Wednesday, June 28, 2017

Mohnish Pabrai's Recommended Reading List

Investor Mohnish Pabrai recently recommended a few books at his talk at Google which we just highlighted.

Mohnish Pabrai's Recommended Reading List

  Am I Being Too Subtle? by Sam Zell.  Pabrai said it was great and personally preferred to listen to the audiobook.

  Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger by Janet Lowe. The other biography on Charlie Munger that Pabrai said included interesting tidbits not seen before.

  The Beak of the Finch: A Story of Evolution in Our Time by Jonathan Weiner.  Mohnish said he was fascinated by it.  "Unrelated to investing but a great read."

And in the past, Pabrai has also frequently recommended books such as:

  Poor Charlie's Almanack by Charlie Munger.  The classic text that any follower of his should read.

  The Essays of Warren Buffett by Warren Buffett.  Another classic.

And while he didn't recommend his own book, it's worth noting Pabrai has authored The Dhando Investor: The Low-Risk Value Method to High Returns.

For more book recommendations from top investors check out the right sidebar of Market Folly as we've posted many lists.

Mohnish Pabrai's Talk at Google on Entrenched Biases

Fund manager Mohnish Pabrai recently gave a talk at Google on how intensive stock research can be injurious to financial health. 

The video's description is "how the plethora of deeply entrenched biases and flawed evolutionary brain wiring makes us prone to make plenty of mistakes when picking stocks.  Specifically, the more time we spend analyzing a given business, the more likely we are to like it and invest in it. 

But if we don't spend time studying a business, how are we expected to understand its prospects and likely future?  This strong commitment bias is an important reason why most investment managers have trouble beating the index. 

Mohnish will lay out the origins of this bias problem and a few hacks to get around it."

Embedded below is the video of Mohnish Pabrai's latest talk at Google:

For more from this investor, we've posted Pabrai's talk on value investing as well.

For other investor talks at Google, we've posted many of those presentations and you can scroll through that link.

What We're Reading ~ 6/28/17

Taking the pulse of Disney's behemoth ESPN [Sports Business Daily]

The end of car ownership [WSJ]

Pitch on Bank of the Ozarks [Barrons]

Five ways a company can keep its competitive edge [Fortune]

Morningstar's updated top 10 holdings of ultimate stock pickers [Morningstar]

Half of Americans are spending their entire paycheck (or more) [CNN Money]

'How many jobs will be killed by A.I.?' is the wrong question [LinkedIn]

Inside the secret world of the shipping industry [Longreads]

Compound interest applied to learning [Kottke]

How to predict if a borrower will pay you back [NYMag]

Charlie Munger on The Psychology of Human Misjudgement

Investor Charlie Munger is well known for delivering his talk on The Psychology of Human Misjudgement at Harvard in 1995. 

A company called Tiny has created an animated and abridged version of the speech that hits the highlights and puts a visual twist on the talk.  So if you missed his talk or are looking for a quick refresh, this is a great synopsis. 

Embedded below is the video of Charlie Munger on the Psychology of Human Misjudgement:

For more on this investor, check out Charlie Munger's recommended reading list.

Tuesday, June 27, 2017

Steadfast Capital Boosts Trivago Position

Robert Pitts Jr.'s hedge fund firm Steadfast Capital has filed a 13G with the SEC regarding shares of Trivago (TRVG).  Per the filing, Steadfast now owns 5.4% of the company with over 1.60 million shares.

This is an increase of over 1.05 million shares since the end of the first quarter when they owned 550,074 shares.  The filing was made due to activity on June 14th.

We've previously highlighted how Foxhaven Asset Management has also built a Trivago stake

Per Google Finance, Trivago "operates an online hotel search platform. The platform allows users to search for, compare and book hotels. It gathers information from various third parties' platforms and provides information about the hotel, pictures, ratings, reviews and filters, such as price, location and extra options. The Company offers access to approximately 1.3 million hotels in over 190 countries via more than 50 localized websites and applications in various languages. The Company also offers marketing tools and services to hotels and hotel chains, as well as to online travel agencies and advertisers, among others. Its principal executive offices are located in Germany."

Paulson & Co Increases Valeant Pharmaceuticals Stake

John Paulson's hedge fund firm Paulson & Co has filed a 13D with the SEC regarding shares of Valeant Pharmaceuticals (VRX).  Per the filing, Paulson now owns 6.3% of VRX with over 21.81 million shares.

This marks an increase of 2.42 million shares since the end of the first quarter when they owned 19.38 million VRX shares. 

Per the 13D filing, Paulson & Co bought 2.71 million shares at a weighted average price of $13.7080 on May 11th.  They then sold 137,000 shares on June 8th at $13.2914.

The filing also notes that on June 14th, John Paulson was appointed to the board of directors.

Per Google Finance, Valeant Pharmaceuticals is "a pharmaceutical and medical device company. The Company is engaged in developing and marketing a range of branded, generic and branded generic pharmaceuticals, over-the-counter (OTC) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices). It operates through two segments: Developed markets and Emerging markets. In the Developed Markets segment, it focuses on the areas of dermatology, neurology, gastrointestinal disorders, and eye health therapeutic classes. In the Emerging Markets segment, it focuses on primarily on branded generics, OTC products and medical devices. Its pharmaceutical products include Xifaxan, Solodyn and Glumetza. Its OTC products include PreserVision, Biotrue and Boston. Its other generic products include Latanoprost and Metronidazole. Its ophthalmic surgical products include intraocular lenses, such as Akreos, enVista, Crystalens and Trulign."

