Notes From Great Investors Best Ideas Conference (GIBI) Dallas 2017: Ackman, Einhorn & More

The 11th annual Great Investors Best Ideas (GIBI) Dallas Investment Symposium just took place where managers shared investment ideas to benefit The Michael J. Fox Foundation for Parkinson's Research and Vickery Meadow Youth Development Foundation.  Below are some brief notes on the event:


Notes From GIBI Dallas Conference 2017

David Einhorn, Greenlight Capital

Still owns a huge position in General Motors (GM) but has been trimming it since it's grown too large (risk management, position sizing, etc).  Still his largest position by a longshot though.  Still thinks it's very cheap and points to an opportunity for a new shareholder base to get into shares.  Likes they've gotten rid of its riskiest international business and is investing in autonomous cars and electric vehicles: the future.

He also likes Tempur Sealy (TPX).  Thinks estimates are way too low (notes that management's incentives are way higher).  The company had a dispute with Mattress Firm and stopped selling its mattresses there.  Despite that, customers still actively sought out the TempurPedic brand, so the co is replacing its lost Mattress Firm sales elsewhere at higher margins.  Thinks there's also a reasonable chance MF comes back to them since MF has lost sales.

Einhorn said that his 'bubble basket' of shorts in highflying tech stocks like Amazon and Tesla are valued like profits don't matter ... ever.  He says eventually people will wake up and profits will matter and their stocks will crater.  He also pointed to somewhat of a cult following status that is attached to Tesla's stock with all the hype that Elon Musk continuously builds with various projects.  There's around 30 stocks in Einhorn's bubble basket.   He noted he owns a Tesla, but also points out that the company probably lost $20-30k selling it.  Says company hasn't figured out how to make cars profitable on a unit basis.  You can also read Greenlight Capital's Q2 letter here.


Bill Ackman, Pershing Square Capital

Pitched his newest long: Automatic Data Processing (ADP).  Has an activist position.  Thinks it's a quality business: simple, not capital intensive, secular tailwinds (sees lots of growth ahead).  Automating employees.  Ackman thinks the stock's a double.  We've posted Ackman's presentation on ADP previously.

Also mentioned the GSEs he's involved with: Fannie Mae & Freddie Mac.  Still owns and thinks there's huge upside there.  He originally pitched these plays three years ago at the same conference.  Thinks they will eventually trade multiples higher of where they are now.

He's still short Herbalife (HLF) and has lost millions on the bet as the stocks' up around 40% from his average short price.  Said that of the risk factors considered for the position, Carl Icahn coming in and buying 20+% of the company wasn't one he considered.

Noted he still owns Howard Hughes (HHC) and while he doesn't see any immediate catalysts, thinks it's a long-term play as a high quality business.

Says average investor can be plenty concentrated with 10-15 holdings.  Biggest mistake of his career?  Not selling when new information emerged that didn't jive with his investment thesis.  You can read Pershing Square's Q2 letter here.



Tom Russo. Gardner Russo Gardner

Spoke about global brands and various companies still controlled by the founding families.  His best idea was the company hit with a scandal and PR crisis: Wells Fargo (WFC).  Previously he had noted how his WFC stake has remain unchanged (around 6% of his assets) and that he thought the company simply became too fixated singly on one variable (cross-selling) which lead to a bunch of accounts being opened in customers names.  The company now suffers from poor optics but on a risk level, direct financial harm has been modest and he has faith in the legal process.



Andrew Wellington, Lyrical Asset Management

A couple of picks:  Flex Ltd (FLEX), co is seeing double digit growth in its bottom line and 50% of FCF going to shareholders.  Trading around 12x earnings.

Affiliated Managers Group (AMG): asset management play, owns equity stakes in boutique management firms.  Says they own really good managers.  Trading around 12x NTM earnings.



