Wednesday, September 26, 2012

What We're Reading ~ 9/26/12

Michael Mauboussin on improving investment decision making [Fool]

Interesting viewpoint: the biggest myth in the stock market today [Business Insider]

How this market is a castle on a cloud [Reformed Broker]

Latest longs and shorts from Karsch Capital [ValueWalk]

Ray Dalio on Bridgewater's competitiveness index [CNBC]

Good read: On how Warren Buffett views cash [Globe & Mail]

The 9 stocks Tiger Cubs love [Benzinga]

How good an investment were the bailouts? [Big Picture]

The limits of direct experience in an investor's education [Abnormal Returns]

Jim Chanos on shorting [Santangel's Review]

Regulatory and advertising concerns take center stage [FINalternatives]

John Paulson thinks SEC filings are a waste of time [AR+Alpha]

Appaloosa said to hold USAirways equity, AMR debt [Bloomberg]

Hedge fund redemption requests hit 2012 high in September [HedgeWorld]

Playing a game of economic survivor [Institutional Investor]

Hedge funds play catch up after missing rally [Reuters]

Psychological biases in decision making [HBR]

Tuesday, September 25, 2012

Notes From Mohnish Pabrai's Annual Meeting

A reader sent in notes from Mohnish Pabrai's annual meeting that recently took place.  He runs Pabrai Investment Funds and tries to emulate Warren Buffett with his value approach.

Pabrai currently has around $540 million under management and detailed a post mortem on some of his past holdings, revealing his mistakes were: 1) permanent loss of capital, 2) mistakes of omission and 3) selling something to buy something else and the exited business does better.  Pabrai has seen 13.3% annualized returns since inception.

Question & Answer Session

Q: You don't use explicit leverage but you have lots of leveraged investments in the portfolio?

A: Munger says 4 stocks is diversified.  If you owned the best apartment building in town, the highest quality business, Ford dealership, and other, you will do pretty well.  Bet in financials is around 25% of fund.  Munger says you can't invest in financial services companies without understanding ethos of management.

Q: Sectors to avoid?

A: Avoid what you can't understand and he doesn't like industries with rapid change (like technology or biotech).

Q: Life's 3 most important decisions?

A: Person he married, father started and bk'ed 15 companies in 15 industries.  Father identified gap but then he was eternal optimist.  Mohnish went from engineering to marketing.  Then his father pushed him out to start an information company.  Read Buffett by Lowenstein in 1994 and a light went on.  Leverage time using investing in businesses and let other guys run the business.

Q: Other idea generation tools besides 13F filings?

A: Cloning is a powerful concept.  Reverse engineer trades.  Third Avenue, Long Leaf Partners, Leucadia, Fairfax, Manual of Ideas are all places to look.

Q: Number of portfolio positions expanded after 2008 and now back to concentrated, why?

A: His natural tendency is to be concentrated.  He was shell shocked and there were a ton of big ideas available back then.  Good ideas are now scarce so better off making a good sized bet rather than 1% or 2% positions.  He holds cash now - any money put to work in late 2008 could have been a 4x.

Q: If things are cheap, why hold so much cash?

A: Not a flood of great ideas.  If he finds more he'll put it to work.  He's looking for 4x or 5x return to get interested with muted risk.

Q: QE3 how does it change what you do?

A: Bernanke doesn't need to announce QE4... it is 500 billion per year.  Not a macro guy but fairly in favor of what Bernanke has done.  Fed good at breaking ability but better than fixing things.  Don't see inflation currently but do see signs of significant unemployment.

Q: Do you model businesses, such as discounted cashflow?

A: Entrepreneurs don't use spreadsheets.  3 or 4 factors are important to each business: just focus on those factors.  Spreadsheets give you an imprecise guess of precision.

For more on this investor, we've posted up Pabrai's thoughts on investment checklists as well as his take on how you can invest like Warren Buffett.

Mick McGuire's Marcato Capital Management Files 13D on Syms, Now Trinity Place Holdings

Mick McGuire's hedge fund firm Marcato Capital Management just filed a 13D with the SEC regarding the former Syms entity, now known as Trinity Place Holdings (TPHS).  Per the filing, Marcato has disclosed a 27.9% ownership stake in TPHS with 4,645,287 shares.

Syms Chapter 11

Retailer Syms Corp (SYMSQ) recently emerged from Chapter 11 as Trinity Place Holdings.  Per the 10-month bankruptcy, the company closed its retail stores (including Filene's Basement), liquidated inventories and redeemed all stock owned by Marcy Syms.

The funds needed to exit bankruptcy were supplied via the sale of $25 million worth of new common stock.  Marcato took part along with DS Advisors, and Esopus Creek Value Fund.

Trinity Place now emerges with commercial real estate and intellectual property.  Shares still trade over the counter, but now with a new symbol TPHS.

