Friday, August 28, 2015

A Wealth of Common Sense by Ben Carlson ~ Book Review

Ben Carlson recently released an insightful new book, A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan.  In it, he dives into checklists for investors, behavioral finance, and key concepts investors need to be aware of.

Carlson's career has covered managing institutional portfolios for endowments, foundations, and pensions.  He also writes the popular investment blog with the same name, (which we've linked to in our "What We're Reading" posts on numerous occasions).

Right now, his book is the #1 best seller in Wealth Management on Amazon.  It's easy to see why given the very practical concepts and ideas outlined in the book.

Chapters include:

- The individual investor versus the institutional investor
- The traits required to be a successful investor
- Defining market and portfolio risk
- Market myths
- Defining your investment philosophy
- Behavior on Wall St
- Asset allocation
- A comprehensive investment plan
- Financial professionals

We found the chapter on 'Defining Market and Portfolio Risk' the most insightful (fans of Oaktree Capital's Howard Marks will probably also enjoy this section). 

Carlson writes, "Risk is context dependent and can change depending on your personal circumstances and your perception of risk.  For most investors, your biggest risk comes from not knowing what you're doing, which means you don't have an investment plan in place.  Without a plan, volatility and uncertainty will eat you alive."

He goes on to add, "Volatility can be both a risk and an opportunity, depending on how you react to market fluctuations.  Intelligent investors view volatility as an opportunity, to both profit and keep their cool under pressure by following their process."

Newer investors would find the chapter on 'Defining Your Investment Philosophy' the most useful as it's a key concept most people don't really give enough thought to before diving right in.

Both on his blog and in his book, Carlson has a way of drilling down big picture ideas into the most important nuggets, all with concise language.  This is very valuable as it a) saves you time and b) ensures you focus on the most important aspects of a topic, tuning out the noise and complexity.  While this is great for readability, it's also a reminder of an important cliche: it's easier said than done.

The main drawback of the book is the lack of concrete and/or actionable ways to execute on what he's outlined, as that's largely left up to the reader.  Given that everyone's particular investment situation is different, we get why he did this, as blanket advice won't apply to everyone.  That said, it would have been nice to see a few more signposts guiding readers toward certain paths under broad scenarios.

The back of A Wealth of Common Sense says that inside you will learn how to: "keep up with - or beat - professional money managers, exploit stock market volatility to your utmost advantage, learn where advisors and consultants fit into a smart strategy, build a portfolio that makes sense for your particular situation."

That last point is arguably the most valuable concept taken away from the book given that everyone's risk tolerance and goals in investing are different.

Who should read this book: individual investors ('retail' investors) will benefit the most from reading this.  Those who enjoy concepts of behavioral finance or are looking to learn more about it will also find it useful.  Financial advisors and money managers (or aspiring ones) could also utilize this as a means to refine their own thinking and to identify topics to discuss with clients. Professional buysiders will take less away from this book.    

Overall, reading the book was time well spent.  As we've often said before, investing is a continual education and Carlson's book furthers that.  It's a practical read that addresses key investing concepts that often get drowned out by volatility and short-term thinking.   You can read the new book A Wealth of Common Sense by clicking here.

Hedge Fund Links ~ 8/28/15

The dangerous long bias and the end of the supercycle [Ray Dalio]

Hedge funds bruised by stocks' meltdown [WSJ]

Are hedge funds just pricey and passive? [South China Morning Post]

Hedge funds that crowded into same names likely to nurse losses [Reuters]

Hedge fund 'hotels' sting managers [Bloomberg]

HF's do half as well as you think [Bloomberg]

Ainslie's Maverick said to shop quant-driven stockpicking fund [Bloomberg]

Jim Chanos: more pain to come in China [WSJ]

Third Point settles with US over 2011 Yahoo disclosures [Reuters]

Ackman's hedge fund down in August [Reuters]

Are hedge funds fake? [Bloomberg View]

There's no good reason to mimic a hedge fund [Bloomberg View]

Donald Trump puts 'hedge fund guys' on notice [Bloomberg]

Carl Icahn Takes Freeport McMoRan Stake

Activist investor Carl Icahn has filed a 13D with the SEC regarding shares of Freeport McMoRan (FCX).  He's now the largest shareholder and owns 8.5% of the company with around 88 million shares.

This is a new stake for him as he didn't own any shares as of the end of the second quarter.  Shares of FCX were down as much as 65% for the year prior to Icahn revealing his stake.