Van Hoisington, Wasatch-Hoisington US Treasury Fund

He concluded that we're heading to a recession as the Fed has restrictive policies already in effect and money and credit are slowing noticeably.  Structural impediments to growth are over-indebtedness globally as well as adverse demographics.  Thinks rates will stay lower. 



Jeanie Wyatt, South Texas Money Management

A few ideas: Citigroup (C) as a value play.  Thinks it could re-rate from almost 1x book value to closer to 1.4x.  Since the crisis the company has a better situation and less subprime.

KAR Auction Services (KAR):  notes 20% EPS growth, end markets that are accelerating as well.  Trading just over 22x next year's earnings but with a big opportunity ahead as various leases will be coming to term.

Electronic Arts (EA): video game stock that's benefited from going over the top (OTT) as it leads to higher margins than the typical video game distribution model of physical games, etc.  Accelerating sales growth.  Also sees new potential upside in e-sports. 

Vodafone (VOD): Stock has traded sideways but the company has improved in end markets.  Thinks it offers good downside protection as sales growth has accelerated.


For more stock picks from recent investment conferences, we posted up notes from the Sohn San Francisco Conference yesterday.

What We're Reading ~ Analytical Links 2/26/14

Excerpts from Warren Buffett's upcoming annual letter [Fortune]

A look at 2014's best online brokers [Stockbrokers]

On adapting as an investor [ReformedBroker]

Is value investing bred in the bone? [WSJ]

Don't fall in love with your stocks [Marketwatch]

On the MBA vs CFA debate [CNBC]

A pitch on Discovery Communications [SumZero]

American shoppers are making a giant shift to dollar stores [QZ]

Vodafone cable deals interest complicates possibility of AT&T deal [WSJ]

The internet is F'd [The Verge]

Social advertising economics [Morally Bankrupt]

On what Facebook's acquisition of Whatsapp really means [Benedict Evans]

A look at Spirit Airlines [NPR]

A conversation about young Wall Streeters [Dealbook]

Gross vs El-Erian: inside the showdown atop the world's biggest bond firm [WSJ]

Greenlight Capital's Q4 Letter: New Positions in Micron, BP, & Anadarko Petroleum

David Einhorn's hedge fund Greenlight Capital returned 19.1% net in 2013.  Greenlight's fourth quarter letter to investors unveils their thesis on new positions in Micron Technology (MU), BP (BP), and Anadarko Petroleum (APC).

Greenlight likes Micron because the industry has started to act a bit more rationally and MU will buyback shares instead of building new factories.

Their BP stake is a play on increasingly shareholder friendly capital allocation policies as well and they think the company is worth $70 per share (it trades around $49 now).  

Additionally, their letter talks about some positions they've closed recently like Airbus Group (formerly EADS), and ThyssenKrupp.

At the end of 2013, Greenlight's largest positions in alphabetical order were: Apple (AAPL), General Motors (GM), Marvell Technology (MRVL), Micron (MU), and Vodafone (VOD).

Thanks to ValueWalk who posted up Greenlight's Q4 letter and you can view it below:




For more on Einhorn, we just yesterday revealed some more of Greenlight's recent portfolio activity.

And for more year-end hedge fund letters, head to Third Point's Q4 letter here.

Kyle Bass Long General Motors, Exits J.C. Penney Equity: Interview

In an interview with Bloomberg Television, Hayman Capital's Kyle Bass reveals that he's long General Motors (GM) and has exited his equity stake in J.C. Penney (JCP) but retains his debt position. 

The hedge fund manager also talked about Herbalife (HLF), noting that it generates significant cashflows and no debt.

He originally thought JCP could move higher with a turnaround from new management, but what he got wrong, he said, was the vendors and perception changing so quickly.  He's still long credit but doesn't own equity in the company.

Bass thinks GM can trade 40% higher in the next 18 months.  He says it's a catalytic time to be investing as the Treasury finally exits its stake and the company can initiate shareholder friendly actions.

The Hayman founder also said he didn't see anything interesting in US banks, but he would be betting against European banks, especially as a hedge against other European bets.  Bass mentioned he likes Vodafone (VOD).

