Friday, March 7, 2014

What We're Reading ~ Hedge Fund Links 3/7/14

A look at Paul Tudor Jones [Dealbook]

Some hedge fund best ideas for 2014 [WSJ]

David Einhorn will speak at this upcoming conference [Make a Difference Wisconsin]

Einhorn: many stocks have completely disconnected from valuations [ValueWalk]

Loeb sees more volatility this year [Bloomberg]

Blackstone buys stake in Versace [FINalternatives]

Soros, Paulson in Spanish property REIT investments [FT]

TigerGlobal leads investment in OnDeck [HedgeWorld]

PepsiCo rejects Peltz's proposal to split up company [HedgeWorld]

Soros Fund Updates Digital River Position

George Soros' family office Soros Fund Management has updated its stake in Digital River (DRIV).  Per an amended 13G filed with the SEC, Soros Fund has disclosed they own 6.97% of Digital River (DRIV) with over 2.47 million shares. 

This is broken down by 16,050 shares and over 2.46 million shares issuable upon the conversion of 2.00% convertible bonds due November 1, 2030.

At the end of 2013, Soros Fund reported aggregate exposure to over 5.5 million shares, so this appears to be a decrease in aggregate exposure by around 3 million shares.  The filing was required due to activity on March 4th.

Soros Fund also filed a Form 4 with the SEC on DRIV and it indicates they received $153,750,000 plus accrued and unpaid interest on the 2.00% convertible bonds they disposed of.

In other activity, Soros Fund also started a Polycom stake recently.

Per Google Finance, Digital River "provides end-to-end global cloud-commerce, payments and marketing solutions to a wide variety of companies in software, consumer electronics, computer games, video games and other markets. The Company offers its clients a broad range of services that enable them to quickly and cost effectively establish an online sales channel capability and to subsequently manage and grow online sales on a global basis while mitigating risks. The Company is engaged in providing outsourced commerce solutions globally to a variety of companies, primarily in the software and consumer electronics product markets. The Company's services include design, development and hosting of online stores and shopping carts, store merchandising and optimization, order management, denied parties screening, export controls and management, tax compliance and management, fraud management, digital product delivery via download, physical product fulfillment and subscription management."

Tiger Global Raises dELiA*s Stake

Chase Coleman and Feroz Dewan's hedge fund Tiger Global has updated its position in dELiA*s (DLIA).  Per a 13G filed with the SEC, they now own 6.3% of the company with over 4.4 million shares.

This marks an increase of over 1 million shares since the end of 2013.  The filing was made due to activity on February 18th.

They aren't the only hedge fund that's been active in this stock lately, either.  David Gallo's Valinor Management started a DLIA stake recently and Lee Cooperman has owned DLIA as well.

Per Google Finance, dELiA*s is "a retail company comprised of two lifestyle brands primarily targeting teenage girls and young women. The Company generates revenue by selling predominantly to teenage consumers through direct mail catalogs, Websites and retail stores. It operates in dELiA*s brand. Through its e-commerce Webpages, catalogs and retail stores, dELiA*s (the brand) offers a variety of product categories to teenage girls to cater to an entire lifestyle. Through its catalogs and the e-commerce Webpages, it sells many name brand products along with its own brand products in key teenage spending categories. These products include apparel and accessories. Its mall-based dELiA*s specialty retail stores derive revenue primarily from the sale of apparel and accessories and, to a lesser extent, branded apparel to teenage girls. It operates in two segments: direct marketing and retail stores."

Thursday, March 6, 2014

Jamie Dinan's Rules of Investing & Current Market Thoughts (York Capital)

Jamie Dinan of hedge fund York Capital made a rare appearance on CNBC today and talked about his current market outlook, his rules of investing, and some of his stock picks these days.

Current market thoughts:  Instead of likening last year's positive market return to that of a beta move, he called it "an engagement move," as both investors and companies re-engaged.  Dinan says it's definitely a stock picker's market right now as corporate activity has picked up.

Latest exposures:  While his largest exposure is the US, he says York is increasingly moving to Europe for opportunities.  "We think European equities are apples to apples less expensive than their North American counterparts."  He also thinks the dealflow in Europe is about 6-12 months behind the US and he anticipates it picking up.

