses, taking twice as long to get back.

LONG: IBEX, 1 year LIBOR, natural gas, cash

SHORT: SPX, Nordstrom (JWN), Apple (AAPL), 2 year swaps

GOOG vs AAPL chart overlay. "Apple shoeshine boy" moment. Natural gas "the anti-Apple" long, he says. JWN- says "wants vs needs" retailing. Doesn't like the chart. Long IBEX, the hedge for inflationary money printing in Europe. Short SPX against the IBEX. Doesn't like SPX chart. Put 100 bills in cereal boxes, no one will steal them. The idea is invest the portfolio as a whole, don't just take one his ideas in isolation.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Philippe Laffont on Equinix & Virgin Media: Ira Sohn Presentation

We're posting up notes from the Ira Sohn Conference.  Coatue Management's Philippe Laffont gave a presentation on going long Equinix (EQIX) and long Virgin Media (VMED).  He was previously a tech/media/telecom analyst at Tiger Management and currently runs $6 billion at Coatue.

"Old Internet Model is Broken"

Network based on safety, slow core, edge too slow. Shift from email, download video to HD streaming, cloud. "Speed is money" AMZN, 1 second of extra load time is $5B revenue loss.  Need to fix the core, and the edge of the internet.

Long Equinix (EQIX): Back in March, we flagged Coatue's purchase of EQIX. Laffont says Data-centers are the new core. "Network effect" because if FB is in the EQIX datacenter, everyone else wants to be there. Big cities, EQIX has huge share of internet backbone: SF 66%, Chicago 69%, DC 88%. Why can't everyone else just do this? Because carriers have set up peer points, and EQIX won the RFP for these spots, when no one knew how important it was. "Beach front property." 50% ROEs with minimal leverage. $1.6B revenue to 4.0B, EBITDA $700M to 2.1B. Stock triples or more.

Long Virgin Media (VMED): We highlighted when Coatue recently disclosed its VMED stake. $22. $6B company, $9B in debt. Edge. Need 50-100MBps now, up from 5-10-20 in past. (HD video) Fastest cable broadband network in UK. EBITDA $2500M less $1000M CAPEX, 20% unlevered ROIC. Broadband ARPU $26, $23 gross profit, better than cable TV, so mix shift helps. Only 4% revenue growth, 10% FCF growth, but they are also buying back shares, so 25% per share FCF. Buying 10% of shares this year alone, 25% in last few years. Has capacity to literally buy back all of it's shares in the next 5 years.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

John Lykouretzos' Presentation on Starbucks (SBUX): Ira Sohn

We're posting up notes from the Ira Sohn ConferenceHoplite Capital's John Lykouretzos gave a presentation on going long Starbucks (SBUX).  Note: This is his largest disclosed equity long per the most recent 13F filed with the SEC.  He just initiated the position in Q1.

Lykouretzos started at Tiger Management as an industrial analyst, PM. He then launched Hoplite in 2003.  He thinks about owning and shorting businesses, not stocks. No pair trades, no short ETFs.

Long Starbucks (SBUX):  $54 now. $90 price target in next 3 years. $42B market cap. Net cash $1.7B. Two main drivers:

1. Coffee market is large, growing rapidly, driven by "premiumization" $76B market, not cyclical. Single serve is gaining share, still only 10% of coffee market. US single serve is only 8% of market, but growing at 55% CAGR. K-cups are driving the market, from 5% to 18% share. Stores getting better, mobile payments, etc.

2. SBUX will capitalize; CPG, China growth. CPG growing, K-cup now 17% share from 8% a few months ago. China growth; brand like NKE or AAPL. In US, it's a morning coffee business, in China, it's an evening/afternoon with food, great margins, best in the company. Not undiscovered, but "winners keep on winning"

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Bill Ackman's Ira Sohn Presentation

We're posting up notes from the Ira Sohn ConferencePershing Square's Bill Ackman gave a presentation on J.C. Penney (JCP).

Best ideas are most contrarian. Like buying GGP, right before bankruptcy. Short AAA stocks is most contrarian. Shorted MBIA.  Long JCP pitch again. Same JCP thesis, same story Ron Johnson said last night.

