Thursday, August 31, 2017

What We're Reading ~ 8/31/17


The Emotionally Intelligent Investor: How Self-Awareness, Empathy & Intuition Drive Performance [Ravee Mehta]

The death of many brands [Intrinsic Investing]

The global economy coalescing around a few digital superpowers [HBR]

A dozen attributes of a scalable business [25iq]

On Disney's tough choice [Stratechery]

Beauty industry gears up for an ugly market share war [Barrons]

Javascript is eating the world [dev.to]

Blue Apron's struggles show why it's tough to make it with e-commerce subscription [Bloomberg]

Louis Vuitton knows fashion is a money pit and keeps throwing money at it [Bloomberg]

How brokerage app Robinhood got millennials to love the market [Fast Company]

Primer on the gaming sector [Ethereal Value]

How the three-tiered beer distribution system works [Fermentarium]

On the two systems that determine and influence every decision you make [Thrive]


Wednesday, August 30, 2017

Warren Buffett Interview on CNBC

Berkshire Hathaway's Warren Buffett appeared on CNBC today for an interview.  In it, he talked about the economy, hurricane Harvey's effect on insurers, and more.

On Hurricane Harvey: While he says there will be a lot of insured loss from the hurricane, he notes there will also be a lot of uninsured loss.  "The problem with flood insurance is the only people that buy it are the people that are gonna need it."

On North Korea, Buffett said "I've been concerned since 1945, this is the ultimate problem."

Buffett was asked if the economy feels like a 3% GDP economy and he said no.  He said it's been about 2% a year since 2009 and he guesses that's where we are now.

During the interview, Buffett also mentioned that he has not sold a share of Apple (AAPL), one of his most recent large investments.

He said he was more certain of AAPL's future than he was of IBM (IBM), which he also owns.  Buffett has been selling down his IBM stake, which we highlighted in the new issue of our newsletter.

Buffett also said that he wasn't concerned about Wells Fargo (WFC) as a long-term investment and called it a 'terrific' bank that did some things wrong that were being corrected.  This, of course, comes after the bank has faced numerous scandals involving customer accounts.

Regarding his large stake in Kraft Heinz (KHC), Buffett shot down the notion that the company would buy Mondelez (MDLZ).

Also, it was recently revealed that Berkshire has converted its Bank of America (BAC) warrants into 700 million shares of common stock.  They originally purchased the warrants back in 2011 when Buffett invested $5 billion via preferred shares.

The warrants converted at $7.14 each and shares now trade above $23.  This makes Berkshire the biggest shareholder of BAC.  Buffett said he likes the business, likes the valuation and likes management.


Video 1 on Hurricane Harvey / Insurance business

Video 2 on Hurricane / Insurance

Video 3 on economy/GDP

Video 4 on Bank of America (BAC) & Wells Fargo (WFC)

Video 5 on the President


ValueAct Capital Sells More Willis Towers Watson

We previously highlighted how ValueAct Capital recently sold WLTW sharesJeff Ubben's activist firm has continued selling, per a recent Form 4 filed with the SEC.

Per the filing, ValueAct sold 311,000 shares at $149 across August 25th and 28th.  After the sale, they still own 4.22 million WLTW shares.

Per Google Finance, Willis Towers Watson "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."


Makaira Partners Buys Wesco Aircraft Holdings Again

Tom Bancroft's Makaira Partners has filed a Form 4 with the SEC noting they've been buying  more shares of Wesco Aircraft Holdings (WAIR).  Last week, we drew attention to the fact that Makaira was buying WAIR shares.

Their latest round of buying comes on August 25th, 28th, and 29th.  In total, they acquired 79,184 shares at various prices ranging from $7.975 to $8.10.  After these transactions, Makaira now owns over 10.17 million WAIR shares.