Third Point Takes $3.5 Billion Nestle Stake: Letter

Dan Loeb's hedge fund firm Third Point has released a letter that reveals they've taken a $3.5 billion stake (including options) in Nestle in their hedge funds as well as a special purpose vehicle they raised for the opportunity.

They see four areas for improvement:

1) Improving productivity: adopt a formal margin target

2) Capital return: adopt a leverage target and buyback stock

3) Re-shape the portfolio: perhaps sell some businesses

4) Monetize their L'Oreal stake

Third Point feels that Nestle can hit earnings per share 50% higher than today.

Embedded below is Third Point's letter on Nestle:

You can download a .pdf copy here.

We've also posted other recent portfolio activity from Third Point here and you can also read Third Point's Q1 letter.

Berkshire Hathaway Invests in Home Capital Group and Store Capital

News has recently come out that Warren Buffett's Berkshire Hathaway has made two recent investments:

Berkshire Hathaway Invests in Home Capital Group (HCG)

First, Berkshire will indirectly purchased C$400 million of Home Capital shares via a private placement (40 million shares at around C$10 per share).  Additionally, Berkshire will give the company a C$2 billion line of credit.

Of the investment, Buffett said, "Home Capital's strong assets, its ability to originate and underwrite well-performing mortgages, and its leading position in a growing market sector make this a very attractive investment."

Berkshire will own just over a 38% equity stake in the company.  The company had been undergoing a strategic review as it sought ways to raise capital.

Home Capital had been a popular short among investors betting that Canada could see fallout from a subprime housing crisis of its own.  Buffett has clearly zagged the other direction with this bet.

After falling 45% over the past six months, HCG shares are now up 82% over the past few weeks.

For more on Berkshire Hathaway, we highlighted an interview with Warren Buffett last month.

Per Google Finance, Home Capital is "Canada-based holding company that operates through its subsidiary, Home Trust Company (Home Trust), which offers deposits, residential and non-residential commercial mortgage lending and consumer lending. It offers deposits through brokers and financial planners, and through its direct-to-consumer deposit brand, Oaken Financial. Home Trust, through its subsidiary, Home Bank, offers mortgage, deposit and personal banking products. Its mortgage lending includes Traditional Single-family and ACE Plus Lending; insured residential lending; residential commercial lending, and non-residential commercial lending. Its consumer lending includes credit card and line of credit lending, and other consumer retail lending. In addition it manages a treasury portfolio to support liquidity requirements and invest excess capital. Its operations also include Payment Services Interactive Gateway Inc., the Company's subsidiary involved in payment processing."

Berkshire Invests in Store Capital (STOR)

Secondly, Warren Buffett's firm has also made a bet on another industry that's seen some struggles: physical retail.  While it's not an actual retailer, it still has exposure to the industry as it's a REIT focused on single tenant commercial operational real estate. 

Berkshire has invested $377 million in Store Capital (STOR) according to the company, which turns out to be around a 9.8% stake.  The private placement issued 18.6 million shares at $20.25 per share.

Per Google Finance, Store Retail is "an internally managed net-lease real estate investment trust. The Company is engaged in the acquisition, investment and management of single tenant operational real estate (STORE) properties. As of December 31, 2016, the Company owned a portfolio that consisted of investments in 1,660 property locations operated by 360 customers across 48 states. Its customers operate across a range of industries within the service, retail and manufacturing sectors of the United States economy, with restaurants, early childhood education centers, movie theaters, health clubs and furniture stores. The Company's portfolio includes investments in approximately 1,330 property locations operated by over 300 customers across approximately 50 states. The Company provides real estate financing solutions principally to businesses that own STORE properties and operate within the broad-based service, retail and industrial sectors of the United States economy."

For more from Warren Buffett, we've highlighted other Berkshire Hathaway portfolio activity here.

Friday, June 23, 2017

Sohn India Conference Notes 2017: Agarwal, Singh, Prakash & More

We couldn't make it to the Sohn India Conference but luckily Alpha Ideas has allowed us to share their notes from the event as a guest post. 

Sohn India Conference Notes 2017

Raamdeo Agarwal (Motilal Oswal):  Pick was PNB Housing Finance. He termed it a ‘Lakh Crore Ki Kahani’In India, there are only 27 Companies which have a market cap of more than 1L Crores.  For a company to break into this elite club, there must be strong tailwinds and a long runway in place.  Some such megatrends that he has seen in his career are IT Services, Private Banks, Pharma etc.  He analyzed the Company using his QGLP model.  Its a business with secular growth drivers.  India’s Mortgage to GDP is very low (9%) and level of urbanization is only 33%.  Both these figures can only go up.  The Gross NPAs in this business is only 0.8%For all practical purposes, it is Carlyle which owns 38% of the company is running the business.  They have put in top class processes and practices.  Agarwal quipped –‘I own a housing finance business myself and hence can judge the high quality and scalability of PNB’s processes.’  The management plans to double assets by 2020.  Modi’s ‘Housing For All’ can create a 50L Crores Mortgage Market.  The Company has grown at 52% CAGR in the last 4 years and increased its market share.  He expects the stock to break into the 1 Lakh Crore Club by 2024…a CAGR of 24%.

Sunil Singhania (Reliance Mutual Fund):  Being from Mutual Fund Industry, compliance demands he can’t give stock picks but can speak on sectors.  His pick was the Cement Sector.  Felt while the current demand is low, the sector will benefit from the Govt’s infrastructure and housing boost.  The problem is that cement stocks have significantly increased in price.  He presented an interesting way to play this sector.  Said the most significant wealth creation in Shree Cements happened when capacity when from 15 Million Tonnes to 25 Million Tonnes–stock price went up by 3x/4x.  He suggested to buy two companies - one North/Central India and the other South India - which have around 15 Million Tonnes each and are ramping up capacity.  Enjoyed the clear thinking and analysis of Sunil Singhania.