Embedded below is Bass' interview with Bloomberg:



For more from this hedgie, head to Kyle Bass' macro debate with John Burbank.

What We're Reading ~ Analytical Links 12/4/13

On investment idea velocity [Dasan]

Mapping investor behavior [All About Alpha]

Should AT&T (T) buy Vodafone (VOD)? [FT]

Bullish thesis on Sears (SHLD) starting to show cracks? [Peridot Capitalist]

A write-up on Colfax Corp (CFX) [Brooklyn Investor]

Once cable's king, Malone aims to regain his crown [Dealbook]

Deflation fears stalk eurozone [The Guardian]

Stock funds lure most cash in 13 years as investors chase rally [Investment News]

Short seller: best opportunity in two decades [CNBC]

Treasury seeks an exit from General Motors (GM) by year-end [Dealbook]

Paper on the valuable asset of spectrum [SSRN]

Advice on careers, finance and life from Harvard Business School class of 1963 [HBS1963]

Clear Channel's Bob Pittman on the value of dissent [NYTimes]

David Einhorn on Green Mountain Coffee, Vodafone & More: Interview

Greenlight Capital's David Einhorn appeared on Bloomberg Television today and talked about his short of Green Mountain Coffee Roasters (GMCR) and his long of Vodafone (VOD), two longstanding positions.  Here are some of the highlights and the video interview is below:


On whether he is still short Green Mountain Coffee:  “Yes. We are still short Green Mountain.  It has been on the toughest things going on in our portfolio this year. The books are over caffeinated, if you would.  The company says that they sell a lot of coffee, there is no doubt they sell a lot of coffee. We do not think they sell anywhere near as much as they say and there are real discrepancies in the accounts. They had an analyst day a few weeks ago and they were asked to explain the numbers, and the CEO’s cavalier response was they do not do straight math and they are not going to get into this now. If you do not get into this on an investor call, when are you going to?” 

“There is a lot of ways for Green Mountain to pan out for us. This year, so far it has not been panning out for us. The competition has been increasing; they are losing market shares in their stores. Their platform has been commoditized. Anybody can make a cakeup. The Supply is now out there. The prices are falling. I think they will miss on the business side form an earnings perspective sometime over the next year. Ultimately they will be commoditized away. In addition, you have the regulatory risk when someone wakes up one day and says these numbers are not what they are represented to be.”


On being big on Vodafone the last three years:  “When we bought it you were getting no credit for their stake in Verizon Wireless now we see that was a very valuable stake. I think $130 billion. I think Vodafone remains pretty attractive because one you strip out the consideration for Verizon, the rest of the European business is at a pretty cheap value.”    


On whether there are opportunities in the U.S. for Vodafone:  “No, I think Vodafone exits from the U.S. if anything it could ultimately be a target for someone like AT&T that wants to get exposure into Europe”    


On whether Vodafone could have held on to Verizon Wireless longer:  “I would give Vodafone an A or an A plus on this negotiation. Verizon took a very aggressive tact with them for a lot of years saying, you are a minority; we are not going to pay you dividends and eventually Verizon needed a dividend so they started paying it but sporadically. They really tried to squeak these guys out. They finally came in the spring. It turned out they could not bridge the great act. Vodafone held out. Verizon came back to the table. They paid a higher price than I think they even would have paid in the spring… Vodafone is not mostly a wireline business. They are mostly cellular in Europe. So you have that wireless component there. When you strip out the Verizon Wireless valuation, you are buying it at two turns of EBITA less than comparable companies. I think it has better prospects better growth and better network than many of its peers.”


Embedded below is the video of David Einhorn's interview with Bloomberg Television:



For more on this manager, we've posted some of Greenlight's recent portfolio activity here.