We've recently highlighted other portfolio activity from Icahn here.

Per Google Finance, Freeport McMoRan is "a natural resource company with an industry portfolio of mineral assets, oil and natural gas resources, and a production profile. FCX has organized its operations into six primary divisions: North America copper mines, South America mining, Indonesia mining, Africa mining, Molybdenum mines, and United States oil and gas operations. The Company’s portfolio of assets includes the Grasberg minerals district in Indonesia, mining operations in North and South America, the Tenke Fungurume (Tenke) minerals district in the Democratic Republic of Congo (DRC) in Africa, and oil and natural gas assets in North America. The Company is also engaged in operating copper conversion facilities located in North America, and a refinery, three rod mills and a specialty copper products facility. The Company’s Atlantic Copper smelts and refines copper concentrates and markets refined copper and precious metals in slimes."

Thursday, August 27, 2015

Pershing Square Semi Annual Report: Mondelez, Nomad Foods & More

Bill Ackman's hedge fund firm Pershing Square is out with its semi-annual report and second quarter letter.  Year to date through July 2015, Pershing Square Holdings was up 10.1% net.  This obviously doesn't include the volatility in August and they note they were down for the year as of recent activity, but still outperforming the indices.

Pershing's Thesis on Mondelez

Ackman's letter provides an update on their new position in Mondelez (MDLZ), writing

"We believe that now is an attractive time to invest in Mondelez because its profit margins are just beginning to expand after several years of limited improvement.  In addition, we believe that 3G Capital, through its ownership of Hertz, and now Kraft, has established new benchmarks for operational efficiency, organizational design and management alignment which have allowed 3G companies to be more profitable, nimbler, and better positioned to grow over the long-term.  We believe that 3G's higher standards for operating performance will catalyze a competitive response in the packaged foods industry, leading to greater operating margins and profitability for Mondelez and other companies in the industry."

Pershing's New Position in Nomad Foods

The firm also talked about their new purchase of Nomad Foods (NHL).  They purchased $350 million in a private placement of Nomad's common stock during its acquisition of Iglo Group in June, giving them a 22% ownership stake. 

Nomad is a specialty purpose acquisition company (SPAC) sponsored by Martin Franklin and Noam Gottesman.  Pershing has worked with Martin before in a previous SPAC (Justice Holdings) that then became Burger King (now known as Restaurant Brands).

The thesis here is a consolidation play as they believe Iglo is a platform investment to then acquire more of the packaged food industry.

Pershing writes,

"Iglo is the leading branded frozen food business in Europe with euro 1.5 billion in sales. It is a stable, high margin (20% EBITDA margin), free-cash-flow-generative business.  It has a leading share in European frozen foods at 2.2 times the size of the next largest competitor, with strong brand equity.  Historical growth in the business has been flat, but management sees opportunity for organic growth by expanding the company's great brand names into adjacent frozen food categories."

In its letter, Pershing also provides updates on Valeant Pharmaceuticals (VRX), Air Products and Chemicals (APD), Canadian Pacific (CP), Zoetis (ZTS), Restaurant Brands (QSR), their short of Herbalife (HLF), Fannie Mae/Freddie Mac (FMCC), and.

Embedded below is Pershing Square's semi-annual report / Q2 letter:

You can download a .pdf copy here.

For more on this firm, head to Bill Ackman's presentation at the Delivering Alpha conference.

Sequoia Fund Investor Day Transcript 2015 (Ruane Cunniff & Goldfarb)

Ruane Cunniff & Goldfarb recently released their Sequoia Fund investor day transcript for 2015.  While the event took place back in May, it's still interesting to get their insight on their investments given their long term focus.

Sequoia Fund's investment management team discussed their thesis and outlook on numerous portfolio companies, including Valeant, Google, Mohawk, Idexx, Fastenal, Rolls Royce, TJX, O'Reilly, and many more.

At the end of the second quarter, Sequoia Fund's top holdings were:

Valeant Pharmaceuticals (VRX): 28.7% of portfolio
Berkshire Hathaway (BRK.A/B): 10.6%
TJX Companies (TJX): 5%
O'Reilly Automotive (ORLY): 4.3%
Fastenal (FAST): 4.2%
MasterCard (MA): 3.2%
Precision Castparts (PCP): 2.7%
Mohawk Industries (MHK): 2.5%
Idexx Laboratories (IDXX): 2.3%
Google (GOOGL): 2% 

This really is an interesting read in its entirety given their candidness about assessing their positions.

