What We're Reading ~ 3/18/15

The Checklist Manifesto: How to Get Things Right [Atul Gawande]

Ray Dalio warns of 1937-style rate risk [FT]

A dozen things learned from David Tepper about investing [25iq]

Interview with short-seller Marc Cohodes [First Adopter]

In praise of short sellers [New Yorker]

Lumber Liquidators' campaign of distraction and deception [Seeking Alpha]

Crispin Odey says following China could lead to recession [Sydney Morning Herald]

Why the smart money is betting on WWE [First Adopter]

A pitch on Interactive Brokers [Value Venture]

Live Nation Entertainment: an unregulated monopoly? [PunchCardBlog]

A look at Softbank [Institutional Investor]

With the benefit of hindsight [Morgan Housel]

Stock performance before, during, and after recessions [Wealth of Common Sense]

The majority of people are struggling to save for retirement [Wealth of Common Sense]

The future of the four horsemen: Amazon, Apple, Facebook & Google [YouTube]

Consumer behavior across pay-TV, VOD, and OTT [Digitalsmiths]

Zillow, the industry, and reading the tea leaves [Notorious Rob]

Whitney Tilson's Value Investing Congress Presentation: Short Exact Sciences (EXAS)

We're posting up notes from the 2014 Value Investing Congress in New York. Next up is Whitney Tilson of Kase Capital who presented various short ideas.


Whitney Tilson's Value Investing Congress Presentation

Presentation has 4 parts: lessons from a dozen years of short-selling, update on 2 short ideas (LRN and LL), and a new short idea (EXAS)

Why short-sell?
Insurance (but made for painful 2013-14): pays when you need money to buy cheap good companies in big declines
Plentiful opportunities now (shortsellers run out of town: shops closing, long only launches)
Can make money
Can provide funds to buy more longs
Keeps him from messing up the longs
Big rush from winning/intellectually satisfying
Most HFs are expected to short

Finding ideas:
- Other short sellers
- Conferences
- VI Insight, VI Club, Seeking Alpha,  SumZero, Activist Shorts, Citron, Screens
- Media (look for hype)

Right now seeing incredible shorting opportunities
Be very diversified: has 50 shorts now
Offset longs and shorts (match cap/industry and the way they trade: tough to run long PG BRK and short volatile small names)

Lesson: stock follows earnings = reported results have to start showing cracks (example MBIA took a while)

Lesson: avoid "beat and raise" names = runaway trains (examples PCLN TRIP FB LNKD)

Lesson: be patient, wait for a break (example shorting CROX too early)

Lesson: look for Titanics, mortal damage but taking a while to sink (LRN, NSR, HLF, WRLD) 

Lesson: look for obvious bubbles (3D names, PLUG, Ballard, SaaS, biotechs) 


Update on K12 (LRN) Short
Losing their largest EBITDA contributor in PA (downgrade this morning)
Likely- per his contacts- to lose several other contracts in the next 1-1.5 yrs
Doing bad things, like enrolling no-shows and billing
Still overvalued


Update on Lumber Liquidators (LL) Short
Still many ways to win
Business performance is poor (dropping SSS)
There might be news on the formaldehyde end (not in deck)


New Short Idea: Exact Sciences (EXAS)
New colon cancer test: essential to detect early
Company has long history of failure, the new test is FDA approved
The "superior" results were rigged
Essentially a binary outcome based on reimbursement rate decision
Even if high price approved, it will fail in the market = requires filling up a cup with excrement vs. just swipe
New technologies coming (ie pill cameras) 


Q&A: Why short at all? Munger quote from a private meeting "every guy has to learn for himself [not to short]"

Q&A: Are you still in CALL? Yes but two Qs of bad prints so less enthusiastic now.

Q&A Options? "Options are heroin. They feel so good and they kill you." Now only two positions, LT ITM call on CP, defacto a stock position. Puts in IOC.

Q&A: VIPS? Got in at 80, covered at 120. Analyst called him after a visit in China: it is a real business and it grows at the rate chinese internet cos are growing, nothing suspect.

Q&A: IOC: not a great short now because of the Total partnership. Will take a while to see if the gas is extractable, Tilson does not think so.


Be sure to check out the rest of the Value Investing Congress presentations here.

Lone Pine and SAC Capital Disclose Lumber Liquidators Stakes

Steve Mandel's hedge fund firm Lone Pine Capital and Steve Cohen's hedge fund turned family office SAC Capital have both filed 13G's with the SEC regarding Lumber Liquidators (LL).

Lone Pine has revealed a 7.9% ownership stake in LL with over 2.18 million shares.  The filing was required due to activity on January 23rd and is a brand new position for the hedge fund firm.

SAC Capital has revealed a 5% ownership stake in Lumber Liquidators with over 1.39 shares.  They previously owned a very small stake and they've boosted their holdings by over 1.3 million shares since the end of the third quarter. 

Per Google Finance, Lumber Liquidators is "retailer of hardwood flooring, and hardwood flooring enhancements and accessories. The Company offers an assortment of wood flooring, which includes prefinished domestic and exotic hardwoods, engineered hardwoods, unfinished hardwoods, bamboo, cork and laminates, as well as resilient flooring. Its flooring enhancements and accessories include moldings, noise-reducing underlay and adhesives. Lumber Liquidators and Bellawood are it brands. Its hardwood flooring products are available in various widths and lengths. It offers approximately 350 different flooring product stock-keeping units."

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