Shankar Sharma (First Global):   Explained that he liked companies with high leverage because when debt gets paid off, correspondingly market value increases.  Recommended MEP Infrastructure Developers Ltd.  Basically, a toll operator with 19 Toll Plazas including Mumbai entry points, Bandra sea link etc.  For the first time since inception it has made a profit now.  Expects debt leveraging to happen.

Saurabh Mukherjea (Ambit):  Recommended Garware Wall Ropes.  Top manufacturer of nets and ropes in the world.  Exports 3000 SKUs to 80 countries.  Its expertise in blending high end polymer chemistry with high labor intensity is unmatched.  His Primary checks tell him customers are very satisfied with the Company products.  Growth will come from Defense, Agri, Infra etc.  Management is prudent in their capital allocation, had bought back their own shares in the past.

Navneet Munot (SBI Mutual Fund):  Being from Mutual Fund Industry,compliance demands he can’t give stock picks but can speak on sectors.  His sector pick was Telcos.  There will be a bloodbath in the sector for next 2-3 quarters.  The Telcos which survive will make a lot of money as Data addiction now is a bigger addiction than alcohol, tobacco etc.  Push by the Govt - show a Modi video clip.  Consolidation–>Pricing Power—>ROCE.

Aanand Chouhan (Stockpicking Competition Winner):  Aanand had won a stock picking competition organized by Sohn and hence was given opportunity to present his idea.  His stock pick was Infoedge.  Felt the company’s core business (Naukri), Internet Portfolio (99acres, Jeevansathi, etc) and VC Investments (Zomato, PolicyBazaar etc) were valuable and could grow well.  Gave a target price of 1570 Rs/share over the next 3 years.

Jeff Gundlach (DoubleLine Capital):  Via video: He said there is no such thing as passive investing as the index constituents are decided by a committee.  Said to go long emerging markets and short S&P 500.

Kenneth Andrade (Old Bridge Capital Management):  His top pick was ENI.  Its the market leader in the Radio space with 30% market share and recognizable brand (Radio Mirchi).  It will have second frequency in 11 Metros.  National footprint with 60 cities.  Radio is an attractive space with 4% of Media spend and growing at a CAGR of 16.9%.  ENI has already done significant capex and its time to reap the benefits.

Shashank Singh (Apax Partners):  His top pick was DCB Bank.  His investment thesis was Retail private banks with clear product/customer strategy will do well.  DCB Bank reinvented itself after 2010 under current leadership.  Suppressed earnings due to network rollout and hence attractive valuations.  Felt the Bank has a conservative credit culture with the CEO himself doing surprise audits.  Earnings will improve with time as the branch network gets more ‘seasoned.’

Hiren Ved (Alchemy Capital):  His top pick was Varun Beverages.  Said the Company is a good proxy for Pepsi in India.  Not just a bottler but also a manufacturer, marketer and distributor.  Felt one unanticipated impact of 24*7 electricity is more people consuming more beverages.  Coming to valuations, he said Varun is cheap compared to other consumer plays like Jubilant Food/Page Industries.  Found the comparison very funny.

Ashwini Agarwal (Ashmore):  His top pick was Persistent Systems.  Said the company was not a typical IT services provider as it is into outsourced product management.  Three investment reasons IBM-Watson tie up begins to pay off.  Growth in Digital business -40% CAGR is possible.  Core IT services revenue shows 6-8% CAGR.  Two investment risks:  Rupee Strengthening, Curbs/high fees on H1B Visas.

Akash Prakash (Amansa):  His top pick was Infoedge.Second time the stock was discussed today.  He felt it was the ultimate India Internet play.  He also felt due to network effects the value of Naukri, 99 acres, Zomato etc will keep growing.  He feels the real estate classifieds space is 5x bigger than the recruitment space and the restaurant space is bigger than the real estate classifieds space.  The company's VC fund also lets the investor bet on interesting Internet opportunities which otherwise one could not.  He felt the downside risk was minimal while upside could be 3x/4x.

The conference ended by a video clip of Social Capital's Chamath Palihapitiya who discussed Tesla and made a case for buying its convertibles.  (MF note: he pitched this idea at a previous conference as well).

Thanks again to Alpha Ideas for the guest post.

For coverage of other Sohn Conferences, head to our notes from Sohn Hong Kong 2017 as well as notes from Sohn New York 2017.

Thursday, June 22, 2017

What We're Reading ~ 6/22/17

Payments industry overview: Analysis of Visa, Mastercard, American Express [Value Seeker]

Brexit in reverse? [George Soros]

If you can't explain something in simple terms, you don't understand it [Kottke]

On the popular 'FANG' stocks [AQR]

How to survive the retail crisis: a master class from T.J. Maxx [WSJ]

Starbucks' Howard Schultz has something left to prove [Fortune]

Blockchain 101 [CFA Institute]

How a 36-year old Wall Street prodigy saved Burger King [Business Insider]

Why grocery retail is the 'holy grail' [Bloomberg]

A look at subprime auto debt [NYTimes]

Profile of Citron's Andrew Left [NYTimes]

Mary Meeker's 2017 internet trends report [KPCB]

Essilor's CEO on an eyewear megamerger with Luxottica [FT]

Why is Trump causing chaos in Washington but not in the stock market? [Five Thirty Eight]

Tuesday, June 20, 2017

Sohn Conference Hong Kong Notes 2017: Block, Krishnan, Shah & More

The 2017 Sohn Conference in Hong Kong recently took place and featured managers sharing investment ideas to benefit the Karen Leung Foundation for gynecological cancer.  Here's quick summaries of each speaker's stock idea and pitch from the Asia Society Hong Kong Center.