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]

What We're Reading ~ Analytical Links 5/15/13

Meb Faber's new book: Shareholder Yield [Meb Faber]

Explanation of Tepper's chart: Equity risk premium is high (this is bullish) [The Big Picture]

On confirmation bias and the perma-whatevers [Abnormal Returns]

The end is where we start from [Reformed Broker]

On emotional finance [Research Puzzle]

What record profit margins imply for future profitability and the market [Greenbackd]

It's time to fight the Fed [MicroFundy]

The low return of high yield [Contrarian Corner]

Missed Visa and Mastercard? Then keep an eye on this one: Fleetcor (FLT) [Old School Value]

The bull case on Hospira (HSP) [Forbes]

An overview of a hedge fund favorite: Dollar Tree (DLTR) [Aegaia Research]

Time to change the channel on media stocks [CNBC]

On the 'spying' Bloomberg terminals [CNBC]

Will Wall Street's Bloomberg terminal addiction break? [NYMag]

Steelmakers develop new iron recipes [WSJ]

Thoughts on a potential Verizon & Vodafone deal [VODVZ]

Two strategies: The Washington Post vs the NYTimes [Monday Note]

Forget gold, the gourmet cupcake market is crashing [WSJ]

What We're Reading ~ Analytical Links 3/6/13

Book that changes the way you do business: The Innovator's Dilemma [Clayton Christensen]

The short case on Boulder Brands (BDBD) [Prescience Point]

Why are most people terrible investors? [Phil Pearlman]

12 cognitive biases that endanger investors [Minyanville]

Interview with Paul Lountzis on investing & scuttlebutt research [Simoleon Sense]

On doing less [Capital Observer]

Dow hits record high with household income at decade low [Atlantic]

Verizon (VZ) said to seek to resolve Vodafone (VOD) relationship [Bloomberg]

Cash levels in brokerage accounts approach lowest levels ever [Kimble]

Study reveals most at-risk retailers for Amazon showrooming [Placed]

Shorts battle longs over Fairpoint Communications (FRP) [Forbes]

Want to short the student loan bubble? Now you can [Zerohedge]

Getting schooled by Career Education (CECO) [Barel Karsan]

Vornado selling chunk of J.C. Penney (JCP) stock [WSJ]

America Movil (AMX): time to buy in bulk? [FT]

Imagining cable TV if bundles unravel [WSJ] and News Corp creates sports network [NYT]

Google (GOOG) is building a same-day Amazon Prime competitor [Techcrunch]

Cree (CREE) introduces LED lightbulb [Yahoo Finance]

Why getting an MBA isn't worth it [WSJ]

What We're Reading ~ Analytical Links 2/27/13

2013 comprehensive review of the best online brokerages [StockBrokers]

Vodafone's (VOD) European troubles: bad news = good news? [MicroFundy]

Investing: rules of the game [Dasan]

On buying near 52-week lows or 52-week highs [World Beta]

You're not as good an investor as you think you are [WSJ]

What Barnes & Noble (BKS) retail arm might be worth [NYTimes]

Mastercard (MA) aims at mobile payment market [Yahoo Finance]

Best Buy (BBY) takeover attempt by founder in jeopardy [Reuters]

Leveraged loan market on fire [SoberLook]

USA Mobility (USMO): Cheap, but for how long? [Barel Karsan]

The new MLP landscape [Barrons]

How to find the next Michael Kors (KORS) [The Street]

Loyalty programs, share buybacks drive Safeway (SWY) [Bizjournals]

Reed Hastings on the future of Netflix (NFLX) [GQ]

3-D printing is on the fast track [NYTimes]

Why medical bills are killing us [Time]

David Einhorn's Q4 Letter: Greenlight Buys More Apple & Vodafone

David Einhorn's Greenlight Capital is out with their Q4 letter to investors via ValueWalk.  Greenlight returned 7.9% in 2012 and 19.4% annualized.

The key takeaways from Greenlight's fourth quarter activity include:

- Bought more Apple (AAPL):  They originally trimmed their position size in the third quarter, but as shares fell in Q4, they bought back some of their stake.  Einhorn has held AAPL for quite some time as he originally purchased around $248 and this seems to be the only other time he's added to the position.