Embedded below is Sequoia Fund's investor day transcript for 2015:

You can download a .pdf copy here.

Pleasant Lake Partners Adds To Hemisphere Media Stake

Jonathan Lennon's hedge fund firm Pleasant Lake Partners has filed a Form 4 with the SEC regarding its position in Hemisphere Media (HMTV).  Per the filing, Pleasant Lake now owns over 1.92 million shares of HMTV.

They were out buying in the recent market decline on August 24th as well as the next two days.  In total, they bought 171,354 shares at prices of $12.75, $13.19, and $13.43.

They also show a position in Hemisphere warrants with an exercise price of $12 and an expiration of April 4th, 2018.  Hemisphere in general has been a longtime holding of the firm.

We've also highlighted other recent portfolio activity from Pleasant Lake Partners.

Per Google Finance, Hemisphere Media is "the United States Spanish-language media company serving the United States Hispanic and Latin American markets with approximately five Spanish-language cable television networks distributed in the United States, over two Spanish-language cable television networks distributed in Latin America, and is a broadcast television network in Puerto Rico. The Company owns and operates the Spanish language networks and content production platform, including movie and telenovela channels, two Hispanic entertainment genres, and the cable television networks. The Company's the United States Hispanic groups include WAPA is an independent broadcast television network; WAPA America is a Spanish-language cable television network; Cinelatino is the Spanish-language cable movie network; Pasiones is the Hispanic genre telenovelas; Centroamerica TV features news and entertainment programming, and Television Dominicana features news and entertainment programming.."

Wednesday, August 26, 2015

What We're Reading ~ 8/26/15

Risk: your best friend and worst enemy [Morgan Housel]

On when to sell a stock [Safal Niveshak]

What investors must know about China [Dash of Insight]

A quick look at Charles Schwab [Brooklyn Investor]

A write up on Cable & Wireless [Dislocated Value]

A pitch on Interactive Brokers [Bear of Burrard Street]

Quick look at impending spin-off Ferrari [Just Value]

Myths and facts about risk parity [FT Alphaville]

A teenager's view on social media [Medium]

Ways to think about cars [Benedict Evans]

Preparing for life after cable [NYTimes]

A look at Google's new CEO Sundar Pichai [The Verge]

American economy blues: everything you need to worry about [Fortune]

Housing, consumer confidence are bright spots in US economy [WSJ]

Credit scores are rising and becoming more visible [NYTimes]

Racing to stay ahead of Uber [Bloomberg]

Smart guys are the most dangerous [Behavioral Macro]

Peter Thiel on what works at work [Washington Post]

Glenview Capital Accumulates More Tenet Healthcare

Larry Robbins' hedge fund firm Glenview Capital has filed a Form 4 with the SEC regarding its position in Tenet Healthcare (THC).  Per the filing, Glenview now owns over 15.99 million shares of THC.

They bought 500,000 shares combined over the course of August 21st, 24th, and 25th at weighted average prices of $49.3752, $46.8964, and $47.

This is the second time they've bought THC shares in August.

Per Google Finance, Tenet Healthcare is "a healthcare services company. The Company operates regionally focused, integrated healthcare delivery networks in large urban and suburban markets."

Tybourne Capital Increases Boston Beer Stake

Eashwar Krishnan's hedge fund firm Tybourne Capital last week filed a 13G on shares of Boston Beer (SAM).  Per the filing, Tybourne now owns 6% of the company with 583,174 shares.

This means they've roughly doubled their position size since the end of the second quarter when they owned 283,584 shares of SAM.  The filing was made due to activity on July 24th.

Tybourne originally started the position in the first quarter of this year and then added again in the second quarter as well.

Prior to founding Tybourne, Krishnan worked at Lone Pine Capital.  We've highlighted previous portfolio activity from Tybourne here.

Per Google Finance, Boston Beer is "a craft brewer in the United States. The Company is engaged in the business of producing and selling alcohol beverages primarily in the domestic market and in international markets."

Mario Gabelli's Interview on Wall Street Week

Anthony Scaramucci's rebooted Wall Street Week this time around interviewed GAMCO's Mario Gabelli.

Gabelli says you have to work harder than others if you want to succeed, but having a good education is also a good place to start.

They also talked about how Gabelli essentially pioneered private market intrinsic value investing and Gabelli said that, "if a company's publicly traded, what would it be worth if it went private?"  He looked at the spread between what it's trading for and what it's worth.