Sohn Conference Hong Kong Notes 2017

Carson Block (Muddy Waters): Short Man Wah Holdings (1999.HK).  Pitch highlighted taxes and concerns over debt and free cashflow.  Also questioned sales from export.  He thinks they generate 50% of net income from Macau but has a 0% tax rate?  "Our opinion is this is tax evasion at best, but we think more likely a major component of financial fraud."  Says company has undisclosed debt off books and total debt is around 48% greater than reported.  "MWH has inconsistencies in its taxes, a strong indicator of fraud.  MWH has an entity in Macau that books over half of consolidated net profits.  Fieldwork casts doubt on China sales growth story."

Eashwar Krishnan (Tybourne Capital): Long Rolls Royce (RR.LN).  Argued that its position as a UK manufacturer with currency weakness makes the company stronger.  "Rolls Royce's 3-year expected return of 85% including dividends, thanks to around a 10% free cashflow yield."  Likes the new management team and CEO Warren East, thinks they can improve margins.  Highlighted disparity between RR at 5.3% margin and main competition GE/Safran at ~20%.  Says capex and research/development will be source of operating leverage and RR can double its market share over the next decade, highlighting company's large order book growing.  Aerospace engine makers are an attractive business model as it's a razor/razor blade model with pricing power on the aftermarket service portion of the business.  High barriers to entry, sizeable investment costs, strong regulatory hurdles.  Duopoly (one of 2 engine makers in widebody and 3 engine makers overall).  Points to secular growth in miles flown.  Accelerating global travel is the key driver for RR.  Prior to founding Tybourne, Krishnan was the Asia head at Lone Pine Capital.

Shashin Shah (Think Investments): Long Indiabulls Real Estate (IBREL).  Play on Indian real estate restructuring.  Bull market there created by increasing affordability and government regulations that are favorable (Real Estate Regulatory Act: RERA).  Thinks it can double over the next 3 years, says co has excellent track record of execution.

James Tu (Nine Masts Capital): Long Sina convertible bonds/Weibo (WB).  Play Weibo via Sina convertible bond.  SINA 1% 12/1/2018 Convertible Bond.  CB Price 106, Matures with accrued 101, conversion price 115.88.  Thinks Sina's CEO may do everything to "push up WB valuation through spinning off."  Sees 50% margin of safety here, argues it is a much smaller Facebook.  Has MAU of 340 million, 154 million DAU, $16b market cap.

Seth Fischer (Oasis Management): Long Sony (SNE / 6758.JP).  Valuation is not demanding (just under 17x forward earnings and 5.7x EV/EBITDA), high potential to grow, sees 39% upside as management completes turnaround.  Thinks they should start diversifying financial risk better, bring in partners, and utilize tax farming for movie production better.  Entertainment is a strength for the company as it grows its TV programming biz.  Argues it's one of the best players in virtual reality (VR).  PlayStation players spend a lot of time with the device and have attractive demographics.  Company has solid corporate governance.  Notes company's revenue from third party gaming software is growing 11-30% annually. 

Dan David (FG Alpha Management): Short Dali Foods Group.  Company's operating costs are too low he argues (a third of peers' costs).  His concerns include: advertising expenses, cash advances, capex spending, low operating expenses, SAT and SAIC inconsistencies. "We consulted an industry expert to estimate Dali's capex spend in 2013-2014.  Their cumulative estimate for both years is about $1 billion RMB less than Dali reported.  Based on our research, the company's operating expenses and salary are unbelievably lower than publicly traded peers."  Compared Dali's costs to WantWant.  David said he's also still short Fullshare 607.HK

Ethan Devine (Indus Capital): Long Yahoo Japan (4689.JP).  Sees shares doubling as it's one of the biggest value creators in Japan and dominant digital advertising play there.  Thinks EPS can see CAGR of 26% through 2020 and co can reduce share count by 36%.  Also posited that it's possible for Alibaba to sell its stake in Yahoo JP.

Yuet Wei Wan (Wei Capital): Long Great Wall Motor (2333.HK).  Chinese automaker, local brands gaining market share.  Largest SUV maker has product upgrade this year.  Sees 48% upside in base case and 100% upside in best case.  Targeting 5-8x 2018 PE with a price range of HKD 7-17.  "The Street already thinks it's going to fail."  Sell side estimates have EPS growth from (5%) in 2017 up to 6% in 2018 while she thinks it will head from (9%) this year to 45% in 2018 with a 7% jump in ROE year over year.  Says they're following the Hyundai playbook of selling affordable premium cars.

Brandon Lin (SPQ Asia Capital): Long Momo.  Long the Chinese dating world, livestreaming, social platform.  Thinks recent price drop is an attractive entry point.  "Momo can continuously grow thanks to its short video business and strong campaign."  Highlighted time spent per daily active user per day.  Momo beats YY, Weibo, Kuaishou, and Inka.  Momo has over 200 million registered users and 85 million MAU.