- Bought more Vodafone (VOD):  This has also been a longstanding position for Einhorn under the thesis that VOD's ownership stake in Verizon Wireless is being undervalued.  We've also posted Eminence Capital's long Vodafone short Verizon pair trade thesis as well.


- Covered Pitney Bowes (PBI) Short:  Greenlight labeled this company a 'melting ice cube' due to facing secular challenges of declining US mail volumes.  Many hedgies have been short this name and we've also posted up how hedge funds have been shorting competitor Neopost as well.


- Sold Huntington Ingalls Industries (HII), Humana (HUM), Wellpoint (WLP), bought other managed care organizations (undisclosed).


Greenlight's top five positions at the end of the year were (in alphabetical order): Apple (AAPL), Cigna (CI), General Motors (GM), gold, and Vodafone (VOD).


Embedded below is Greenlight Capital's Q4 letter to investors:




For more on this investor. be sure to also check out Einhorn's short thesis on iron ore.

Eminence Capital Plays Vodafone / Verizon Pairs Trade: Q3 Letter Excerpt

Ricky Sandler's hedge fund firm Eminence Capital is having a great year, up 6.7% net in the third quarter and up 22.3% net for the year through September with AUM north of $3 billion.  Their third quarter letter to investors details a new trade they recently put on:

Long Vodafone / Short Verizon Pairs Trade

For those unfamiliar, a pairs trade is a bet made where an investor goes long one security and shorts another.  Some investors utilize this to make a market neutral bet, while others use it to bet on mean-reversion.

Some hedgies will undoubtedly be familiar with this specific pairs trade as various funds have had it on in the past.  The trade here is essentially an arbitrage on the valuation of an asset both companies share: stakes in Verizon Wireless ("VZW").  Vodafone (VOD) owns 45% of Verizon Wireless and Verizon (VZ) owns 55% of Verizon Wireless.

Eminence put on this pairs trade (long VOD, short VZ) in recent months and here's why according to Sandler:

"VOD trades at a significant discount to VZ for a number of reasons and thereby creates a unique opportunity where the same asset is being valued by two sets of investors very differently.

If we assign a fair value to VZW for each of VOD and VZ we are left with the following valuation anomaly: the rest of VOD (after subtracting VZW at fair value) has an $82B Enterprise Value which values its best of breed European and Emerging Market wireless service business at 7x adjusted EBIT (EBITDA minus Capex) and 4.5x after-tax economic earnings. Simultaneously, the rest of Verizon (after subtracting VZW at fair value) has an $80B Enterprise Value for a structurally declining fixed line telephone business in the US that generates zero EBIT and trades at an infinite multiple of economic earnings because it burns free cash flow.

We think the time is right for this trade to play out because we have come to the point where VZW will need to pay out a lot of free cash flow to each of its owners over the next few years. VOD will increasingly appear to generate more free cash flow than it had been as investors begin to see these dividends from VZW. Alternatively, VZ’s free cash flow will appear to decline as it pays out cash from its consolidated position in VZW to VOD. We expect investors to more fully reward VOD for its look through cash flow since it will be receiving this cash regularly from VZW while investors will also come to realize that VZ can’t even afford to pay its corporate dividend when only 55% of the VZW cash flow is counted. It is also possible that VZ realizes its stock is overvalued and tries to use its currency to buy in the VZW it doesn’t own which would be a material positive for our position."


Given that numerous other funds have been in this pairs trade in the past, it's interesting that Eminence feels now is the right time to play it.  With some analysts expecting another VZW special dividend for VOD by year-end, we'll have to see how this trade plays out.  Vodafone is now Eminence's fourth largest long.

For more from this hedge fund, be sure to also check out why Eminence is bullish on Google.  While they reduced their position size a bit recently, it's still their largest holding.