At present, the fine print of the 13D says that Marcato does not have any plans or proposals.  The filing also notes that Mark Ettenger (a consultant of Marcato) is on the board of directors.

In a separate Form 3 filed with the SEC, Marcato also discloses that they own 71,184 participating interests whose return is tied to the value of TPHS common stock. 

About Marcato

Readers should be familiar with Marcato as we've covered how McGuire previously worked at Bill Ackman's Pershing Square before starting his own fund.  Like Pershing, Marcato focuses on fundamental research and often employs activist investing.  While Pershing often focuses on large caps, Marcato's focuses seems to be on midcaps.

McGuire was named one of Institutional Investor's "Rising Stars" this year.  And we've covered how Marcato has been involved in CXW, pushing for a REIT conversion.

Next week, McGuire will be presenting investment ideas at the Value Investing Congress in New York along with David Einhorn, Bill Ackman and many more hedge fund managers.  Perhaps he'll talk about TPHS, but we'll have to wait and see.  There's still time to register for the event here.

About Trinity Place (Formerly Syms)

Per the company's press release, Trinity Place Holdings' "current business plan includes the monetization of 16 commercial real estate properties and the development of 28-42 Trinity Place in Lower Manhattan. The company also plans to explore the licensing of its intellectual property, including its rights to the Filene’s Basement trademark, the Stanley Blacker and Maine Bay brands, the intellectual property associated with the well-known Running of the Brides event, and An Educated Consumer is Our Best Customer slogan."

Monday, September 24, 2012

SAC Capital Boosts Stakes in Magellan Health Services and Bill Barrett Corp

Steve Cohen's hedge fund firm SAC Capital just filed two 13G's with the SEC:

Magellan Health Services

SAC filed a 13G regarding its stake in Magellan Health Services (MGLN) and per the filing, SAC has revealed a 5% ownership stake with 1,380,530 shares.

They've substantially increased their holdings in MGLN since the end of the second quarter as they only held 16,300 shares then.  Trading activity on September 21st took them over the regulatory threshold required to file.

Per Google Finance, Magellan Health Services is "engaged in the specialty managed healthcare business. The Company provides services to health plans, insurance companies, employers, labor unions and various governmental agencies. It provides managed behavioral healthcare services, radiology benefit management services, and drug benefits management services."

Bill Barrett Corp

Second, the hedge fund firm also ratcheted up its position in Bill Barrett Corp (BBG).  They now show a 5.5% ownership stake in the company with 2,659,491 shares. 

This is an increase of around 827% in their position size since the end of the second quarter as they only owned a small position back then.  The SEC filing was required due to portfolio activity on September 20th.

Per Google Finance, Bill Barrett "explores for and develops oil and natural gas in the Rocky Mountain region of the United States."

We've posted up other portfolio activity from SAC Capital here.

Highfields Capital Discloses Liberty Ventures Stake

Jonathon Jacobson's hedge fund firm Highfields Capital just filed a 13G with the SEC regarding shares of Liberty Ventures (LVNTA).  Per the filing, Highfields now owns a 5.8% ownership stake in LVNTA with 1,482,738 shares.

This is a brand new position for the hedge fund and the filing was made due to portfolio activity on September 12th.  Liberty Ventures is a tracking stock that was created in August to track certain assets of Liberty Interactive (LINTA).

LVNTA shares track Liberty's ownership interests in various entities such Expedia, TripAdvisor, and many more companies.  Shares of LINTA, on the other hand, track the businesses of Liberty such as home shopping network QVC.  Shareholders of LINTA received LVNTA shares in the tracking stock separation.

Liberty Rights Offering

It's unclear if Highfields acquired some of their LVNTA shares via the LINTA spin or not.  Highfields did not disclose a LINTA stake at the end of Q2 in their most recent 13F filing, but they could have easily purchased shares before the split. 

This is important mainly because Highfields' trading activity date on their SEC filing matches the date of Liberty Ventures' rights offering commencement.  Yahoo Finance has an explanation of this:

"On August 9, 2012, in connection with the creation of its new Liberty Ventures tracking stock, Liberty Interactive distributed subscription rights to purchase share of Series A Liberty Ventures common stock (each, a Series A Right). Each whole Series A Right entitles its holder to subscribe, at a per share subscription price of $35.99, for one share of Series A Liberty Ventures common stock pursuant to a basic subscription privilege, and also entitles the holder to subscribe for additional shares of Series A Liberty Ventures common stock pursuant to an oversubscription privilege.  The rights offering will commence on Wednesday, September 12, 2012, and will expire at 5:00 p.m., New York City time, on Tuesday, October 9, 2012, unless extended by Liberty Interactive Corporation"

The rights offering commenced on September 12th and trades under symbol "LVNAR."  It will expire at 5pm EST on October 9th (unless extended by Liberty). 

We've previously covered other portfolio activity from Highfields here.