Rajesh Sachdeva (Flowering Tree Investement Management): Long Shankara Building Products.  Notes how home improvement stores have done well around the world (i.e. Home Depot).  Thinks can do well in India as GDP and middle class grows in the country.  Shankara is the largest organized retailer in India for home improvement.  Sees revenue growing 18-20% and margins expanding by 40-50 basis points per year for 3-5 years, so earnings grow around 25% with ROCE of around 27%

Michael Lowy (SC Lowy): Long Peabody Energy (BTU).  Been a career debt investor but pitched common stock here as an equity reorg play, sees around 60% upside as company ramps cash flow and is reintroduced to the capital markets.  Used a blend of 5.5x !*E EBITDA and a 9% FCF yield to get to $37.5 per share.  It's historically traded at a premium (1-2x) of Arch Coal, which would yield $29-36 per share.  He expects dividend and buyback program.  "Conversion of cash-backed LC's into bank guaranteed LC's will release ~$4/share in cash.  Net cash position by the first half of 2018. 

Arjun Menon (Highbridge Capital): Long KEPCO (Korean Electric Power ~ 015760.KR).  Likes it due to low valuation, stable dividend.  Forward ROE goes up while forward P/B stays low.

For more coverage of recent investment conferences, head to our notes from Sohn New York Conference, as well as notes from the London Value Investor Conference.

Corvex Management Ups CenturyLink Stake

Keith Meister's activist firm Corvex Management has filed an amended 13D with the SEC regarding its position in CenturyLink (CTL).  Per the filing, Corvex now owns 5.6% of CTL with over 30.99 million shares.  This is made up of 18.99 million shares and 12 million shares underlying call options.

This is an increase of around 1 million shares from the beginning of May when Corvex first revealed its stake in CTL.  The latest filing was made due to activity on June 16th and it notes they bought CTL at $25.91.

We previously highlighted Meister's presentation on CenturyLink at the Sohn Conference New York.  CenturyLink is merging with Level 3, which Meister thinks is a game changer.

Per Google Finance, CenturyLink is "an integrated communications company. The Company is engaged in providing an array of communications services to its residential and business customers. Its segments include business, which provides strategic, legacy and data integration products and services to small, medium and enterprise business, wholesale and governmental customers, including other communication providers, and consumer, which provides strategic and legacy products and services to residential customers. Its communications services include local and long-distance voice, broadband, Multi-Protocol Label Switching (MPLS), private line (including special access), Ethernet, colocation, hosting (including cloud hosting and managed hosting), data integration, video, network, public access, Voice over Internet Protocol (VoIP), information technology and other ancillary services. As of December 31, 2016, it served approximately 5.9 million broadband subscribers and 325,000 Prism TV subscribers."

NYU Stern eValuation Newsletter: Spring 2017

The spring 2017 edition of NYU Stern's Investment Management and Research Society's latest newsletter eValuation has been released.  This issue focuses on investing in a changing world.

It features interviews with J. Daniel Plants of Voce Capital, Blu Putnam of CME Group, Roderick Wong of RTW Investments, Professor Paul Wachtel of NYU Stern, and Professor Vasant Dhar of NYU Stern.

The issue also includes investment pitches from students, including: long American Railcar (ARII) and long Lending Club (LC).

Embedded below is the latest issue of NYU Stern's eValuation newsletter:

For other MBA student investment newsletters, we've also posted up the recent newsletter from Columbia Business School as well.

Corvex Management Adds To Energen Stake

Keith Meister's activist firm Corvex Management has filed an amended 13D with the SEC regarding its stake in Energy (EGN).  Per the filing, Corvex now owns 6.6% of EGN with over 6.39 million shares.

This is up from the 5.37 million shares Corvex owned at the end of May when they previously filed a 13D. 

The latest filing was made due to activity on June 14th and it notes that Covex acquired over the counter American style call options and sold over the counter European style put options.  You can view all their transactions here.

You can view other recent portfolio activity from Corvex Management here.

Per Google Finance, Energen is "an oil and natural gas exploration and production company. The Company is engaged in the exploration, development and production of oil and natural gas properties and natural gas. Its operations are conducted through subsidiary, Energen Resources Corporation and occur within the Midland Basin, the Delaware Basin and the Central Basin Platform areas of the Permian Basin in west Texas and New Mexico. The Company is focused on increasing its oil, natural gas liquids and natural gas production and proved reserves through active development and/or exploratory programs in the Permian Basin. As of December 31, 2016, oil, natural gas liquids and natural gas represented approximately 60%, 20% and 20% of its reserves. As of December 31, 2016, its development activities added approximately 327 million barrels of oil equivalent (MMBOE) of reserves from the drilling of 623 gross development, exploratory and service wells and 73 well recompletions and pay-adds."

Wednesday, June 14, 2017

Market Folly's Summer Reading List

If you've got a vacation / holiday coming up and need some reading material, here are some recommended books on investing, hedge funds, business, decision making, and life in general.  Some are newer books, others are classics you might have missed and should catch up on.

Have any other suggestions?  Hit the comments below.  Enjoy!

2017 Summer Reading List

  Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street by Sheelah Kolhatkar.  If you're looking for a financial thriller centered around the hedge fund world, this is it.

  Competition Demystified: A Radically Simplified Approach to Business Strategy by Bruce Greenwald and Judd Kahn.  Classic text on important concepts. 

  Narrative and Numbers: The Value of Stories in Business by Aswath Damodaran.  New book from the NYU Stern Professor. 

  The Master Switch: The Rise and Fall of Information Empires by Tim Wu.  Relevant read in this day and age. 

  Shoe Dog: A Memoir by the Creator of Nike by Phil Knight.  Recommended by Warren Buffett recently.  

  The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance by Ron Chernow. Biography that's been recommended by many.   

  Option B: Facing Adversity, Building Resilience, and Finding Joy by Sheryl Sandberg and Adam Grant.  New book from the Facebook COO and the Wharton professor.  