Per Google Finance, Wesco Aircraft Holdings is "a distributor and provider of supply chain management services to the global aerospace industry. The Company operates through two segments: North America and Rest of World. As of September 30, 2016, the Company supplied over 565,000 active stock-keeping units (SKUs), including C-class hardware, chemicals, electronic components, bearings, tools and machined parts. The Company's products include Hardware, Chemicals, Electronic Components, Bearings and Other Products. Its Services include Quality Assurance, Kitting and JIT Supply Chain Management. It caters to commercial, military and general aviation sectors, including the original equipment manufacturers (OEMs) and their subcontractors, through which it supports various Western aircraft programs, and also sells products to airline-affiliated and independent maintenance, repair and overhaul (MRO) providers. It also services industrial customers."


Monday, August 28, 2017

Pershing Square Q2 Letter: Sold Undisclosed Hilton Stake

Bill Ackman's Pershing Square has put out its mid-year report which includes commentary on their investments.  They also disclose that they previously owned a stake in Hilton (HLT) but recently sold it after the spin-offs took place.

In the letter, they also write about their latest investment, Automatic Data Processing (ADP):

"ADP is a classic Pershing Square investment. It is a simple, predictable, free-cash-flow generative business that has under performed its potential. As a conservatively financed, capital-light business with long-term customer relationships in a sector with substantial positive growth, we believe it has modest downside. If it is able to achieve its potential, we believe it offers substantial upside. We acquired ADP for the funds along with a co-investment vehicle (PSVI) which we recently raised to increase our ownership of the company.  We believe that ADP is one of the highest quality businesses we have owned, and one which offers an enormous opportunity for operational improvement.

They also provide an update on their stake in Chipotle (CMG), noting that the company has battled another setback with a norovirus incident in Virginia.  That said, Pershing feels that the company is still on the right track.  They write,

"We made our investment in Chipotle anticipating that the sales recovery would be neither smooth nor predictable,but with a belief that the key drivers of Chipotle’s powerful economic moat and long-term success would remain intact. With the steps that the company has taken to improve its business, we continue to believe there is an enormous long-term growth opportunity for Chipotle given: (1) the significant potential to drive sales per restaurant higher through mobile and digital ordering, menu innovation, catering, and improved operations, (2) the opportunity to expand its vastly under penetrated restaurant base in the U.S., and (3) the considerable potential to build the brand internationally."

Their letter also touches on Mondelez (MDLZ), Howard Hughes (HHC), Air Products (APD), Restaurant Brands (QSR), Platform Specialty Products (PAH), Nomad Foods (NOMD), and Fannie Mae/Freddie Mac, as well its short position: Herbalife (HLF).


Embedded below is Pershing Square's Q2 letter:



You can download a .pdf copy here.


Friday, August 25, 2017

Hedge Fund Links ~ 8/25/17


Carl Icahn's failed raid on Washington [New Yorker]

Paul Singer's Q2 letter warns of crash in China [ValueWalk]

Profile of Sequoia Fund [Washington Post]

Latest thoughts from Tourbillon Capital [Business Insider]

Rentec's Medallion fund opened for first time in forever [Bloomberg]

Former Harvard money manager launching digital currency hedge fund [Bloomberg]


Thursday, August 24, 2017

Three Bays Capital Boosts Red Rock Resorts Stake

Matthew Sidman's hedge fund firm Three Bays Capital has filed a 13G with the SEC regarding its position in Red Rock Resorts (RRR).  Per the filing, Three Bays now owns 5.1% of the company with over 3.48 million shares.

This is an increase of over 2 million shares since the end of the second quarter when they owned 1.47 million shares.  The filing was made due to activity on August 18th.

Prior to founding Three Bays, Sidman worked at Highfields Capital.

Per Google Finance, Red Rock Resorts is "a gaming, development and management company. The Company's segments include Las Vegas operations, Native American management, and Corporate and other. The Las Vegas operations segment includes all of its Las Vegas area casino properties and the Native American management segment includes its Native American management arrangements. It provides gaming and entertainment for residents of the Las Vegas regional market and visitors. Its Las Vegas portfolio includes approximately 10 gaming and entertainment facilities and over 10 smaller casinos, offering approximately 20,300 slot machines, over 350 table games and approximately 4,750 hotel rooms. The Company offers a range of gaming and non-gaming entertainment options. It also controls over seven gaming-entitled development sites consisting of approximately 398 acres in Las Vegas and Reno, Nevada. The Company manages and owns interest in Station Casinos LLC, which is the provider of gaming and entertainment."


