Friday, August 9, 2013

Richard Gerson's Falcon Edge Capital Discloses E-Commerce China Dangdang Stake

Richard Gerson's hedge fund firm Falcon Edge Capital has just filed a 13G with the SEC regarding shares of E-Commerce China Dangdang (DANG).  Per the filing, Falcon Edge has disclosed an 8.2% ownership stake with 4,392,000 shares.  This is a newly disclosed position and the filing was required due to activity on July 29th.

About Falcon Edge

Gerson founded Falcon Edge after previously working with John Griffin at Blue Ridge Capital for many years.  He co-founded the Blue Ridge China, PE unit.  Falcon Edge launched with Navroz Udwadia (formerly of Eton Park) and James Minshull as COO (also from Eton Park).

About DangDang

Per Google Finance, E-Commerce China Dangdang Inc. (Dangdang) is "a holding company. It is a business-to-consumer (B2C), e-commerce Company in the People’s Republic of China."

Perry Capital Files 13D on J.C. Penney & Sends Letter to the Board

Richard Perry's hedge fund firm Perry Capital has just filed a 13D with the SEC regarding shares of J.C. Penney (JCP).  Per the filing, Perry now owns 7.26% of JCP with 16,000,000 shares.  This is a brand new position for the hedge fund.

The filing was required due to activity on August 9th.  However, Perry started buying JCP shares as early as June 12th at $17.77 and throughout July and into August.  Their most recent disclosed purchases come on August 1st at around $14.86.

Perry owned 12 million JCP shares as of June 30th, and then has purchased an additional 4 million shares since then.  With the slide in JCP shares down to current levels of $12.81, Perry is already down on this position.

Perry's Letter to JCP's Board

Below is the letter Richard Perry sent to the Board of Directors today:

"August 9, 2013

Dear Mr. Engibous and the J. C. Penney Company Board of Directors,

Perry Capital currently owns shares representing beneficial ownership of 7.26% of J. C. Penney Company. Shareholders and creditors have increasingly lost confidence in the company, as evidenced by the recent significant decline in the company’s stock and bond prices.  This market reaction is particularly alarming given the company’s meaningful improvement in liquidity following its $2.25 billion term loan financing. We strongly urge the Board to take immediate and proactive steps to improve the financial and operational management of the company.

Assuming recent press reports are accurate, Perry Capital would be very supportive of a return to the company by Allen Questrom and Ken Hicks. While we appreciate Mike Ullman’s willingness to assume the interim CEO role at a critical juncture, we believe it is imperative that the Board promptly establish a Board and management structure that provides the company the greatest chance for success. We believe that immediately appointing Allen Questrom Chairman of the Board and Ken Hicks CEO is imperative at this juncture, and we anticipate that the company’s various constituents would be highly supportive of such a change. In the words of Citigroup retail analyst Deborah Weinswig in a publicly available research note:  “Questrom + Hicks = Dream Team” (Dear Board of Directors, Time is of the Essence! August 9, 2013).

Given the urgent nature of the situation, I am releasing this letter publicly so that other shareholders who feel the same way can express their opinions directly to the Board. 

Sincerely, Richard Perry"

Bridger Capital Starts New TrovaGene Stake

Roberto Mignone's hedge fund firm Bridger Capital filed a 13G and Form 3 with the SEC regarding shares of TrovaGene (TROV).  Per the filing, Bridger has disclosed an 11.9% ownership stake in TROV with 2,142,857 shares.

This is a brand new position for the hedge fund and the filing was required due to portfolio activity on July 30th. 

The company recently closed a registered direct offering of $15 million in common stock at $7 per share to an 'unnamed institutional investor.'  Doing the math on Bridger's share count above, it appears as though Bridger is that investor.

Per Google Finance, TrovaGene is "a development-stage molecular diagnostic company that focuses on the development and marketing of urine-based nucleic acid tests for patient/disease screening and monitoring. The Company's novel tests predominantly use transrenal DNA (Tr-DNA) and transrenal RNA (Tr-RNA). The Company's technology is used to all transrenal nucleic acids (Tr-NA). The Company’s urine-based test addresses market needs, such as women’s healthcare-fetal medicine-down syndrome, infectious diseases, cancer testing, transplantation, drug development and monitoring of therapeutic outcomes, ultra-sensitive analytical and detection system, technologies for the collection, shipment and storage of urine specimens, and transrenal nucleic acid extraction, and instrumentation/system platform."