  Essentialism: The Disciplined Pursuit of Less by Greg McKeown.  Learn how to stop being busy and start being productive.

Tuesday, June 13, 2017

Senator Investment Group Shows Spirit Realty Capital Stake

Alex Klabin and Doug Silverman's hedge fund firm Senator Investment Group has filed a 13G with the SEC regarding shares of Spirit Realty Capital (SRC). 

Per the filing, Senator now owns a 7.23% ownership stake in SRC with 35 million shares.  This is a newly disclosed equity position and the filing was made due to activity on June 1st, 2017.  In late April, shares traded from $10.44 down to a low of $6.71 in May and now trade around $7.70.

Per the company's website, Spirit Realty Capital is "one of the largest publicly traded triple net-lease real estate investment trusts (REITs) in the United States."

Carl Icahn Enters Forward Purchase Contracts on Herc Holdings, Adds to Freeport McMoRan Stake

Activist investor Carl Icahn has submitted a couple SEC filings recently.

Icahn Enters Forward Purchase Contracts on Herc Holdings

First, Icahn has filed a Form 4 with the SEC regarding shares of Herc Holdings (HRI), a spin-off from Hertz (HTZ).

Per the filing, Icahn has entered into forward purchase contracts on June 8th, 2017.  These contracts have a forward purchase price of $35.00 per share, plus a financing charge.  The contracts have expiration dates of June 7th, 2019.  Multiple contracts were entered via various investment vehicles Icahn controls and in total they represent 23,607 shares.

Per the company's website, Herc Holdings "previously were known as Hertz Equipment Rental Corporation or “HERC.”  We now operate in the U.S. under our new brand, Herc Rentals.  We generated revenue of $1.6 billion in 2016 and offer customers a diversified fleet of equipment valued at $3.6 billion1. We serve customers through 270 company-owned locations, primarily in North America, and have approximately 4,800 employees.  Through the years, we have been widely recognized as a pioneer and leader in the equipment rental industry, setting the standard for service and creating the performance metrics that are now commonplace for rental equipment companies."

Icahn Adds To Freeport McMoRan Stake

Second, Icahn has also filed an amended 13D with the SEC regarding his position in Freeport McMoRan (FCX).  Per the filing, Icahn now owns 6.33% of the company with over 91.58 million shares.

The filing notes that on June 6th, Icahn acquired 351,644 shares in total at $11.41 per share.

Per Google Finance, Freeport McMoRan is "a mining company. The Company operates through geographical assets with proven and probable reserves of copper, gold and molybdenum, and traded copper producer. The Company's segments include refined copper products, copper in concentrate, gold, molybdenum, oil and other. The Company's segments include the Morenci, Cerro Verde, Grasberg copper mines, the Rod & Refining operations and the United States (U.S.) Oil and Gas Operations. The Company has organized its operations into five divisions, which include North America copper mines, South America mining, Indonesia mining and Molybdenum mines. The Company's portfolio of assets includes the Grasberg minerals district in Indonesia, copper and gold deposits, and mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America."

Farallon Capital Shows Savara Stake

Andrew Spokes' hedge fund firm Farallon Capital has filed a 13G with the SEC regarding shares of Savara (SVRA).  Per the filing, Farallon now owns 9.5% of the company with over 2.22 million shares.

This is a newly disclosed equity stake and the filing was made due to activity on June 2nd.  It's worth noting that Savara recently closed on a merger with Mast Therapeutics in April of this year.  In conjunction with the merger, Master effected a 1 for 70 reverse stock split. 

Also, Savara this month completed an underwritten public offering of over 9 million shares of common stock at $4.75 per share.

Per Google Finance, Savara is "formerly Mast Therapeutics, Inc., is a clinical-stage pharmaceutical company. The Company is focused on the development and commercialization of novel therapies for the treatment of patients with rare respiratory diseases. Its pipeline includes AeroVanc, Molgradex and AIR001. AeroVanc is an inhaled formulation of vancomycin, which the Company is developing for the treatment of persistent methicillin-resistant Staphylococcus aureus, lung infection in cystic fibrosis patients. Molgradex is an inhaled formulation of recombinant human granulocyte-macrophage colony-stimulating factor. It is developing Molgradex for the treatment of autoimmune pulmonary alveolar proteinosis, a rare lung disease. AIR001 is a sodium nitrite solution for inhalation via nebulization. AIR001 is in Phase II clinical development for the treatment of heart failure with preserved ejection fraction, also known as diastolic heart failure or heart failure with preserved systolic function."

Monday, June 12, 2017

Jim Chanos Interview on Bloomberg

Jim Chanos, founder of hedge fund Kynikos Associates recently sat down with Bloomberg to share his thoughts on markets.

He talks about the macro landscape, how the recent political shift has changed things, and other topics.

Chanos is worried about China because it's a debt driven model.  He thinks they've added trillions to the system.

Turning to US healthcare, Chanos says it's a system designed to be gamed:  "It's a hybrid of socialized and free market healthcare."

He thinks the kidney dialysis business is "headed for difficulties."  DaVita (DVA) seems to be one play that Chanos is short.

Telsa (TSLA) is another company Chanos has been short.  He would cover the short if the company actually began to make money.  They were also short Solar City before it got folded into Tesla.  The company burns a lot of cash (he thinks up to as much as $1 billion a quarter).  The upcoming Model 3 is the big test.

Embedded below is the video of Jim Chanos' Bloomberg interview:

For more recent interviews with prominent investors, be sure to also check out Paul Singer's chat with David Rubenstein.