Dinan's rules of investing: He says the best thing to do in investing is learn from your mistakes.  His rules are:  focus on liquidity (so you can get out if you're wrong), be diversified, always be diversified (you never know where the dangers are gonna hit).

He says managing position sizes is also key (they run 50-60 positions at 1-4% position sizes).  Dinan argues to size positions not by how much you can make, but by how much you can lose.  The last important thing is leverage (or lack thereof).   He also noted that, "I find the trick in investing is to try not to give too much back" (after you're up a good amount).

York's stock picks:  They continue to like American Airlines (AAL) as the merger has completed and the industry is starting to act a lot more rational and margins are improving.  He thinks AAL can earn $6+ next year and applies a 10x multiple to that number.  And when looking at stocks they own that are up a lot, they ask themselves: "If we didn't own it, would we buy it today?"  He says AAL falls in this category and they'd still buy it.  As noted in our newly released Hedge Fund Wisdom issue, AAL was a consensus buy among the hedge funds tracked in Q4.

York also likes a potential consolidation play between Men's Wearhouse (MW) and Jos A. Bank (JOSB) as he highlights the potential cost savings that could come from a merger here.  He feels you can double the profitability if the companies combine. 

Dinan also touched on his stake in Hertz (HTZ) as he likes how the industry has consolidated and the fleet has rationalized.  He also highlights their equipment rental business that they think could be spun-off and the company could take advantage of its balance sheet and buyback stock.

Embedded below are the videos of Dinan's interview:

Video 1

Video 2

Video 3

Video 4

For more on York Capital's leading man, check out Dinan's other recent interview.

Jim Chanos Talks Short Positions at Reuters Summit

At the Reuters Investment Summit, Kynikos Associates founder Jim Chanos talked about his short positions and market outlook.

The hedge fund manager and prominent short seller noted he's betting against coal miners as a proxy for his bet against China.  He thinks we're at the end of a commodities supercycle.  This is not a new view as we've highlighted Chanos' negative view on China before.

Chanos is also short Exxon Mobil (XOM), which he labels a value trap.  He believes the business of integrated oil companies has deteriorated over time.  Chanos also points out that return on capital has dropped from 30% down to 20% at the company.

Turning to technology, the Kynikos founder says that a lot of these companies are in slow decline but are masking it via financial engineering and buybacks.  Last year, Chanos highlighted he was short Hewlett Packard (HPQ).

In general, he feels now is a time for investors to be more cautious as the market's have become more "ebullient."

In terms of best new ideas, Chanos said that in the US he's shorting "conceptual companies, companies playing accounting games." He also said to focus on how the internet's changing business models from payment processors to retailers.

Embedded below is the video of Chanos' interview:

Luxor Capital Files 13D on BJ's Restaurants (BJRI)

Hedge fund Luxor Capital has filed a 13D on shares of BJ's Restaurants (BJRI) indicating they own around 9.7% of the company with over 2.7 million shares.  This is a new position for the hedge fund as they did not report a stake at the end of 2013.

The filing was required due to activity on February 28th and the fine print of the filing indicates they're nominating five individuals to the board of directors.

A recent transaction breakdown shows that Luxor was out buying BJRI shares throughout January between $28.xx and $31.xx.

Per Google Finance, BJ's Restaurants "owns and operates restaurants.  The company's restaurants operate under the BJ's Restaurant & Brewery BJ's Restaurant & Brewhouse, BJ's Pizza & Grill, or BJ's Grill names. The Company's menu features its BJ's deep-dish pizza, its hand-tossed style pizza, its craft beers and other beers, as well as a selection of appetizers, entrees, pastas, sandwiches, specialty salads and desserts, including its Pizookie dessert. The Company's BJ's Restaurant & Brewery restaurants feature on-premise brewing facilities where BJ's craft beers are produced for some of its restaurants."