Greenlight Capital Sells Some Einstein Noah Restaurant Group Shares

David Einhorn's hedge fund firm Greenlight Capital just filed an amended 13D with the SEC regarding shares of Einstein Noah Restaurant Group (BAGL).  In it, they disclose a 53.1% ownership stake with 9,233,469 shares.

According to the Form 4 filed with the SEC, Greenlight sold 1,500,000 shares of Einstein Noah Restaurant Group (BAGL) at a price of $15.52 on August 6th.

Per Google Finance, Einstein Noah Restaurant Group is "an owner/operator, franchisor and licensor of bagel specialty restaurants in the United States. ENRGI operates under the Einstein Bros. Bagels (Einstein Bros.), Noah’s New York Bagels (Noah’s) and Manhattan Bagel Company (Manhattan Bagel) brands. ENRGI operates in three business segments: the Company-owned restaurants segment, the manufacturing and commissary segment, and the franchise and license segment. The Company-owned restaurants segment includes the restaurants that it owns. The manufacturing and commissary segment produces and distributes bagel dough and other products to its Company-owned restaurants, licensees and franchisees and other third parties. The franchise and license segment earns royalties and other fees from the use of trademarks and operating systems developed for the Einstein Bros., Noah’s and Manhattan Bagel brands."

For more on this manager, check out Einhorn's presentation from the Sohn Conference.

What We're Reading ~ Hedge Fund Links 8/9/13

Everyone thinks everyone else is manipulating Herbalife [Dealbreaker]

Bridgewater asks if a perfect storm is brewing in Europe? [ValueWalk]

Tepper's firm turns 20, posts strong gains [II Alpha]

Comments from David Einhorn's GLRE call [SeekingAlpha]

George Soros, partners bet on Brazil telecom industry [WSJ]

Sony brush-off leaves Loeb with few options [Dealbook]

Paul Singer hates benchmarking [HFIntelligence]

Hedge funds copy Soros' regulatory sidestep [FT]

Soros Fund withdrawing all of its money from Pershing Square [Reuters]

Hedge funds profit from return of M&A [FT]

How hedge funds can effectively advertise [Forbes]

Who's afraid of hedge fund advertising? [New Yorker]

Wall Street's big SAC Capital problem [CNBC]

Big hedge funds to swoop on start-up talent [WSJ]

Thursday, August 8, 2013

The Art of Value Investing: How the World's Best Investors Beat the Market (Book Review)

Today we're reviewing the new book, The Art of Value Investing: How the World's Best Investors Beat the Market by John Heins and Whitney Tilson.  These two have aggregated an entire book full of quotes and anecdotes from top hedge fund managers over the years.

The Art of Value Investing: Book Review exists primarily to track hedge funds, examine why they're buying/selling certain stocks, and to learn from great managers.  After all, investing is a continual education.

While learning from your own mistakes is one way to improve your investment process, it can also save you a lot of aggravation and money to take the time to learn from others who are willing to share what they've learned as well, and that's exactly what this book does.

The Art of Value Investing makes you feel as if you're sitting at a giant table full of some of the best investors today.  A topic of investment process is opened for discussion and everyone chimes in with their thoughts, all while you sit there rapidly absorbing all that you can.

Chapters of the book include wisdom from managers on topics such as: circle of competence, generating ideas, portfolio construction, guarding against risk, and more.