Paul Singer Chats With David Rubenstein

Paul Singer of hedge fund Elliott Management sat down with Carlye Group co-founder David Rubenstein to chat at Bloomberg Invest New York.

They talk about how Singer founded Elliott, investing, and more.

Elliott manages $34 billion now and started in 1977 with $1.3 million.  Singer was a practicing lawyer at the time but started with friends and family money as he found investing much more enjoyable.

Convertible bond hedging was the first strategy Elliott used for around ten years. (Elliott, by the way, is Singer's middle name).  Over 40 years, Elliott has compounded at 13.5% net.

Embedded below is the video of Singer's chat with Rubenstein:

For more profiles of prominent investors, check out Howard Marks' recent interview with Bruce Karsh.

Howard Marks Interviews Bruce Karsh at Wharton School

University of Pennsylvania's Wharton School has started a Howard Marks investor series where the founder of Oaktree Capital interviews outstanding investors and this time around he's interviewed Bruce Karsh, his co-founder at Oaktree.

They talk about the founding of Oaktree, distressed investing, and a myriad of other topics. 

Embedded below is the video of Howard Marks' interview with Bruce Karsh:

For more from Marks, check out his most recent memo: Lines in the Sand.

Friday, June 9, 2017

Hedge Fund Links ~ 6/9/17

Seth Klarman says investors are missing huge risks [Business Insider]

As Point72 returns flatline, Steve Cohen eyes $20 billion for fund [Bloomberg]

John Paulson is struggling to hold onto client money [Bloomberg]

Hedge funds go to war over US defense contractor TransDigm [FT]

Elliott Management on 5 lessons that have shaped how it invests [Business Insider]

Machine learning set to shake up equity hedge funds [FT]

The quants run Wall Street now [WSJ]

Paul Tudor Jones said to back AI hedge funds [Bloomberg]

Thursday, June 8, 2017

20% Off Scuttleblurb For Our Readers: Investment Analysis and Commentary. Sample Posts Available

Market Folly readers get 20% off their first year of Scuttleblurb using coupon code: marketfolly provides subscribers with balanced and insightful analysis and commentary on the moats, business models, and corporate strategies of companies across a variety of industries, as well as time-saving summaries of management commentary on earnings calls ("Quick Blurbs").

As a subscriber, you'll get access to scuttleblurb's growing library of content and regular email updates on hundreds of pages of analysis and summaries per year.

Sign-up for a 20% discount off your first year using coupon code: marketfolly

Sample Blurbs available on the site, including:

[SNI] Flip or flop?

[SHW] Valuation looks stretched

Quick Blurbs [ADS, AXP, BAC, IBKR, KMX, SVU]

[BRO] Compounder in a fragmented sector

Wednesday, June 7, 2017

What We're Reading ~ 6/7/17

Investing between the lines: how to make smarter decisions decoding CEO communication [Rittenhouse]

Honored to be included in list of 50 of the best investing blogs [Acquirers Multiple]

Interview with Blackstone's Steve Schwarzman [Bloomberg]

What do you know with a high degree of confidence about investing? [Abnormal Returns]

Why it's so hard to admit you're wrong [NYTimes]

Inversion: the crucial thinking skill nobody ever taught you [James Clear]

Is Sephora killing the department store beauty counter? [Consumerist]

Estee Lauder vs L'Oreal: who's winning beauty's arms race? [Business of Fashion]

The economics of eSports [Digits to Dollars]

Profile of the founders of Atlassian (TEAM): The Wizards From Oz [Forbes]

Profile of SoulCycle's CEO [Fortune]

How the QR code has forever changed China's social habits [SCMP]

An introduction to LIDAR: the key self-driving car sensor [Voyage Auto]

Ten myths about machine learning [Medium]

Why Amazon is eating the world [Techcrunch]

On retail carnage: perception vs reality [Peridot Capitalist]

US unemployment hits lowest level since 2001 [CNN Money]

US home prices rising 2 times faster than wages [KSL]

Tuesday, June 6, 2017

Tiger Management Increaes T2 Biosystems Position

Julian Robertson's hedge fund firm Tiger Management has filed a 13G with the SEC regarding its position in T2 Biosystems (TTOO). Per the filing, Tiger now owns 5.68% of the company with over 1.73 million shares.

This is an increase of around 373,000 shares since the end of the first quarter. The filing was made due to activity on May 25th.

Per Google Finance, T2 Biosystems is "an in vitro diagnostics company engaged in developing a technology platform offering an alternative to diagnostic methodologies. The Company's T2 Magnetic Resonance platform (T2MR) enables detection of pathogens, biomarkers and other abnormalities in a range of unpurified patient sample types, including whole blood, plasma, serum, saliva, sputum and urine, and can detect cellular targets at limits of detection as one colony forming unit per milliliter (CFU/mL). The Company's initial development efforts target sepsis, hemostasis and Lyme disease. T2MR is a miniaturized, magnetic resonance-based approach that measures how water molecules react in the presence of magnetic fields. Its platform detects a range of targets, including molecular targets, such as deoxyribonucleic acid (DNA), immunodiagnostics, such as proteins, and a range of hemostasis measurements. The Company offers T2Dx Instrument (T2Dx) and the T2Candida Panel. "

Third Point Trims Baxter Stake

Dan Loeb's hedge fund firm Third Point has filed a 13D and Form 4 with the SEC regarding its stake in Baxter International (BAX). Per the 13D, Third Point now owns 7.5% of BAX with 41 million shares.

The Form 4 indicates Third Point sold 5 million shares on June 1st at $59.5. After this sale, they still own over 41 million shares.