David Einhorn Covers Some Shorts, Buys Yahoo & Best Buy

David Einhorn's hedge fund Greenlight Capital struggled last quarter, returning -2.5%. Their short positions caused a drag on performance and as a result they've covered some of their lower conviction names.

This isn't the first time we've seen a hedge fund do this in recent memory as Whitney Tilson's T2 Partners recently covered shorts that were noticeably affecting performance. In this market, the cost of hedging is high.

Greenlight writes, "We are in a particularly difficult environment for shorting stocks. In response, we have reviewed many of the names in our short portfolio. We covered more than a dozen lower confidence shorts during the quarter. We exited four successful shorts in the for-profit education industry, two foreign bank shorts (one at a small gain, the other at a large loss), a domestic bank short (at a loss), and a technology short (also at a loss). We also covered several others where performance exceeded our expectations. We kept our highest conviction older ideas (including MCO and St. Joe) and our highest conviction newer ideas (including the energy-technology stocks described above)."

New Positions

The second most noticeable development in Greenlight's portfolio is their addition of three new positions.

Best Buy (BBY): Einhorn's hedge fund sees opportunity in the company's Mobile concept, international stores and higher-margin services. Greenlight built their position at $33.33 and shares now trade around $31.40, so this is yet another rare chance to enter a stock around the same price a major hedge fund paid.

Yahoo (YHOO): Many investors have pitched Yahoo as a value play in recent memory and Greenlight obviously sees value here as well, establishing a position at $16.93 per share (the stock trades around $17.80 now). Greenlight likes the company's net cash position and point to Yahoo's 40% stake in Alibaba Group as a valuable asset.

Delphi Automotive: They also acquired a stake in the not-yet-publicly-traded automotive supplier Dephi. This is a hedge fund favorite that has gone through the bankruptcy process and recently morphed into a one-class ownership structure. There's speculation that the company will potentially go public.

We've also detailed some of Greenlight's other positions they added earlier this year.

Top Positions

Rounding out the quarter, Greenlight Capital's largest positions in alphabetical order were:

- Arkema (France: AKE or ARKAY on pink sheets)
- Delta Lloyd
- gold
- Pfizer (PFE)
- Vodafone (VOD)

The most noticeable quarter-over-quarter change here is that Ensco is no longer one of their top holdings. We'll have to wait for their 13F disclosure to see if they merely reduced the position, sold completely out of it, or if other names appreciated more in their portfolio.

Embedded below is Greenlight's first quarter letter in its entirety (email readers come to the site to read it:



To learn to invest like this manager, be sure to check out Einhorn's recommended reading list.

David Einhorn & Greenlight Capital's 2010 Year-End Letter

David Einhorn's hedge fund firm Greenlight Capital has returned 21.5% annualized net of fees since inception in May 1996. For 2010, his various hedge funds returned 12.5%, 14%, and 15.9%. You can see how that compares to other managers in our 2010 hedge fund returns summary.

Einhorn was positioned defensively last year due to the uncertain economic environment and such positioning led to slightly under-performing the market indices.

New Stakes in BP (BP) and Sprint (S)

During the fourth quarter they started a new position in BP (BP) at an average price of $41.18.

Greenlight also started a new stake in Sprint Nextel (S) at an average price of $4.46. We wrote about Einhorn's Sprint position last month.

Top Five Positions (in alphabetical order)

- Arkema (France: AKE or on the pink sheets: ARKAY)
- Ensco (ESV)
- Gold
- Pfizer (PFE)
- Vodafone Group (VOD)

Embedded below is Greenlight Capital's year-end letter to investors:



You can download a .pdf copy here.

David Einhorn Buys Sprint Nextel (S), Discusses His Other Positions: Interview

David Einhorn of $7 billion hedge fund firm Greenlight Capital was a guest host on CNBC's Squawk Box yesterday morning and provided us with updates on his long positions, short positions, macro views, and more. Einhorn has also been out promoting the new paperback version of his book, Fooling Some of the People All of the Time. It includes a foreword by Joel Greenblatt and a new epilogue with final details of the story's completion.