Says comps worse than expected but still moving ahead with the turnaround. Says customer is beginning to understand the process.  He focuses on the cost savings; JCP spends 31% on SG&A, Kohl's (KSS) only about 21%. "Not a lean company trying to cut costs, they are running fat."

At JCP, employees used Netflix and consumed 20% of corporate bandwidth! Spending 6% of Rev on ads, KSS around 4.5%. Bloated inventory, etc, etc.

We've also posted up Bill Ackman's presentation on Burger King for those interested.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Larry Robbins & more: notes from Ira Sohn Conference 2012.

Dwight Anderson: Long Palladium, Short Platinum (Ira Sohn Presentation)

We're posting up notes from the Ira Sohn ConferenceOspraie Management's Dwight Anderson gave a presentation on going long palladium, short platinum, as well as long Westlake Chemical (WLK).  He's a fundamental investor focused on bottom-up research, mines, agricultural.  Was previously at Tiger Management, Tudor Investment Corp.

Long: Westlake Chemical (WLK). Ethylene, and Vinyls (options on improving housing volumes) Petroleum-based competitors are bleeding cash. Westlake improves from shale in US. As of 2013, Ethyne prices will drop by 0.25 a pound, a 50% increase in WLK eps. $55, should earn $5 this year. Replacement value $75. Management is expanding capacity, still $150M FCF.

Long Palladium/Short Platinum:  Changes in prices gets no supply response for Palladium. Platinum: auto is 65% of demand, then tech, dental, jewelry, per vehicle can't be less, despite engineers efforts. In 2007, 75M vehicles, 4.1M oz. of platinum, but at 85M vehicles, it fell to 3.1M. So story is simple, Palladium is taking share from Platinum.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Michael Price on JC Penney, Shantanu Agrawal on Xerox: Ira Sohn Presentations

We're posting up notes from the Ira Sohn ConferenceMichael Price spoke briefly on J.C. Penney (JCP) saying that he just bought shares on the dip today.  Look at the ownership, the board, the assets below it.  "Look at the top lines, the revenues" (that was the problem).  He also said it's too early to get into banks, and to wait it out.

Price then introduced the Ira Sohn Contest Winner: Shantanu Agrawal who pitched long Xerox (XRX).  The judges panel consisted of David Einhorn (who is long XRX), Bill Ackman, Joel Greenblatt, Seth Klarman, and Michael Price.

Long Xerox (XRX): Stock $7.40 now. Uses sum of the parts (SOTP). Core business generates FCF, not high growth, but EBITDA to FCF conversion. Create equity at 14% FCF yield, could re-leverage the business, 21% FCF to equity.

Catalyst is return of cash flow in dividends and buybacks. $9.50 base, upside $11-12. Downside to $6.50. See $10B debt, but $6B associated with equip financing business. So he says net debt, after cash, only $2.7B, or $0,9B. Document related revenues were actually up 1% in 2011, so idea is not collapsing as fast as people think.

Bull case is cheap, FCF high, debt not as high as it looks, core business in slow decline not collapse, and decent risk/reward with $6.50 down, $9.50 fair value, $12 upside.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Meryl Witmer's Presentation on Viacom & Gildan: Ira Sohn

We're posting up notes from the Ira Sohn ConferenceEagle Capital Partners' Meryl Witmer gave a presentation on going long Viacom (VIA.B) and Gildan (GIL).

She started with Michael Price and is a Barron's Roundtable member.  She seeks out excellent management teams, great capital allocation, FCF machines, strong balance sheets.

Long Viacom (VIAB): Media Networks, Filmed Entertainment. Bear case is NICK ratings collapse, 20-30% per Nielsen, but VIAB says it's not that bad. Bull case is they won't take as big of an eps hit on NICK. Says affiliate fees grow, gets $6.72 per share by 2015, 14x multiple, $94.13 stock price by then, 94% upside from current levels.

