Greenlight Capital Q2 Letter: New Positions in Applied Materials, Bank of New York Mellon

David Einhorn's hedge fund Greenlight Capital is out with its second quarter letter.  Greenlight returned (1.5)% in Q2 and year-to-date is (3.3)%.  Their average exposure was 103% long and 86% short, leaving them net long only 17%.  The letter details numerous recent portfolio moves:

New long positions: Applied Materials (AMAT), Bank of New York Mellon (BK), CNX Coal Resources (CNXC)

Sold long positions: Altice (AMS:ATC), Conn's (CONN), EMC (EMC), Marvell Technology (MRVL), Nokia (NOK), Playtech (LON:PTEC)

Covered shorts: Intuitive Surgical (ISRG), Vale (VALE)

Einhorn talks about all of the positions in the letter and also gives commentary on Micron (MU), one of his biggest positions that has sold-off recently.

At the end of Q2, Greenlight's largest positions in alphabetical order were: Apple (AAPL), CONSOL Energy (CNX), General Motors (GM), gold, Micron Technology (MU), and SunEdison (SUNE).

Embedded below is Greenlight's Q2 letter:

   Greenlight Q2 15

ValueWalk first posted the letter.

Third Point Starts Nokia Stake: Q3 Letter

Dan Loeb is out with Third Point's Q3 letter and in it the hedge fund firm reveals they started a new stake in Nokia (NOK) in the third quarter after the company sold some of its businesses to Microsoft.  The other main takeaway is that due to strong performance, Third Point will return 10% of capital at year-end.


Third Point's Thesis on Nokia

Third Point writes,

"At our purchase price, we seized an opportunity to create new Nokia at a substantial discount to target value.  The company will have approximately €8 billion of net cash when the transaction closes, and we expect a meaningful portion of the excess will be distributed to shareholders in coming quarters.  Either a buyback or a special dividend is possible, which should draw additional investors to new Nokia when the cash return scenario develops following the deal closing."

This is the kind of event-driven play they like and their letter below details the breakdown of the separate businesses left at the 'new' Nokia.


Third Point's Q3 Letter

Embedded below:




For more Q3 hedge fund letters, head to:

- David Einhorn's Q3 letter

- Excerpts from Cobalt Capital's letter

- Corsair Capital's thesis on News Corp

What We're Reading ~ Analytical Links 9/4/13

The Manual of Ideas: The Proven Framework for Finding the Best Value Investments [Amazon]

Risk is not a four-letter word [Herb Greenberg]

How the Verizon-Vodafone deal was sealed over gym talk & a breakfast [Globe & Mail]

Vodafone (VOD) spreadsheet post-deal [MicroFundy]

Is discounted cashflow the best way to value a company? [Google Plus]

Profile of billionaire Jorge Lemann [BusinessWeek]

MSFT: Ballmer out, ValueAct in - get ready for the next shoe to drop [All Things D]

Microsoft / Nokia: the deal that makes no sense [Stratechery]

Why is chicken more expensive? Ask McDonald's [BusinessWeek]

The biggest risk Zillow (Z) faces isn't what you think it is [LittleBear]

How 'Teslanaires' made fortunes on Tesla stock [Sun-Sentinel]

CNBC ratings hit 20-year nadir [NYPost]

Richard Oldfield's Presentation at London Value Conference: Long Nokia & Hitachi

Continuing our notes from the London Value Investor Conference 2013, the next speaker is Richard Oldfield of Oldfield Partners.  He presented two long ideas: Nokia (NOK) and Hitachi.

Oldfield made some interesting comments about asset allocation. He said that his many years of  experience have taught him that wholesale, large moves in a portfolio are usually disastrous. He  recommended moving slowly. Investors are better to take marginal, incremental step as there is less  chance of being wrong for emotional reasons.


Idea: Long Nokia  

Oldfield said that Nokia was a great value but that they had got the entry price wrong. He noted the  value in Navteq mapping, the half stake in NSM and intellectual property and patents. He said that  the Lumia phones are very good and that capitulation for the stock is close at hand. 


Idea: Long Hitachi  

There has been a real change in style of Hitachi’s management. In particular it has become much  more target orientated. It has become globally aware for the first time. It has a successful nuclear  power venture. He noted that if Hitachi can be turned around then anything in Japan can. He said  that there are many Japanese sleeping monsters with great potential.  Last week we highlighted how investors are the Sohn Conference were bullish on Japanese stocks.


Be sure to check out other investor presentations: notes from the 2013 London Value Investor Conference.

Hedge Fund Short Positions in Finland: Tiger Cubs Short Nokia

Continuing our coverage of hedge fund short positions in Europe, next up is Finland.  New European rules are obliging hedge funds to disclose information about the most carefully guarded part of their business activities: short positions.

Since November 1st when the EU Regulation on short positions came into force, there has been a deluge of information from financial regulators in EU countries giving information on short positions across all market sectors.