In his interview, Einhorn reveals that Greenlight Capital recently initiated a position in Sprint Nextel (S). The company has had a tumultuous past and he thinks it is poised for a turnaround, citing improved churn, reputation, handset offerings, and customer service. He also makes it a point to highlight Sprint's vast spectrum as he thinks Sprint can gain market share from such a vast network. Other than that though, Einhorn has found slim pickings in the market as he says things have been "pretty slow."

In terms of his other positions, Einhorn brings up his stake in CareFusion (CFN) that he's owned for a while as it spun-off from Cardinal Health (CAH). He sees CFN experiencing margin expansion in the future and as a play on growth in market share in the company's segment of medical devices. We penned an in-depth research report on CareFusion in our new issue of Hedge Fund Wisdom for those interested.

Einhorn has returned north of 21% annualized (net) and still likes his position in Apple (AAPL) but acknowledges that the company is by no means in the early stages of its growth as the stock has done remarkably well for some time. Regarding his stake in Pfizer (PFE), the Greenlight Capital manager is curious to see what direction the new CEO takes the company in but he still likes it as an investment due to its extremely low multiple.

Lastly, he reiterates that gold (physical, not the ETF) is his fund's largest position but still has yet to disclose just how much of the precious metal he owns. Much of what Einhorn revealed on CNBC, he largely already spoke about in his recent interview with Consuelo Mack which we also detailed.

However, the hedge fund manager did provide us with a few new tidbits yesterday. Turning to Greenlight Capital's latest exposure levels, Einhorn notes that he is typically pretty fully invested and doesn't necessarily hold a lot of cash on hand. At the present, he's about 30-35% net long which is just slightly below the long/short equity hedge fund historical averages of 35-40%.

Here's the video of Einhorn's interview and email readers will need to come to the site to view it:



Part 2 of Einhorn's interview follows with his thoughts on macro issues:



Part 3 details the Greenlight Capital manager's ability to spot red flags such as Lehman Brothers in November 2007 which he correctly identified, shorted, and profited from:



That wraps up another rare David Einhorn television interview. For an in-depth look at the rest of Einhorn's US equity longs, head to our newsletter. We've also posted up a plethora of resources related to Greenlight Capital detailed below:

- The short case on St. Joe (JOE)
- Einhorn's thesis on Vodafone (VOD)
- Greenlight's Q3 letter to investors

David Einhorn & Greenlight Capital's Q3 Investor Letter

Dealbreaker has posted up the latest investor letter from David Einhorn's Greenlight Capital and in it we see that Greenlight is 98% long, 63% short and their largest disclosed long positions in alphabetical order are:

1. Arkema (AKE on foreign exchange, ARKAY on the pink sheets)
2. CIT Group (CIT)
3. Ensco (ESV)
4. Gold (physical)
5. Pfizer (PFE)
6. Vodafone (VOD)

Overall, Einhorn's top positions are largely unchanged and we've detailed the respective thesis on each investment in the past. In particular, we highlighted the case for Ensco (ESV) in our newsletter Hedge Fund Wisdom. Additionally, we've outlined Einhorn's Vodafone thesis as well.

Possibly the most notable change in Greenlight's portfolio in the third quarter was the sale of their Ford debt position as it had been a top holding in the past. They also sold longs in ATP Oil & Gas (ATPG), EMC (EMC), Lockheed Martin (LMT), and Nestle (NSRGY).

On the short side of the portfolio, we see that Greenlight had been short Corinthian Colleges (COCO) in the for-profit education space. Many hedge funds have been short this sector and Einhorn admits they covered this position too early (but still saw a 91% return). The hedge fund also covered shorts in Office Depot (ODP) and Royal Caribbean (RCL). Einhorn also recently detailed the short thesis on St. Joe (JOE) at the Value Investing Congress, a position he defends with his latest commentary.