Makaira Partners Acquires More Wesco Aircraft Holdings

Tom Bancroft's investment firm Makaira Partners has filed a Form 4 with the SEC regarding its stake in Wesco Aircraft Holdings (WAIR).  Per the filing, Makaira acquired WAIR shares on August 16th, 17th, 18th, and 21st.

They were buying at weighted average prices between $7.65 to $7.85.  In total, they bought 123,067 shares.  After these transactions, they now own over 10 million shares.

Prior to founding Makaira, Bancroft worked with Lou Simpson.

Per Google Finance, Wesco Aircraft Holdings is "a distributor and provider of supply chain management services to the global aerospace industry. The Company operates through two segments: North America and Rest of World. As of September 30, 2016, the Company supplied over 565,000 active stock-keeping units (SKUs), including C-class hardware, chemicals, electronic components, bearings, tools and machined parts. The Company's products include Hardware, Chemicals, Electronic Components, Bearings and Other Products. Its Services include Quality Assurance, Kitting and JIT Supply Chain Management. It caters to commercial, military and general aviation sectors, including the original equipment manufacturers (OEMs) and their subcontractors, through which it supports various Western aircraft programs, and also sells products to airline-affiliated and independent maintenance, repair and overhaul (MRO) providers. It also services industrial customers."


Corvex Management Increases CenturyLink Position

Keith Meister's activist firm Corvex Management has filed an amended 13D with the SEC regarding its stake in CenturyLink (CTL).  Per the filing, Corvex now owns 6.6% of the company with 36.54 million shares. 

They've increased their stake recently by acquiring a net of 550,000 shares of common stock on August 3rd and 17th, while also acquiring 5 million shares underlying call options.

At the end of the second quarter, Corvex only owned 18.99 million shares, so they've clearly been out accumulating more exposure in recent months. 

CenturyLink is Corvex's largest position.  Their total CTL stake is comprised of 19.58 million shares of common stock and 17 million shares underlying call options.  Of the calls, 4 million of those shares have an exercise price of $28 and expiration of October 20, 2017.  Another 8 million of those have a strike of $30 and same expiration date, while another 5 million are in January 2018 $23 calls. 

We've also highlighted previous portfolio activity from Corvex here.

Per Google Finance, CenturyLink is "n 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."



Wednesday, August 23, 2017

What We're Reading ~ 8/23/17


New book from Bridgewater's Ray Dalio, Principles: Life and Work [Ray Dalio]

What is and isn't a moat [Johnson Inv]

Always invert [Above the Market]

The stereo speaker company giving sight to self-driving cars [SF Chronicle]

The internal combustion engine is not dead yet [NYTimes]

Is Tesla (TSLA) really a disruptor? And why the answer matters [HBR]

Chill: robots won't take all our jobs [Wired]

TripAdvisor (TRIP) can fly higher [Barrons]

The incredible shrinking Sears (SHLD) [NYTimes]

Amazon vs Maersk: the clash of titans shaking the container industry [Platts]

Jack Ma (BABA) is ahead of Jeff Bezos in grocery store ambitions [Bloomberg]

How Softbank (SFTBY) is reshaping global tech [The Information]

How Baidu (BIDU) will win China's AI race, and maybe the world's [Wired]

Quantum computing comes of age [Alphr]

Your brain on money [A Wealth of Common Sense]


Pershing Square's ADP Presentation

Bill Ackman's activist investment firm Pershing Square has a new position: Automatic Data Processing (ADP).  The firm recently released a slideshow presentation on their investment.

Their transformation plan for ADP includes the following:

- Fix corporate structure, corporate bloat and inefficiency
- Accelerate investments in product and back-end improvements
- Accelerate product migrations
- Reduce excess support personnel, focus on value-add services
- Increase sales force productivity

As a result, they see the company increasing growth and margins.  Pershing has also been trying to gain board representation but so far has been unsuccessful.  

Embedded below is Pershing Square's ADP Presentation: "The Time Is Now"



You can download a .pdf copy here.