He tries to stay in his circle of competence, focuses on competitive dynamics in a given stock's industry, and then looks at the balance sheet to determine the downside first.

One of Gabelli's bets these days is a top down view on water.  He notes that it's being consumed and used increasingly around the globe and so he wants to play the infrastructure support.  They've bought Xylem (XYL), Badger Meter (BMI), and Mueller Water (MWA), Gorman-Rupp (GRC), as well as other companies that make products used to test water.

Lastly, Gabelli wants to earn companies that can have earnings in either an inflationary or deflationary environment.  For a short-term trade (1-2 years) he likes Scripps Broadcasting (SSP).

Embedded below is the video of Gabelli's interview on Wall Street Week:

If you missed it, be sure to check Marc Lasry's Wall Street Week interview as well as Steve Einhorn's interview.

Monday, August 24, 2015

Jim Chanos Says China 'Worse Than You Think;' Reveals SolarCity Short

Noted short seller and founder of Kynikos Associates Jim Chanos recently appeared on CNBC to share his thoughts on the markets.

He mentioned that he feels that China is "worse than you think" and that "the biggest lesson over the last three months, for me anyways, is people are beginning to realize that the Chinese government is not omnipotent and omniscient."

Chanos, of course, has been a long time vocal skeptic on China's growth and property market.

Turning to the US, Chanos feels that people have gotten a bit 'complacent,' noting that markets have gone basically straight up and that's not how markets work.  He also mentioned that he's short Hewlett Packard (HPQ), Caterpillar (CAT), Shell, Chevron (CVX) and also unveiled a newly disclosed short: SolarCity (SCTY).

He called HPQ a "challenged business" and thinks it's in secular decline.  He says "in technology if you're not growing, you're in effect dying."

On CAT, he said it's a commodities supercycle problem.

On SCTY: Chanos argues the problem is that they have a residential model and it's really "a subprime financing company in effect" since they lease out solar panels.

Embedded below are clips from Chanos' interview:

On China:

On Hewlett Packard:

On SolarCity:

On Caterpillar:

For more from this short seller, be sure to also check out Jim Chanos' interview on Wall Street Week.

Carl Icahn Gets Board Representation at Cheniere Energy

In a statement today, Cheniere Energy (LNG) announced that two managing directors of Icahn Capital have joined the board of directors.

Jonathan Christodoro and Samuel Merksamer join the board, which now has eleven directors.  A few weeks ago, we highlighted that Icahn started a new position in LNG.

Cheniere Energy has been a popular stock among hedge funds, especially those covered on Market Folly.  At the end of the second quarter, top holders of LNG shares included Baupost Group, Viking Global, PointState Capital, Lone Pine Capital, Soroban Capital, Steadfast Capital, Senator Investment Group, Blue Ridge Capital, Anchorage Capital, Valinor Management and many more.

Nelson Peltz's Trian Shows Sysco Stake, Joins Board

Nelson Peltz's activist firm Trian Partners has filed a 13D with the SEC regarding shares of Sysco (SYY).  Per the filing, Trian now owns 7.08% of the company with over 42 million shares.

Trian built its position in SSY in June, July, and August, mainly around prices of $36-37 per share, with August 12th being the latest reported activity.

The filing notes that, "The Trian Group communicated its view that despite having a number of competitive advantages, the Issuer’s operating and financial performance has underperformed relative to its potential, and that it should adopt strategic and operating initiatives to improve operating margins, enhance working capital efficiency, consider the use of prudent amounts of incremental leverage to increase the amount of capital returned to shareholders,  and take steps to better align management compensation with corporate performance."

Additionally, per an amended 13D filed with the SEC, Peltz and his colleague Josh Frank of Trian have joined Sysco's board of directors, which now has 12 members.

For more on this investor, head to Nelson Peltz's thoughts at the Delivering Alpha conference.

Per Google Finance, Sysco is "a North American distributor of food and related products primarily to the foodservice or food-away-from-home industry. The Company provides products and related services to approximately 425,000 customers, including restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Sysco provides food and related products to the foodservice or food-away-from-home industry. The Company has aggregated its operating companies into a number of segments, of which only Broadline and SYGMA are the main segments. Broadline operating companies distribute a line of food products and a variety of non-food products to their customers. SYGMA operating companies distribute a line of food products and a variety of non-food products to chain restaurant customer locations. The Company’s other segments include its specialty produce, custom-cut meat and lodging industry products segments."