Wednesday, March 5, 2014

What We're Reading ~ Analytical Links 3/5/14

The 1-hour China Book: Peking University professors explain China business [Jeff Towson]

Investing's biggest irony: everyone thinks they're a contrarian [Morgan Housel]

Summary of Warren Buffett's long CNBC appearance this week [Brooklyn Investor]

Buffett tells investors to get real about EBITDA [Herb Greenberg]

A new form of shareholder activism gains momentum [Dealbook]

A look at Platform Specialty Products [Seeking Alpha]

The decline of department store sales [USNews]

VRX, ENDP, ACT: Will pharmaceutical roll-ups end badly? [Value Institute]

House with a modified loan is symbol of servicers' tug of war with investors [Dealbook]

You won't have broadband competition without regulation [Reuters]

On Carlos Slim's challenge to his telecom dominance [Economist]

America should make life easier, not harder, for activist investors [Economist]

Digital habits: Nielsen profiles the US consumer [TNooz]

The future of the news business [Marc Andreessen]

How and why to keep a 'commonplace book' [RyanHoliday]

Mason Morfit (ValueAct Capital): Lectures on Activist Investing

Mason Morfit of ValueAct Capital gave three lectures on activist investing a few years ago with Abe Friedman at the Stanford School of Law.  They were a part of the Stanford Rock Center Series on Shareholder Activism: How it began and how it's reshaping today's investment landscape.

The entire videos are below, but here's some takeaways:

- The academic literature on activism only captures the tip of the iceberg of what really goes on behind the scenes

- Morfit and Friedman really push the idea that changes in corporate governance have increased the amount of activism.  They argue that the sector will continue to grow in the future.

- ValueAct did not have its current model of engagement worked out at the beginning in 2000.  Even they floundered around, finding their way.  Morfit's account of ValueAct's interaction with Martha Stewart (lecture 1) and Chiron and Acxiom is entertaining (lecture 3) as Morfit admits various errors.

- In lecture 2, Morfit talks about how a 32-year old can move a room full of experienced managers.  He says that ValueAct tries to bring information into the boardroom.  They've met with everyone in the industry, inside and out.  They've met with customers, suppliers, gone to trade shows, met all the CEOs, weeded through everyone's strategies, and listened to all the conference calls.  He says it's amazing what can happen when you give the board good information as they rarely have this info.

Mason Morfit Lectures on Activist Investing

Lecture 1: Activist Investing: Background, Impact and the Players

Lecture 2: Non-contested Situations in Activism

Lecture 3: Contested Situations: Proxy Fights, PR Wars and Activist Defense

For more on this hedge fund, we've posted ValueAct's recent portfolio activity here.

Nelson Peltz's Trian Partners Trims Wendy's Stake

Nelson Peltz's activist investment firm Trian Partners recently filed a Form 4 with the SEC on shares of Wendy's (WEN).

According to the filing, Trian Fund Management sold 2 million shares of Wendy's (WEN) on February 25th at a price of $10.2.  After the sale, they're still left with over 64.8 million shares.

Per Google Finance, Wendy's is "a quick-service restaurant company in the hamburger sandwich segment. Wendy’s is primarily engaged in the business of operating, developing and franchising a system of distinctive quick-service restaurants serving food."

You can view additional recent activity from Trian here.

Tuesday, March 4, 2014

Lone Pine Capital Discloses SouFun Holdings Position

Steve Mandel's hedge fund firm Lone Pine Capital just disclosed an updated stake in SouFun Holdings (SFUN).  Per a 13G filed with the SEC, Lone Pine now owns 6.4% of the company with over 3.6 million shares.

At the end of 2013, Lone Pine owned 45,000 call options on SFUN, but didn't own any common stock at that time.  The latest filing was made due to activity on February 21st.

The brand new issue of our Hedge Fund Wisdom publication highlighted a few weeks ago that Passport Capital owns a sizable stake in this name as well.

Per Google Finance, SouFun "operates as a real estate Internet portal in China. The Company also operates home furnishing and improvement Websites. Through SouFun's Websites, it provides marketing, e-commerce, listing, and other value-added services for China's real estate and home-related sectors. SouFun's Internet portal focuses and supports SouFun's users in seeking information on the real estate and home-related sectors in China. SouFun maintains about 100 offices to focus on local market needs and its Website and database contains real estate related content covering more than 320 cities in China. Its Website contains links to other specialized real estate and home furnishing and improvement Websites, including its Website, its e-commerce transaction and payment platform."