For more information, they've also started a website on their stake: www.adpascending.com


ValueAct Shows KKR Stake, Adds to Trinity Industries, Trims Willis Towers Watson

Jeff Ubben's activist investment firm ValueAct Capital has been quite busy with SEC filings recently.  Here's a summary of all the activity:

ValueAct Shows KKR Stake

Back in April, we highlighted how ValueAct reportedly took a KKR stake.  Well now we get further confirmation of the exact size of that investment via a recently filed 13D with the SEC.

Per the filing, ValueAct now owns 6.1% of KKR (KKR) with over 28.55 million shares and the purchase was comprised of common stock and cash-settled swaps.

The filing also notes they've had discussions with management and will continue to do so.  They were buying in late June at $18.62 and throughout July around $19.50 and into August in the $18's.

Per Google Finance, KKR is "a global investment firm that manages investments across multiple asset classes, including private equity, energy, infrastructure, real estate, credit and hedge funds. The Company's business offers a range of investment management services to its fund investors, and provides capital markets services to its firm, its portfolio companies and third parties. The Company conducts its business with offices across the world, providing it with a global platform for sourcing transactions, raising capital and carrying out capital markets activities. The Company operates through four segments: Private Markets, Public Markets, Capital Markets and Principal Activities. It operates and reports its combined credit and hedge funds businesses through the Public Markets segment. The Capital Markets segment consists primarily of its global capital markets business. Through its Principal Activities segment, the Company manages the firm's assets and deploys capital."


Ubben's Firm Boosts Trinity Industries Exposure

Second, ValueAct has filed a 13D and a couple of Form 4's with the SEC regarding its position in Trinity Industries (TRN).

Per the 13D, Jeff Ubben's firm now owns 11% of Trinity Industries with over 16.72 million shares.  But a more recent Form 4 indicates their stake is now 16.94 million shares.

The Form 4 indicates ValueAct was buying TRN shares in mid-august between $28.11 and $28.57.

Per Google Finance, Trinity Industries is "a diversified industrial company that owns businesses providing products and services to the energy, chemical, agriculture, transportation and construction sectors. The Company's products and services include railcars and railcar parts; parts and steel components; the leasing, management and maintenance of railcars; highway products; construction aggregates; inland barges; structural wind towers; steel utility structures; storage and distribution containers, and trench shields and shoring products. The Company's segments include the Rail Group, Construction Products Group, Inland Barge Group, Energy Equipment Group, Railcar Leasing and Management Services Group, and All Other. Its All Other segment includes its captive insurance and transportation companies, and other peripheral businesses. It manufactures a line of railcars, including autorack cars, box cars, covered hopper cars, gondola cars, intermodal cars, open hopper cars and tank cars."


ValueAct Trims Willis Towers Watson Stake

Third, in a Form 4 with the SEC, Ubben's firm has disclosed activity in their Willis Towers Watson (WLTW) stake. They were selling some shares on August 17th, 18th, and 21st at $150.04, $148.76, and $149.14.  In total, they sold 106,000 shares and they're left owning 5.18 million shares.

Per Google Finance, Willis Towers Watson "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."

For more from this investment firm, we highlighted how ValueAct recently boosted its position in another stock as well.


Monday, August 21, 2017

Brand New Hedge Fund Wisdom Issue Now Available

Want to find out what stocks top hedge funds have been buying, selling, and shorting?  Our 86-page quarterly newsletter summarizes the latest 13F filings of 25 top funds.  The brand new Q2 issue is now available.  Subscribers please login at www.hedgefundwisdom.com to download.

Inside The New Issue

- Investment Thesis Summaries on O'Reilly Automotive (ORLY) and Energy Transfer Partners (ETP).  Quickly get up to speed on the bull thesis and bear thesis.

- New Consensus Buy / Sell Lists: See the most popular stocks among top hedge funds

- Reveals Latest Portfolios of 25 Top Managers: Appaloosa, Lone Pine, Baupost Group, Viking, SPO Advisory and 20 other top funds (full list here). Includes European short sale positions where applicable.