Public disclosure is required for net short positions of shares that reach 0.5% of the issued share capital of the company concerned and again at each 0.1% increment above that.  Additionally disclosure is required publicly when the position subsequently falls below 0.5%.  Here are the latest disclosures in Finnish markets:


Hedge Fund Short Positions In Finland Disclosed

AQR Capital: Short -0.9% Konecranes, -0.9% Nokian Renkaat, -0.6% Rautaruukki

Axial Capital: Short -0.74% Sanoma

Blue Ridge Capital: Short -1.34% Nokia

Carlson Capital: Short -0.93% Outotec

Coatue Management: Short -0.8% Nokia, -0.62% Stora Enso

Eton Park Capital: Short -0.95% Nokian Renkaat

Lansdowne Partners: Short -1.57% Metso

Lone Pine Capital: Short -0.57% Nokia, -0.92% Stora Enso

Maverick Capital: Short -1.7% Nokia, -2.8% Outotec, -1.53% Stora Enso

Odey Asset Management: Short -0.6% Kemira

Pennant Capital: Short -1.38% Outokumpu

SAC Capital: Short -0.6% Neste

Viking Global: Short -2% Nokia


Obviously, there are many 'Tiger Cub' hedge funds short Nokia.  There's an interesting dichotomy here as some value investors have gone long the troubled handset maker due to valuation, while many GARP (growth at a reasonable price) investors short the company due to its falling market share.

Many Tiger Cubs often go long the 'best of breed' companies in various sectors and short the struggling companies in that same sector.  As an example, many have been long Apple (AAPL) and short Nokia (NOK) as smartphone market penetration exploded and iOS gained market share while Nokia struggled to find a winning strategy.


To see more hedge fund shorts, head to our other coverage:

 - Hedge fund short positions in the UK

- Hedge fund short positions in Germany

- Hedge fund short positions in France

- Hedge fund short positions in the Netherlands

Long/Short Equity Investing Panel: Whitney Tilson (CIMA Conference)

Continuing the series of notes from the CIMA Conference (Columbia Investment Management Association), we turn to the long/short equity investing panel with Whitney Tilson of T2 Partners.

Whitney Tilson On Various Longs/Shorts & Lessons Learned

On His Netflix (NFLX) Trade: over 2 years, they’ve broken even. Shorted at 100, covered at 200, felt smart as it went to 300. Wanted to kill themselves as their short thesis played out, got back long on the day in blew up going from 120 to 77 in a day.

Lessons: what they missed on the short side: very dangerous shorting an open-ended situation with a lot of momentum. Both stock and business had momentum, and they didn’t fully appreciate the quality of the business or the momentum the stock has.

Why was he short? Because P/E was 75x, also NFLX needed to invest heavily in streaming content to grow, which would have compressed margins. It happened, should have been more patient before entering the short. Now, balance sheet has tripled in a year, CEO has given up on core business, has bet entire company on the streaming business, with 3B of deals, which is senior to the debt. Stock could be 1000 in 5 years, or zero in 5 years. Each incremental sub is almost pure profit. Good news is they learned the company VERY well and could act very quickly when the stock collapsed. “We didn’t change, the stock price changed.” Every stock in the universe is a long at one price and a short at another price.


On Berkshire Hathaway (BRK.A / BRK.B): 15% position, held continuously for 13 years. Upside, worth 170k, up from 117k. Based on investments 100k per share, then 10x multiple on operating businesses, add it together. Any method you value it, worth at least 150k. Buffett buys it back at book. 8% downside, 50% upside stock. Railroads, housing sensitive business are doing great, insurance business is getting better. What is the bear case? No catalysts. No activists, can’t break it up, no dividend. Cheapness is the only catalyst, and the valuation gap will close. Single biggest area of cheap stocks, they are cheap on risk-adjusted basis.


Tilson on His Short Positions: Says to size your shorts small. Has there ever been a $10B market cap that traded at 10x REV that didn’t collapse?

Lululemon (LULU), Salesforce.com (CRM): good businesses at ridiculous prices

Green Mountain Coffee Roasters (GMCR): OK business, may be chance of fraud of channel stuffing. See David Einhorn's short thesis on GMCR here.

Interoil (IOC): interoil, claims to have found world’s largest natural oil field in Papua New Guinea, they think the value is zero.

Nokia (NOK), Barnes & Noble (BKS): terminal value zero, thinking of adding Research in Motion (RIMM) to the list, waiting for a bounce. Tricky with a lot of cash, doesn’t expect NOK and RIMM to survive in Android business. Bigger, better player can go under- Borders Books failed, BKS will be next. Any time you’ve seen a stock that has moved a lot, and you say, “I missed it.” Instead, stop and do your work, pretend like it never was at a price before. Only thing that matters is where the stock is today and where it’s likely to be in the future.

Two types of shorts: both very tough. Where is it on the life cycle? Broken momentum shorts. Value traps. Best Buy (BBY): value trap, or say it’s trading at 8x FCF?


Q&A Session:

On Hedge Fund Management Fees & Investor Expectations: If you’re having a ballet in an auditorium, that’s fine, as long as you say that outside. If it’s a rock concert, that’s fine too, as long as you’ve labeled it as such. The problem is when you say it’s a ballet and it’s a rock concert. Make investors aware of exactly what your style is. He’s more volatile than the average hedge fund, so they communicate with their clients frequently. Had only single digit redemptions last year, up 12% so far this year. Manages ~$150 million: if he thought cutting fees would get him to $1B, he would do it. The money chases performance regardless of fees anyway. No clever fee arrangement works anyway.


For the rest of the notes from the CIMA Conference, head to these posts:

- Dan Loeb: Lessons He's Learned as an Investor

- David Einhorn Question & Answer Session

- Bruce Berkowitz's Basic Checklist for Investing & What He's Learned

- Distressed Investing Panel (Dan Loeb & Daniel Krueger)

- Bill Miller on What Stocks He Likes Now

- Michael Karsch on Risk Management

- Bruce Greenwald's Market Comments