Long Gildan (GIL): Gold-toe Sock maker. Co-founder owns 8%, low cost producer, earnings temporarily depressed due to cotton price spike, high cost inventory gone in a quarter or two. Could earn $3.30 to $3.50 per share by 2014/2015. Took share from Fruit of the Loom, Hanes and others. Management allocates capital well, ROIC above 15% As cotton went up from $0.80 to $2.00, GIL absorbed some of the increase instead of passing it all on to customers. Speaker believes this is a "debt of goodwill." Stock to $39.50 in 2013, $51 by 2014.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Jonathan Kolatch: Long Argentina Sovereign Debt (Ira Sohn Presentation)

We're posting up notes from the Ira Sohn ConferenceRedwood Capital's Jonathan Kolatch gave a presentation on going long Argentina sovereign debt.  He manages $4 billion, mainly distressed and high yield.

Argentina Sovereign Debt: Debt/GDP 44.5%, half or less than most in Europe. Fiscal balance, growing GDP, 8.9% in 2011, 4.2% in 2012. Similar to Brazil, Mexico, Colombia however, yet trades 13% yields vs 4.2% average for others. Defaulted in 2001, debt ratio improving ever since as GDP grows. Only paying 0.8% of annual GDP in interest to non-governmental holders of Argentine debt, so they have little to gain by defaulting.

Says the YPF nationalization doesn't mean they'll default on the debt. But they are still technically in default. If traded in line with peers: 36.5% IRR, get 13% yield while you wait. Downside: recovery around 20% at worse- Greece, Russia, others 40-50%. Last Argentine default was 35%. No catalysts, cheap, 13.7% yield while you wait.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Dan Ariely's Ira Sohn Presentation on Psychology

We're posting up notes from the Ira Sohn ConferenceDan Ariely, Professor of Psychology at Duke University gave a presentation on loss aversion, regret, and various psychological topics.

Had extreme burn injuries in college. Researched pain, and became a behavioral scientist. Wrote the book "The (Honest) Truth About Dishonesty. Self control problems. Example only have $3 per day to motivate people to take their medicine.

Loss aversion: people hate losing more than they value gaining. People also love lotteries. They are motivated by 10% chance to win $30

Regret: Miss flight by 2 minutes or 2 hours? Two minutes is much more annoying, because you can imagine many ways to how you could have made it. Silver medal winners were most upset, because they could have made gold. Bronze, happy just to be there.

How to use regret? Give everyone a lottery ticket, whether you took medicine or not. Then, tell them they won, but since they didn't take their pill, they don't get paid. Wow- compliance goes up from 30% to 60%

Other ways to motivate, if they show up on time, they keep their deposit. Two thoughts: 1. To fight lack of self control, you need to change the environment  2. How do we create mechanisms to help us overcome our own limitations?

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Bluescape Resources' John Wilder on Natural Gas: Ira Sohn Presentation

We're posting up notes from the Ira Sohn ConferenceBluescape Resources' John Wilder gave a presentation on energy and natural gas.

Energy investor, TXU, Entergy turnarounds. Natural gas outlook. "Be careful what you wish for!"

Supply and demand situation, Fundamentals: Huge increase in supply in NA, in 2011 highest yoy increase in history, 30% supply due to technology breakthroughs. Gas rig activity doubled from 02-08, but was only 40% of it from the 4 main plays: Marcellus, Fayatteville, Haynesville, Barnett. Demand was flat. Had huge increase in gas power generation, but not enough to keep up. It's switching from coal.

Price dropped from oil parity to coal parity, now it's cash cost of production. Expect to go back up to coal substitute pricing, but never goes back to oil parity.

Is low-cost natural gas sustainable? Marcellus is $2.85 break even price, the rest are over $4.00. Marcellus has about 10-15 years of supply. Well productivity has increased, 52% gains. 700-800 rigs to keep up with the depletion loss.

Wildcard: what is the impact of high-yield gas? You get a blend of NGLs. Ethane, propane, butane, even gasoline. 10 years of demand, 252 TCF in recent finds, in some cases you don't even need any cash contribution from the gas itself because of the NGLs. Will LNG be exported? Will vehicles ever use natural gas? Very little chance of material impact in the short run.

Implications? WLK good long. Thinks prices stay low for a while.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Kenneth Rogoff: This Time is Different (Ira Sohn Presentation)

We're posting up notes from the Ira Sohn Conference.  Harvard Professor (and chess grandmaster) Kenneth Rogoff gave a presentation entitled, "This Time is Different" which is also the title of his book (linked above).