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Friday, August 11, 2017

ValueAct Capital Boosts Seagate Position

Jeff Ubben's activist investment firm ValueAct Capital has filed a 13D with the SEC regarding its stake in Seagate Technology (STX).  Per the filing, ValueAct now owns 7.2% of the company with 21 million shares.

The filing notes they've had talks with officers and directors of the company and will continue to do so.  ValueAct was buying on July 29th, 31st as well as August 1st, 2nd, 3rd, 4th, 7th, 8th, and 9th.  In total, they purchased 7,184,235 shares in a range between $32.19 and $33.50. 

We've highlighted how recently ValueAct has been trimming numerous positions, and it looks like this is where some of the proceeds ended up.

Per Google Finance, Seagate is "a provider of electronic data storage technology and solutions. The Company's principal products are hard disk drives (HDDs). In addition to HDDs, it produces a range of electronic data storage products, including solid state hybrid drives, solid state drives, peripheral component interconnect express (PCIe) cards and serial advanced technology architecture (SATA) controllers. Its storage technology portfolio also includes storage subsystems and high performance computing solutions. Its products are designed for applications in enterprise servers and storage systems, client compute applications and client non-compute applications. It designs, fabricates and assembles various components found in its disk drives, including read/write heads and recording media. Its design and manufacturing operations are based on technology platforms that are used to produce various disk drive products that serve multiple data storage applications and markets."



Hedge Fund Links ~ 8/11/17


Risks are rising while low risks are discounted [Ray Dalio]

Activist hedge funds target bigger and bigger US companies [CNBC]

Sustainability of hedge fund reinsurers questioned [Business Insurance]

Mega hedge funds are reporting big gains [Bloomberg]

A look at Michael Hintze of CQS [AFR]

Lessons from a trading great: Stanley Druckenmiller [Macro Ops]


Thursday, August 10, 2017

Paulson & Co Trims Valeant Pharmaceuticals Stake

John Paulson's hedge fund firm Paulson & Co has filed a 13D with the SEC regarding its stake in Valeant Pharmaceuticals (VRX).  Per the filing, Paulson & Co now owns 6% of VRX with 20.83 million shares (but note this excludes cash-settled swaps representing economic exposure comparable to 259,500 additional shares of common stock).

This means they reduced their position size by just under one million shares since June when they previously disclosed a prior sale as well.  The latest filing was made due to portfolio activity on August 9th and they sold at $14.6595.

We've highlighted other recent portfolio activity from Paulson & Co here.

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."


ValueAct Capital Buys Some Trinity Industries, Sells Some Willis Towers Watson

Jeff Ubben's activist firm ValueAct Capital has filed two Form 4's with the SEC.


ValueAct Acquires Some Trinity Industries Shares

First, they've purchased more Trinity Industries (TRN) according to their SEC filing.  On August 7th, 8th, and 9th they acquired a total of 60,819 shares at prices of $28.3, $28.5, and $28.47.  After these buys, ValueAct now owns over 15.96 million TRN shares.

Per Google Finance, Trinity Industries is "a diversified industrial company that owns businesses providing products and services to the energy, chemical, agriculture, transportation and construction sectors. The Company's products and services include railcars and railcar parts; parts and steel components; the leasing, management and maintenance of railcars; highway products; construction aggregates; inland barges; structural wind towers; steel utility structures; storage and distribution containers, and trench shields and shoring products. The Company's segments include the Rail Group, Construction Products Group, Inland Barge Group, Energy Equipment Group, Railcar Leasing and Management Services Group, and All Other. Its All Other segment includes its captive insurance and transportation companies, and other peripheral businesses. It manufactures a line of railcars, including autorack cars, box cars, covered hopper cars, gondola cars, intermodal cars, open hopper cars and tank cars."


Ubben's Firm Trims Willis Towers Watson Stake

Second, ValueAct has sold some Willis Towers Watson (WLTW) according to a separate Form 4 filed with the SEC.  On the same dates (August 7th through 9th), Ubben's firm sold 820,000 shares of WLTW at prices of $149.78, $149.76, and $149.53.  After these sales, ValueAct still owns over 5.78 million WLTW shares.

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."