Hedge Fund Managers Quoted in the Book

The list is quite extensive, but here's some of the bright minds that are quoted repeatedly in the book:

Seth Klarman (Baupost Group)
Howard Marks (Oaktree Capital)
David Einhorn (Greenlight Capital)
Jon Jacobson (Highfields Capital)
Lee Ainslie (Maverick Capital)
Julian Robertson (Tiger Management)
John Burbank (Passport Capital)
Mitch Julis (Canyon Capital)
Joel Greenblatt (Gotham Capital)
Jeff Ubben (ValueAct Capital)
James Crichton & Adam Weiss (Scout Capital)
Larry Robbins (Glenview Capital)
Ricky Sandler (Eminence Capital)
Bruce Berkowitz (Fairholme Capital)
Thomas Gayner (Markel Corp)
Prem Watsa (Fairfax Financial)

And that's just a few of the big names.  Tons more established and up and coming managers divulge their experiences in The Art of Value Investing.

Quote from the Book

We asked the authors for some of their favorite quotes from the book, and they sent one from David Einhorn on page 107:

"We take the traditional value investor’s process and just flip it around a little bit. If you’re looking for something that’s cheap, you’ll probably do a variety of screens—on price‐to‐sales, price‐toearnings, price‐to‐book, whatever—to identify stocks that appear to be inexpensive. Once you have that list, then you start to research if there are good reasons the stocks deserve to be cheap, or if maybe there’s an investment opportunity because they’re cheap without a good reason. We think that’s the way most value investors approach it.

We never do screens like that. We start by identifying situations in which there is a reason why something might be misunderstood, where it’s likely investors will not have correctly figured out what’s going on. Then we do the more traditional work to confirm whether, in fact, there’s an attractive investment to make. That’s as opposed to starting with something that’s just cheap and then trying to figure out why. We think our way is more efficient."

High Praise From Other Hedge Fund Managers

This is a fantastic book for any investor, whether you're a beginner or a professional.  Don't take our word for it, though.  Here's what Omega Advisors' Lee Cooperman had to say about The Art of Value Investing:

"They have provided in one publication invaluable insights from some of the most accomplished professionals in the investment business.  I would call this publication a must-read for any serious investor."

Pershing Square's Bill Ackman also praised the book:

"(The book) is a thoughtfully organized compilation of some of the best investment insights I have ever read.  Read this book with care.  It will be one of the highest-return investments you will ever make."

Highfields' Jon Jacobson called it a "must-read" and ValueAct Capital's Jeff Ubben said that, "The lessons are like scars and they are revealed here firsthand."

If you enjoy reading MarketFolly, then you'll love soaking up the wisdom from  The Art of Value Investing: How the World's Best Investors Beat the Market.  It's like having your own archive of the minds of some of the most talented managers in the game.

Wednesday, August 7, 2013

Trian Partners Sells Danone & State Street, Trims Family Dollar & Ingersoll Rand Stakes: Q2 Letter

Nelson Peltz's investment firm Trian Partners recently released its second quarter letter.  In it, they detail that they sold out of their investment in Danone (DANOY) as well as State Street (STT).  Additionally, the firm mentions that it has recently trimmed its positions in Ingersoll Rand (IR) and Family Dollar (FDO).

New Mystery Investment

Peltz has built a new mystery position which he did not reveal in the letter.  He said that some of the above stakes were sold in order to partially fund their new mystery purchase.

Here's all they had to say about this new position:  It's "a company comprised of world class businesses where we see a path to superior value creation."

Andrew Ross Sorkin said that sources are pointing to Peltz acquiring a stake in DuPont (DD) back at the Delivering Alpha Conference last month, but Peltz didn't really confirm it when asked about it.

At any rate, here's their long portfolio composition by sector: 30% consumer staples, 28.1% consumer discretionary, 17.6% industrials, 13.9% financials, 10.4% basic materials, 0% other.

Other Highlights

Their Q2 letter also touches on their investments in PepsiCo (PEP) and Mondelez (MDLZ) and basically re-hash everything they laid out in their white paper on the companies which we highlighted recently.  Peltz also talked about his PEP & MDLZ stakes at the Delivering Alpha Conference too.

According to the letter, Trian also retains its positions in Lazard (LAZ), Legg Mason (LM), and Wendy's (WEN).  Their thesis on Legg Mason remains unchanged: "Better fund flows, strong free cash flow, and improving margins should allow the shares to be valued closer to peer averages."