For more from this fund, check out Third Point's Q1 letter.

Per Google Finance, Baxter "provides renal and hospital products. The Company operates through two segments: Hospital Products and Renal. Its Hospital Products business manufactures sterile intravenous (IV) solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, IV nutrition products, parenteral nutrition therapies, infusion pumps, inhalation anesthetics and biosurgery products. The Renal business offers a portfolio to meet the needs of patients with end-stage renal disease, or irreversible kidney disease and acute kidney injuries, including technologies and therapies for peritoneal dialysis (PD), hemodialysis (HD), continuous renal replacement therapy (CRRT) and additional dialysis services. Its products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctors' offices and by patients at home under physician supervision. ."

Berkshire Hathaway Acquires More Liberty SiriusXM Shares Again

We've highlighted recently that Warren Buffett's Berkshire Hathaway has been buying Liberty Sirius XM (LSXMA / LSXMK). Well, they're at it again.

Per Form 4's filed with the SEC, Berkshire acquired 377,656 shares of LSXMA across May 26th, 30th, and 31st at weighted average prices around $41.xx. After these buys, they own over 14.86 million LSXMA shares.

The second Form 4 indicates they also bought 644,172 LSXMK shares on May 26th, 30th, and 31st at weighted average prices ranging from $40.9877 to $41.7432. After these buys, they own over 31 million LSXMK shares.

We've also previously noted that it seems likely that Berkshire's portfolio manager Ted Weschler is the one buying here.

For more on Berkshire Hathaway, check out a recent interview with Warren Buffett here.

Per Google Finance, Liberty SiriusXM is "Liberty Media Corporation owns interests in subsidiaries and other companies, which are engaged in the media and entertainment industries. The Company's principal businesses and assets include its consolidated subsidiaries Sirius XM Holdings Inc. (SIRIUS XM) and Braves Holdings, LLC (Braves Holdings), and its equity affiliate Live Nation Entertainment, Inc. (Live Nation). The Company's segments are SIRIUS XM, and Corporate and other. SIRIUS XM provides a subscription-based satellite radio service. Through its subsidiaries and affiliates, the Company principally operates in North America. The Company also owns a portfolio of minority equity investments in publicly traded media companies, including Time Warner, Inc. and Viacom, Inc. SIRIUS XM transmits music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, in the United States on a subscription fee basis through two satellite radio systems."

Corvex Management Boosts Energen Position

Keith Meister's activist hedge fund Corvex Management has filed a 13D with the SEC regarding its stake in Energen (EGN). Per the filing, Corvex now owns 5.5% of EGN with over 5.37 million shares. This is up from the previous 1.34 million shares they owned at the end of the first quarter. 

The filing was made due to activity on May 22nd.  The 13D notes that they've been quite active buying call options and selling put options and you can view the full list of transactions here.

They've had discussions with management and Corvex feels that:

"(Energen) has some of the most attractive leaseholds for oil and gas development in the Permian Basin. However, despite this leading asset position, the Issuer’s operational performance has fallen short of its peer companies, leading to underperformance both in terms of financial results and shareholder returns. As a result, the Reporting Persons’ believe the Issuer needs to strongly consider what actions can be taken to enhance and maximize shareholder value – including a review of the potential value delivered to shareholders through a change of control transaction given the recent wave of acquisitions in the Permian Basin at per acre values well in excess of the Issuer’s current implied value."

For more on this fund, Keith Meister also recently presented at the Sohn Conference New York and you can catch up on his presentation here.

Per Google Finance, Energen is "an oil and natural gas exploration and production company. The Company is engaged in the exploration, development and production of oil and natural gas properties and natural gas. Its operations are conducted through subsidiary, Energen Resources Corporation and occur within the Midland Basin, the Delaware Basin and the Central Basin Platform areas of the Permian Basin in west Texas and New Mexico. The Company is focused on increasing its oil, natural gas liquids and natural gas production and proved reserves through active development and/or exploratory programs in the Permian Basin. As of December 31, 2016, oil, natural gas liquids and natural gas represented approximately 60%, 20% and 20% of its reserves. As of December 31, 2016, its development activities added approximately 327 million barrels of oil equivalent (MMBOE) of reserves from the drilling of 623 gross development, exploratory and service wells and 73 well recompletions and pay-adds."

ValueAct Capital Trims Willis Towers Watson Stake Again

Jeff Ubben's activist investment firm ValueAct Capital has been trimming more of its holdings.  Per a 13D filed with the SEC, ValueAct now owns 4.9% of Willis Towers Watson (WLTW) with 6.66 million shares.

Per Form 4's filed with the SEC, ValueAct sold 500,000 WLTW shares in total across May 25th, 26th, 30th, and 31st at around $145.xx.

This is the second time they've sold WLTW shares in recent months.

Per Google Finance, Willis Towers Watson is "a holding company. The Company operates as a global advisory, broking and solutions company. It is engaged in offering risk management, insurance broking, consulting, technology and solutions, and private exchanges. The Company operates through eight segments: Willis International; Willis North America; Willis Capital, Wholesale & Reinsurance (CWR); Willis GB; Towers Watson Benefits; Towers Watson Exchange Solutions; Towers Watson Risk and Financial Services; and Towers Watson Talent and Rewards. The Willis GB segment comprises four business units: Property and Casualty, Transport, Financial Lines and Retail Networks. The Willis Capital Wholesale and Reinsurance segment includes Willis Re; Willis Capital Markets & Advisory; Willis' wholesale business, and Willis Portfolio Underwriting Services. The Willis North America segment provides risk management, insurance brokerage and related risk services."