We just touched on some other portfolio activity from ValueAct yesterday as well.


Fairholme Capital Reduces Sears Canada Position

Bruce Berkowitz's investment firm Fairholme Capital has filed an amended 13D regarding shares of Sears Canada (SRSC).  Per the filing, Berkowitz now owns 18.7% of SRSC with just over 19 million shares.

This is a decrease of over 2.39 million shares since the end of July when Fairholme reported owning over 21.43 million SRSC shares. 

The latest portfolio activity comes in late July and early August as Fairholme sold shares as high as $0.61 and as low as $0.25.  After this round of sales, Fairholme still owns 19 million SRSC shares.

We've covered other recent portfolio activity from Fairholme Capital here.



Wednesday, August 9, 2017

What We're Reading ~ 8/9/17


Hot stock rally tests the patience of a choosy lot: value investors [WSJ]

Buffett nears a milestone he doesn't want: $100 billion in cash [Bloomberg]

User/subscriber economics: value dynamics [Aswath Damodaran]

How China's DiDi is taking over the world before Uber [Forbes]

Flywheel effect: why positive feedback loops are a meta-competitive advantage [Medium]

Tesco: why Amazon will not kill this business [Contrarian Edge]

US credit card debt surpasses record set at brink of crisis [Bloomberg]

If retail is dying, why is money pouring into malls? [Bloomberg]

When will the tech bubble burst? [NYTimes]

The problem with meal kits [WSJ]

How credit raters avoided reform after the financial crisis [Bloomberg]

Profile of Vineyard Vines [Boston Magazine]

Have smartphones destroyed a generation? [The Atlantic]


Ruane Cunniff (Sequoia Fund) Investor Day Transcript 2017

Ruane, Cunniff & Goldfarb recently released the transcript from their investor day a few months ago.  Known as the managers of the Sequoia Fund, David Poppe and his team talk about many of their investments.

As of the end of June, their top ten holdings were:

Berkshire Hathaway (BRK A / BRK B) 11.28%
US Treasury Bills & Cash 8.65%
MasterCard (MA) 7.72%
Alphabet (GOOGL & GOOG) 6.5%
TJX (TJX) 5.93%
Dentsply Sirona (XRAY) 5.3%
Carmax (KMX) 5.04%
Constellation Software (CSU) 4.83
Rolls Royce (RR.LN) 4.74%
Liberty Media Corp 4.13%

They talked about what they often find in their top investments:

"Hopefully that gives you a sense of the kinds of companies we want to buy: high-quality enterprises trading at discounts to their intrinsic value, with long-duration growth opportunities.  I would note that every great outperformer we have purchased during my eighteen years here - from Fastenal to Idexx to Mastercard to O'Reilly to Precision Castparts to Sirona to TJX - had something in common.  And it was not a low P/E at the time we first invested.  It was a long growth runway and, most often, a long organic-growth runway."

The transcript that follows touches on their thoughts on Priceline.com (PCLN), the threat of Amazon (AMZN) to various businesses, and some of their holdings like TJX and O'Reilly Auto, as well as other positions like Rolls Royce and Charles Schwab.

Embedded below is Sequoia Fund / Ruane Cunniff's 2017 Investor Day Transcript:




You can download a .pdf here.

For more from this firm, you can view their transcript from last year here as well.


ValueAct Capital Reduces Microsoft Stake

Jeff Ubben's activist investment firm ValueAct Capital has filed a Form 4 with the SEC regarding its stake in Microsoft (MSFT). 

Per the filing, ValueAct sold 7 million shares in total across August 4th, 7th, and 8th.  ValueAct sold at prices of $72.50 and $72.61.

The firm has also been selling down other positions in recent months as well.

Per Google Finance, Microsoft is "develops, licenses, and supports a range of software products, services and devices. The Company's segments include Productivity and Business Processes, Intelligent Cloud and More Personal Computing. The Company's products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games, and training and certification of computer system integrators and developers. It also designs, manufactures, and sells devices, including personal computers (PCs), tablets, gaming and entertainment consoles, phones, other intelligent devices, and related accessories, that integrate with its cloud-based offerings. It offers an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and it provides solution support and consulting services."