In the second quarter, Trian's total firm assets hit an all-time peak of approximately $6.3 billion.  Net exposure finished the month at 100% net long (136.4% long and -36.4% short).

Interview with Crispin Odey on Market Outlook, Strategy & Delta Airlines (DAL)

Crispin Odey of Odey Asset Management was recently interviewed by Killik & Co and talked about his general view of markets, his strategy in his funds, and one of his favorite stock picks: Delta Airlines (DAL).

Odey's Strategy

On his strategy: "The whole idea was to protect people's capital, but to take advantage of any opportunities that were coming along."

Odey likes to look for new trends.  While it's a global fund, it has a high European bias due to the fact that that's where their expertise lies.

Odey's US Market Outlook

His medium-term outlook has been more optimistic than most about the US and he mentions he's worried about the recent mention of tapering, saying it would be "difficult for equities and the stock market."  So he's not quite as optimistic as he was.

Delta Airlines (DAL)

One of the ideas Odey likes is Delta Airlines (DAL) "because it's making a 6% return on sales and valued at 60% of sales."  The airline industry hasn't made money in the States but things have changed now due to all of the industry consolidation.  He likes that there's full capacity on the planes these days and fancies the stock over the next 2-3 years.

Embedded below is the interview with Crispin Odey:

For more on this manager, we've posted up some of Odey's portfolio activity here.

What We're Reading ~ Analytical Links 8/7/13

Most valuable lesson in investing: get rid of your ego [Financial Sense]

Notes from Mohnish Pabrai's lecture at Columbia University [BaseHitInvesting]

Looking at investing during periods of rising interest rates [Marketwatch]

Lauren Templeton shares investing lessons from Sir John Templeton [Finance Trends Matter]

Fear gauge shows complacency has taken hold [FT]

18 insights from the new Market Wizards book [ST50]

S&P 500's most shorted stocks [CNBC]

On the future of television [Barrons]

Who should try to beat the market? [Fool]

The impact of rising interest rates on housing affordability [Eye on Housing]

Why breakup of Russian potash cartel is such a threat [Globe & Mail]

On a blip in the economy [NYMag]

Did Goldman overstep in charging its ex-programmer? [Michael Lewis]

Tuesday, August 6, 2013

Howard Marks Says We're in 'Middle Ground,' Advises Caution Ahead: Latest Memo

Oaktree Capital's Chairman Howard Marks is out with his latest memo entitled, "The Role of Confidence."  In it, he tackles how if people are confident that an economy's future is good, then they'll go out and essentially make the economy good by spending and investing... it becomes self-fulfilling.

On Extremes in Confidence

As an investor, he looks for extremes in confidence between 'too much' and 'too little.'  Investors often become overconfident after things have been good for a while, and they become extremely negative when it seems there's no hope in sight.  Investors, he says, should do the opposite:

"When most investors are driven to drop their prudence by an excess of confidence, we should be terrified.  In the same way, when most investors become devoid of confidence and flee the market, we should turn aggressive."

Why should you care what Marks has to say?  Well for one, he always offers insightful tidbits and words of wisdom in his letters.  And secondly, Warren Buffett himself has said he loves to read Marks' missives.  And what Marks is saying is really just another version of Buffett's famous: "be greedy when others are fearful."

Marks Says We're in 'Middle Ground'

This is perhaps the most noteworthy quote from his commentary relevant to the current markets:

"As I wrote in my book, when there's nothing clever to do, the mistake lies in trying to be clever.  Today it seems the best we can do is invest prudently in the coming months, avoiding aggressiveness and remembering to apply caution."

Embedded below is Howard Marks' latest memo for Oaktree Capital:

You can download a .pdf copy here.

For more from this investor, we previously highlighted Marks at the London Value Conference.

Oaktree Capital Files 13D on Star Bulk Carriers (SBLK)

Howard Marks' hedge fund firm Oaktree Capital has filed a 13D with the SEC regarding Star Bulk Carriers (SBLK).  Oaktree disclosed an 18.6% ownership stake in SBLK with 3,865,888 shares.

On May 1st, Oaktree and other purchasers entered into a purchase agreement and agreed to backstop an equity rights offering up to $75 million with a subscription price of $5.35. 