You can view additional recent portfolio activity from Lone Pine here.

Tybourne Capital Raises Autohome Stake

Eashwar Krishnan's hedge fund firm Tybourne Capital just filed a 13G with the SEC regarding its stake in Autohome (ATHM).  Per the filing, Tybourne now owns 5.3% of ATHM with over 1.9 million shares.

This is an increase of over 450,000 shares since the end of 2013.  The filing was required due to activity on February 14th.

Prior to founding Tybourne, Krishnan worked at Lone Pine Capital.  You can view some additional recent portfolio activity from Tybourne here.

Per Google Finance, Autohome is "an online destination for automobile consumers in China. Through its two Websites, and, the Company delivers content to automobile buyers and owners. The Company's Content includes professionally produced content, user generated content, automobile library and automobile listing information. The Company generates revenues from online advertising services and dealer subscription services."

Contrarian: Documentary About John Templeton

Below is an interesting documentary on well known investor John Templeton.  "Contrarian" follows his life and legacy.  It was directed by Mary Mazzio and underwritten by the John Templeton Foundation.

Embedded below is the documentary, Contrarian:

Monday, March 3, 2014

Warren Buffett's 2013 Annual Letter

It's that time of year again: Warren Buffett this weekend released his 2013 annual letter.  The Berkshire Hathaway man provides an update on operations but also offers pearls of investing wisdom.

One of the more insightful parts of his letter is a story he tells about a farm he bought a long time ago.  He compares owning a farm to the stock market by imagining a scenario where a neighboring farmer comes over everyday and offers him a price for his farm and Buffett's farm.

Buffett basically notes that this is the reality of the stock market: someone's throwing a price in your face every single day.  But with the farm, you aren't tempted with such regularity.  So to stay the course in a long-term investment, you have to tune out the noise.

Embedded below is Warren Buffett's annual letter for 2013:

You can download a .pdf copy here.

For more from the Oracle of Omaha, head to Warren Buffett's recommended reading list as well as Buffett and Munger's secrets to investing success.

Bruce Berkowitz's Letter to Fannie Mae & Freddie Mac

Bruce Berkowitz's investment firm Fairholme Capital today released a letter to Fannie Mae and Freddie Mac requesting corporate governance actions.

Fairholme owns various preferred securities of both Fannie and Freddie and has asked them to basically preserve the companies' assets while working to rebuild capital.  Fairholme also wants the companies to hold annual shareholder meetings and to re-list on the NYSE.

Embedded below is Berkowitz's letter to Fannie and Freddie:

You can download a .pdf copy here.

ValueAct Capital Boosts Dresser-Rand Stake, Files 13D

Jeff Ubben's hedge fund firm ValueAct Capital filed a 13D with the SEC regarding its stake in Dresser-Rand Group (DRC).  Per the filing, ValueAct now owns 6.6% of DRC with over 5 million shares.

This is a sizable increase as they only owned around 650,000 shares at the end of 2013.  The filing was required due to activity on February 18th, but they've been buying throughout January and February, at prices ranging from $53.xx to $57.05.  DRC currently trades around $57.xx.

Though this is an activist 13D filing, they didn't outline any specific plans and the filing contains the standard boilerplate.

Per Google Finance, Dresser-Rand Group is " a global supplier of of custom-engineered rotating equipment solutions for long-life, critical applications in the oil, gas, chemical, petrochemical, process, power generation, military and other industries worldwide. It has two segments: new units and aftermarket parts. New units are predominately engineered solutions to new requests from clients. Aftermarket parts and services consist of support solutions for the existing population of installed equipment and the operation and maintenance of several types of energy plants. Its rotating equipment is also supplied to the environmental solutions market space within energy infrastructure. It designs, manufactures and markets engineered rotating equipment and provide services to the worldwide oil, gas, petrochemical, power generation, environmental solutions and industrial process industries."