Friday, August 4, 2017

Hedge Fund Links ~ 8/4/17


Excerpts from Highfields Capital's letter [Business Insider]

Steve Eisman says financial system 'safe' but worried about Europe's banks [Business Insider]

Thoughts from Dan Loeb on Third Point Re's conference call [CNBC]

Hedge funds turn to dark web to gain an edge [FnLondon]

Paul Tudor Jones clients pull 15% from main hedge fund [Bloomberg]

Fledgling quant funds seek to disrupt Wall Street [FT]


Pershing Square Builds Automatic Data Processing Stake

Recently, Bloomberg reported that Bill Ackman's activist firm Pershing Square Capital Management had built a stake in Automatic Data Processing (ADP).  Then today, Ackman told CNBC that he's "still buying the stock as of this morning" and that he is "not seeking control of the company."

Per Ackman's recent interview, he feels the company can expand profit margins by more than 50%.  Pershing now reportedly owns 8% of the company mainly via derivatives.

Apparently, Ackman was seeking to push back the board nomination window.  ADP responded: "The Board has unanimously determined that it is not in the best interests of ADP or its other shareholders to accede to Pershing Square's last-minute request for an extension."

ADP also appeared to take a dig at Pershing in its statement as well: "Since Carlos Rodriguez became CEO nearly six years ago, ADP's total shareholder return of 202% is well in excess of the S&P 500 TSR of 128% - and is many multiples of Pershing's TSR of 29%."

For more on this fund, we've also highlighted other recent portfolio activity from Pershing Square here.

Per Google Finance, Automatic Data Processing is "a provider of human capital management (HCM) solutions to employers, offering solutions to businesses of various sizes. The Company also provides business process outsourcing solutions. Its segments include Employer Services and Professional Employer Organization (PEO) Services. The Employer Services segment offers a range of human resources (HR) business process outsourcing and technology-enabled HCM solutions. These offerings include payroll services, benefits administration, talent management, HR management, time and attendance management, insurance services, retirement services, and tax and compliance services. ADP TotalSource, ADP's PEO business, offers small and mid-sized businesses a HR outsourcing solution through a co-employment model. As a PEO, ADP TotalSource provides HR management services while the client continues to direct the day-to-day job-related duties of the employees."


Thursday, August 3, 2017

Alex Roepers Interview With Capitalize For Kids

Alex Roepers of Atlantic Investment Management sat down with Capitalize For Kids for their Investor Series and talks about his strategy for beating the market while holding only six stocks.  Here's a few excerpts:


On the current markets:  "From a 40,000 foot level,you know the 10-year treasury yield is around 2.4%, while the S&P 500 dividend yield is around 2.1% and the earnings yield is about 5%, based on an index P/E of 17x. So we see the market as not overly cheap for sure but also not overly expensive. The continued low interest environment remains supportive for the overall market.

Within the market of course, you have many different pockets – it is a bit of a barbell, bifurcated market. On one hand, you have Tesla and the other story stocks that have a cult following and valuations that we think make absolutely no sense. On the other hand, you have many overlooked but solidly profitable companies who have little or no top-line growth, such as General Motors, automotive suppliers, airlines and retailers.We would say the market is full of interesting opportunities, long and short. It is ok on balance as long as rates remain reasonable."




On one of his top holdings Commscope (COMM): "(COMM is) a $5 billion integrated manufacturer of end-to-end solutions connecting wired and wireless networks, including networking equipment like antennas as well as coaxial and fiber optic cables. Solid secular growth is rooted in increased use of streaming data, video and movies and increased use of smart phones and internet mobility in general. Foreign sales are 50% and increasing due to growth in less mature markets, both developed and emerging, which require improved bandwidth and connectivity. We see it as a solid business. Key customers include Comcast, Verizon, AT&T,Charter Communications, Anixter and Liberty Media.