Oaktree also agreed that it would not acquire more than 40% of common shares without approval of the board.  On July 25th, the company announced successful completion of the rights offering.

The 13D also notes that the company has agreed to increase the size of the board by 2 directors.  The filing was required due to portfolio activity on July 25th.

Per Google Finance, Star Bulk Carriers is "an international company providing worldwide transportation of drybulk commodities through its vessel-owning subsidiaries for a broad range of customers of major and minor bulk cargoes including iron ore, coal, grain, cement and fertilizer."

We also just posted up Howard Marks' latest memo if you're interested in hearing his market thoughts.

Glenview Capital Discloses KV Pharmaceutical Stake

Larry Robbins' hedge fund Glenview Capital has disclosed a position in KV Pharmaceutical (KVPHQ).  The firm filed Forms 3, 4, and 13D with the SEC regarding shares.  Per the filings, Glenview has disclosed a 13.6% ownership stake in KVPHQ with 6,661,983 shares.

The filings show that they acquired shares between July 24th and August 2nd at prices ranging between $.2943 and $.5899.  In August 2012, the company filed petitions for relief under Chapter 11 of the US Bankruptcy Code.

Per Google Finance, KV Pharmaceutical is "an integrated specialty pharmaceutical company that develops, manufactures, acquires and markets branded and generic/non-branded prescription pharmaceutical products. The Company focuses on women’s health care products. It markets Evamist, a transdermal estrogen therapy delivering a low dose of estradiol in a once-daily spray indicated for the treatment of moderate-to-severe vasomotor symptoms due to menopause. Through Particle Dynamics, Inc. (PDI), which the Company has approved for divestiture, the Company has developed, manufactured and marketed technologically advanced, value-added raw material products for the pharmaceutical industry and other markets."

For more on this manager, we recently highlighted Larry Robbins' appearance at the Delivering Alpha conference.

SAC Capital Boosts Stakes in Children's Place, Blue Nile & Foster Wheeler

Steve Cohen's hedge fund SAC Capital continues to disclose positions via SEC filings despite the charges they face. 

Children's Place (PLCE)

Per the latest 13G filing, SAC has revealed a 5.1% ownership stake in Childrens Place Retail (PLCE) with 1,139,775 shares.

This is a sizable increase from the end of the first quarter when they only owned 18,512 PLCE shares.  The 13G was required due to portfolio activity on August 2nd.

Per Google Finance, Children's Place "operates as a specialty retailer of apparel and accessories for children. The Company designs, sources and markets its products under its proprietary The Children's Place brand name for sale exclusively in its stores and on its Website. The Company's merchandising strategy is built on offering a collection of interchangeable outfits and accessories to create a coordinated look distinctive to The Children's Place. It offers a focused assortment of styles in a variety of colors and patterns. The Company divides the year into quarterly merchandising seasons: Spring, Summer, Back-to-School and Holiday. Within each season, the Company also introduces a new merchandise line each month."

Foster Wheeler (FWLT)

Due to portfolio activity on August 1st, SAC has also disclosed a position in Foster Wheeler (FWLT) with 5,167,407 shares.  This is an increase of 1.5 million shares since the end of the first quarter.

Per Google Finance, Foster Wheeler is "a supplier of engineering, construction and project management contractor and power equipment. The Company operates through two business groups: Global Engineering and Construction Group (Global E&C Group), and Global Power Group. Its Global E&C Group, which operates worldwide, designs, engineers and constructs onshore and offshore upstream oil and gas processing facilities, natural gas liquefaction facilities and receiving terminals, gas-to-liquids facilities, oil refining, chemical and petrochemical, pharmaceutical and biotechnology facilities and related infrastructure. Its Global Power Group designs, manufactures and erects steam generators and auxiliary equipment for electric power generating stations, district heating and power plants and industrial facilities worldwide."

Blue Nile (NILE)

Due to portfolio activity on August 1st, SAC also disclosed a position in Blue Nile (NILE) with 669,414 shares.  This marks an increase of 342,114 shares since the end of the first quarter.