Record levels of public and private debt. He's put together a massive data set studying financial crises.

Past data on average severe crises, how much they fall and for how long: Housing prices -36%, 5 years. Equities 56%, 3.4 years, unemployment 7%, 4.8 years, real GDP per capita -9.3%, 1.7 years. US had a very typical financial crisis. SPX did actually fall exactly 56%. 

Going back to 1800, what percent of the world is in default? He showed a chart that right now there are VERY few in default, historically low actually. Greece has actually been in some state of default 50% of the years since independence. The way out for the Eurozone is political unity, if not within 15 years, the Euro will not survive.  Obesity: adolescents are 17% of the obese population.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

What We're Reading ~ Abnormal Returns Special Edition

Today we're pleased to have Tadas Viskanta of doing a guest linkfest for us.  If you're unaware, it's one of the best financial sites out there, aggregating insightful market links and content each day.

Tadas recently released his book, Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere and he's doing a blog tour to celebrate its launch.  So we thought it'd be fun to let Tadas take over our weekly linkfest and do what he does best.

Be sure to check out his book and stay tuned next week as we'll also post up a Q&A with him too.  Without further ado, onto the links:

What We're Reading ~ Special Edition

James Montier on the "flaws of finance."  (Advisor Perspectives

Four reasons why self-managed investors underperform using the "Magic Formula."  (Greenbackd)

What business do individuals have picking stocks?  (Random Roger

Why you should ignore the investment advice of previously successful guys.  (The Reformed Broker

The world's simplest stock valuation measure.  (Crossing Wall Street also Aleph Blog

Stale data sucks.  (Falkenblog

Why the low volatility anomaly persists - career risk.  (FT

"Low Risk Stocks Outperform within All Observable Markets of the World" by Nardin L. Baker and Robert A. Haugen.  (SSRN

Maybe we should focusing more on 'low beta' than 'low volatility' when investing?  (Above the Market

How the picks from last year's Ira Sohn Conference turned out.  (Absolute Return+Alpha

Quotes from the first Oaktree Capital Management ($OAK) conference call.  (Distressed Debt Investing

Paul Singer of Elliott Management on his most important attribute as an investor: "existential humility."  (Dealbook

The inner conflict of being a finance blogger.  (TechInsidr

Be a good member of social finance: cut down on the noise.  (Stock Sage

And last, but certainly not least, be sure to check out Tadas' book, Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere, as well as for daily market links and more.

Tuesday, May 15, 2012

3 Reasons To Check Out Our Hedge Fund Wisdom Newsletter: Brand New Next Week!

A brand new issue of our premium Hedge Fund Wisdom newsletter will be released next week by May 22nd.  If you haven't had a chance to check out the publication yet, here's 3 reasons why you should: 

1. Saves You Time: We aggregate the latest hedge fund activity of 25 top hedge funds into 1 cohesive document and summarize everything you need to know from the latest activity.  This way you don't have to search for each individual manager's 13F filing.

2. Expertise: Written by hedge fund analysts, our quarterly newsletter helps you understand the investment thesis behind the stocks these managers were buying.  It's one thing to know what stocks a manager bought, but you also need to know why.

3. Running Commentary: Since we've been tracking these hedge funds for years, we can put each manager's position into historical context.  For instance: it's good to know if a manager sold a bunch of shares in XYZ one quarter, but it's even more meaningful if you know they've been selling it 3 quarters in a row.  Additionally, we flag when stocks are trading even cheaper than where the hedge funds themselves purchased.

Want to see what you're missing? Here's a FREE SAMPLE:  Click here to download

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Monday, May 14, 2012

Howard Marks on Contrarianism: Excerpt From His Book

Today with permission we're posting up thoughts from Oaktree Capital's chairman and founder Howard Marks from his book: The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor.


"Accepting the broad concept of contrarianism is one thing; putting into practice is another.  On one hand, we never know how far the pendulum will swing, when it will reverse, and how far it will then go in the opposite direction.