We started scaling into CommScope last October around $30/share. From there, the shares rallied to $42, up by 40% within 6 months. We were trimming along the way to keep the position in check as a percentage of capital. Then, in early May, due to a reduced forecast for Q2-2017, for reasons we deem to be transitory, Commscope shares were knocked down to $35, where we added back the shares we had sold on strength previously.  We see the shares reaching $50 in the next 6 to 12 months on reasonable earnings and valuation assumptions. Given our analysis CommScope has solid downside support here,compelling upside on its own and also takeover potential."



On overlooked value play Diebold Nixdorf (DBD): "They are a leading maker of automated teller machines (ATM) as well as electronic point-of-sale (EPOS) solutions for the retail market. In ATM’s, NCR and Hyosung are key competitors and in the retail vertical it is IBM-Toshiba and NCR mostly.  There are some 3.3 million ATMs installed worldwide, one third of which are Diebold Nixdorf’s.

A key concern is that the proliferation of electronic payments will cause a reduced need for the use of ATM’s. We believe that this concern is overblown as cash transactions and notes in circulation continue to grow even in the United States and Europe.  ATMs remain a productivity tool for banks and an integral part of their customer interaction.While there has been a lot of consolidation of bank branches, the total ATM count in mature markets has actually been stable and now we see the overall banking sector is improving which bodes well for new and upgraded ATMs. The installed base is an important barrier to entry and key driver of business.  About 60% of Diebold Nixdorf’s sales come from maintenance services and software.

In the past two years, Diebold shares had fallen from $40 down to the low twenties. Besides a recent earnings warning in what is “year one” of a transformational merger, another key reason behind the share price weakness was a spell of declining capital spending by banks. The transformational deal was to buy a key competitor called Wincor Nixdorf out of Germany. Wincor, which was sold by Siemens to private equity in 1999, and subsequently listed in2004, generates $2.5 billion in sales, $1.5 billion from ATMs and $1 billion from retail point of sale systems (POS) used by retailers like Ikea, Zara and H&M. The cross-border deal took a year before it closed in August of last year, during which NCR and others took advantage of the uncertainty and inability by the two merger companies to react.  We see significant potential from combining the complementary footprints and capabilities ...  we see Diebold Nixdorf shares reaching over $40/share in 18-24 months, based on 11-12x our 2020 EPS target."


He also gives updates on Harman (HAR) and Owens-Illinois (OI) and chats about other topics.  You can read the rest of the interview here.


Wednesday, August 2, 2017

What We're Reading ~ 8/2/17


Profile of the founders of payments company Stripe [Bloomberg]

Staying competitive as the world changes [Collaborative Fund]

The unreformed stock picker: profile of Bill Miller [Forbes] 

Investment case for Gilead Sciences [WertArt Capital]

Netflix has $20 billion in debt - can it keep borrowing its way to success? [LA Times]

Palantir, the 'special ops' tech giant that wields as much power as Google [The Guardian]

Craft beer, brought to you by Big Beer [NPR]

On the threat of European grocery discounters [FBIC Group]

Priceline: the world's largest online travel company [Economist]

Electric vehicle outlook [Bloomberg]

Mental models: how to train your brain to think in new ways [James Clear]

The best path to long-term change is slow, simple and boring [NYTimes]

The 4 keys to learning anything [Zen Habits]
 


Tuesday, August 1, 2017

Lone Pine Capital Starts TransUnion Position

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding shares of TransUnion (TRU).  Per the filing, Lone Pine now owns 5.1% of TRU with over 9.29 million shares.

This is a newly disclosed position for the hedge fund as they previously did not own it at the end of the first quarter.  The new filing was made due to activity on July 20th.

Per Google Finance, TransUnion is "a risk and information solutions provider to businesses and consumers. The Company provides consumer reports, risk scores, analytical services and decision capabilities to businesses. The Company operates through three segments: U.S. Information Services (USIS), International and Consumer Interactive. The USIS segment provides consumer reports, risk scores, analytical services and decisioning capabilities to businesses. The International segment provides services similar to its USIS segment to businesses in select regions outside the United States. The Consumer Interactive segment offers solutions that help consumers manage their personal finances and take precautions against identity theft. Businesses uses its solutions for their process workflows to assess consumer ability to pay for services, measure and manage debt portfolio risk, collect debt, verify consumer identities and investigate potential fraud."