Per Google Finance, Blue Nile is an " online retailer of diamonds and jewelry. The Company offers its products for sale through the Website in over 40 countries and territories throughout the world. The Company's online business model allows the Company to avoid many of the costs that are typically incurred by physical retail stores."

You can view other recent portfolio activity from SAC Capital here.

Monday, August 5, 2013

ValueAct Capital Files Form 3 on Willis Group Holdings (WSH)

Jeff Ubben's activist hedge fund firm ValueAct Capital recently filed a Form 3 with the SEC regarding shares of Willis Group Holdings (WSH).  Per the filing, ValueAct has disclosed that they own 18,214,700 shares of WSH as of July 23rd.

This marks a 10% increase in the number of shares they own since the end of the first quarter when they disclosed a 16,500,000 share position in WSH.

Jeff Ubben will be speaking at the Value Investing Congress next month in New York City and Market Folly readers can receive a discount to the event here with code N13MF4

Per Google Finance, Willis Group Holdings is "provides a range of insurance brokerage, reinsurance and risk management consulting services to its clients worldwide. It has market positions in the United States, in the United Kingdom and, directly and through its associates, in many other countries. It is recognized in providing specialized risk management advisory and other services on a global basis to clients in various industries including aerospace, marine, construction and energy. It has three segments: North America , International and Global."

Market Strategist Jeff Saut: Raising Cash In Anticipation of Decline in Stocks

Market strategist Jeff Saut is out with his latest investment strategy for the week entitled "The One Chip Rule."  In it, he compares the markets to playing poker, a comparison numerous others have drawn as there are various similarities.

Saut opines,

"In the stock market’s case, while the human natures of fear, hope, and greed still play a large role, I tended  to substitute card players with the personalities of stocks, the market makers, the Fed, Washington, and politicians. Using  such strategies I found that if you do your homework, and manage the risk, the odds of success in the markets are much  better than a card game. When you lose in the markets at least you get most of your money back and the government shares  in a portion of your losses via the capital gains/capital losses tax system. In a card game it tends to be basically all or nothing  with each hand."

The '1 chip rule' basically says that for every 10 chips you accumulate, you pocket 1 to pay yourself.  In investing, the corollary is to take some profits as your investments run up higher.

Saut uses this analogy because he's been raising some cash recently in anticipation of a decline in stock prices.  While he admits this strategy has been wrong in the near-term, he points to various indicators and seasonality that has caused him to be more cautious.

Embedded below is Jeff Saut's weekly market commentary:

You can download the .pdf here.

For more of the indicators that have led to Saut's cautious approach, head to his commentary from last month.

Investment Thesis on Exor SpA (EXO IM) & Fiat (F IM): The Italians Are Coming

Late last year, we noted that Children's Investment Fund was short Fiat and Jim Chanos' Kynikos Associates has been short as well.  Today, we present somewhat of an opposing view via a bull case on the holding company that owns Fiat and Fiat Industrial: Exor SpA (EXO IM).

The following is a guest post from Steven Wood, CFA of Greenwood Investors entitled "The Italians Are Coming" that was originally published on his site here.

Investment Thesis on Exor SpA / Fiat (F IM)

Simply put, Greenwood's case is based on undervaluation relative to peers, industry-leading growth trajectories, and numerous catalysts ahead.  They like that Exor has been buying back shares at a 33-44% discount to NAV.

Their favorite investment of Exor's is Fiat SpA (F IM).  They think Fiat is a double as cost savings are realized.  Fiat has the Fiat brand, as well as Maserati and Alfa Romeo.  They also own a 90% stake in Ferrari as well as a 58.5% stake in Chrysler.  Greenwood posted an update on Fiat individually back in May here.

Fiat Industrial is the other main asset of Exor SpA and is comprised of 3 major businesses: Case New Holland, Iveco Trucks, and Fiat Powertrain.

Greenwood likes the portfolio of Exor's assets that you can acquire at a discount with upside via improvements in operations at both key companies.  Read on for the full in-depth breakdown of their thesis.

Embedded below is Greenwood Investors' pitch on Exor SpA:

You can download a .pdf copy here.