On the other hand, we can be sure that, once it reaches an extreme position, the market eventually will swing back toward the midpoint (or beyond).  Investors who believed that the pendulum would move in one direction forever -- or, having reached an extreme, would stay there -- are inevitably disappointed.

On the third hand, however, because of the variability of the many factors that influence markets, no tool -- not even contrarianism -- can be relied on completely.

Contrarianism isn't an approach that will make you money all of the time.  Much of the time there aren't great market excesses to bet against.

Joel Greenblatt: I've put it this way: just because no one else will jump in front of a Mack truck barreling down the highway, doesn't mean that you should!

- Even when an excess does develop, it's important to remember that "overpriced" is incredibly different from "going down tomorrow."

- Markets can be over- or underpriced and stay that way -- or become more so -- for years.

- It can be extremely painful when the trend is going against you.

Seth Klarman: This is where it is particularly important to remember the teachings of Graham and Dodd.  If you look to the markets for a report card, owning a stock that declines every day will make you feel like a failure.  But if you remember that you own a fractional interest in a business and that every day you are able to buy in at a great discount to underlying value, you might just be able to maintain a cheerful disposition.  This is exactly how Warren Buffett describes bargain hunting amid the ravages of the 1973 to 1974 bear market.

- It can appear at times that "everyone" has reached the conclusion that the herd is wrong.  What I mean is that contrarianism itself can appear to have become too popular, and thus contrarianism can be mistaken for herd behavior.

- Finally, it's not enough to bet against the crowd.  Given the difficulties associated with contrarianism just mentioned, the potentially profitable recognition of divergences from consensus thinking must be based on reason and analysis.  You must do things not just because they're the opposite of what the crowd is doing, but because you know why the crowd is wrong.  Only then will you be able to hold firmly to your views and perhaps buy more as your positions take on the appearance of mistakes and as losses accrue rather than gains."

Excerpted from Howard Marks' book: The Most Important Thing Illuminated (you can get a e-book/Kindle version here). Copyright (c) 2012 Howard Marks.  Used by arrangement with Columbia University Press.

P.S. - if you missed it earlier, we posted another excerpt from Marks book too.

Coatue Management Discloses New Stake in Virgin Media (VMED)

Philippe Laffont's hedge fund Coatue Management just filed a form 13G with the SEC regarding shares of Virgin Media (VMED).  Per the filing, Coatue now owns 5.21% of VMED with 14,463,301 shares.

This is a brand new position for the hedge fund as they did not report holdings in the name at the beginning of the year.  The new activity was reported due to trading on May 2nd.

Per Google Finance, Virgin Media is "engaged in entertainment and communications business. The Company has two segments: Consumer and Business. The Company is a provider of broadband Internet, television, mobile telephony and fixed line telephony services that offer a range of entertainment and communications services to residential and commercial customers throughout the United Kingdom."

Charlie Munger on Investing, Gold, Berkshire & More: In Depth Interview

If you missed it last week, CNBC's Becky Quick interviewed Berkshire Hathaway's Charlie Munger about a myriad of topics including Berkshire's succession plan, his feelings on the future of the company, the economy, markets, and more.

On succession at Berkshire, he says that new portfolio managers Todd Combs and Ted Weschler show "enormous promise."  They've both been given more capital to allocate and he thinks they fit right in with the culture there.

On gold:  Quick mentioned David Einhorn's comments that in a normal environment, he would be long stocks, short bonds and short gold.  But because he doesn't trust the Fed, he has to be long gold.  Munger disagrees and clearly doesn't like gold.

On investing: "We always said that what we like best was owning a wonderful business outright and second best we liked good ideas in securities.  That has never changed."  Munger loves the portfolio of businesses Berkshire has assembled, but didn't really comment on any opportunities they're seeing now.

On when to buy:  "What we've always tried to do is to be just the opposite - when everybody is totally discouraged and thinks the world is going to hell, that's when we like to be buying." When asked if now is a good time to buy, Munger replied "it doesn't look as much so as it did in the bottom tape." 

Embedded below is the interview with Charlie Munger:

For more on Berkshire Hathaway and its legendary investors, head to notes from Warren Buffett's meeting with MBA students as well as a tour of Buffett's office.