Embedded below is David Einhorn & Greenlight Capital's third quarter investor letter:



You can download a .pdf copy here.

Last, but certainly not least, Einhorn makes a point to focus on the shift in the Federal Reserve's policy and that they've been expecting the Fed would be forced to monetize the debt. He highlights this as one of the main reasons he owns physical gold. To see Greenlight's upcoming Q3 portfolio changes detailed in full, be sure to subscribe to Hedge Fund Wisdom as our next issue will be released sometime next week.

Notes From the Value Investing Congress: Einhorn, Bass & Pabrai (Day 2)

Today is the second day of our coverage of the Value Investing Congress including presentations from Kyle Bass (Hayman Capital), David Einhorn (Greenlight Capital), and Mohnish Pabrai (Pabrai Investment Funds). Their latest ideas are outlined below and be sure to check back frequently as we will be updating this post throughout the day.

We've already posted a wealth of information from the event, including:

- Presentations from John Burbank, Lee Ainslie, & Francisco Parames
- Further notes from day 1 of the Congress
- Bill Ackman's Q&A session

Let's now dive right into day two's presentations from the Value Investing Congress:

David Einhorn ~ Greenlight Capital

Three years ago, Einhorn pitched a short of Lehman Brothers at the Value Investing Congress. We all know how that turned out. This year, he doled out his latest short sale: a 139-slide presentation against the St. Joe Company (JOE). In essence, Einhorn believes Joe's whole portfolio of land is incredibly overvalued. He joked that he'd be wrong if JOE discovers oil on its land. After news got out of Einhorn's short, shares of St. Joe plunged more than 9%.

He highlights that the company should have impairments from their riverfront properties but that they have taken none. JOE is counting untouched land as 'developed'. He believes St. Joes's rural land is worth somewhere around $900 million, or between $7-10 per share (JOE shares are currently trading in the low $20's). Einhorn argues that if the company continues current practices, it will eventually be worth $0 in 10-15 years.

In his presentation, the Greenlight Capital fund manager went through specific properties of JOE. He highlighted Windmark Phase II which JOE carries as $165 million on their 10K while Einhorn argues its only worth $18 million or so. He also believes an impairment should be taken on their Rivertown property that is selling lots below cost. Overall, he takes issue with the fact that St. Joe only writes down an investment when they exit it.

Market Folly readers will recall that Bruce Berkowitz (Fairholme Fund) is on the other side of this trade, long the stock. And 'long' is an understatement; he owns almost 29% of JOE. In the question and answer session, Einhorn mentioned that he reached out to Berkowitz but is awaiting his response. Berkowitz started buying JOE in late 2007 and purchased additional shares in February 2009. This is the beauty of markets and the dichotomy of opinion. For a counter-argument, we've also posted up the bullish case for St. Joe from Broyhill's Affinity hedge fund.

Lastly, in Einhorn's Q&A session, he said he is excited about Vodafone (VOD) and that the market is still not giving the company credit for their stake in Verizon Wireless. We've previously covered Einhorn's Vodafone thesis here.


Kyle Bass ~ Hayman Capital

Bass' presentation, 'Does Debt Matter?' is by far the gloomiest of all the speakers thus far. He immediately cites the high levels of US credit market debt and not only the staggering amount of unemployment, but the fact that we are seeing permanent job loss. Bass notes that there's now $200 trillion in total credit debt throughout the world and this amount has tripled over the past 8 years.

He is very concerned about Ireland and says they're very likely to default. Bass is also 100% certain that Japan will default. It's not a matter of 'if', but 'when.' In fact, we've covered how Bass is betting against Japanese Government Bonds (JGBs). Bass mentioned that he is using out of the money interest rate call options to play the potential (or in his mind, inevitable) Japanese default. Should he be correct, he will make 50x to 100x his original investment.

Additionally, Bass says Greece and Iceland are the two other countries in peril here. Greece's default is inevitable and people's reaction will be to buy US dollars. Lastly, the Hayman Capital manager shifted his focus to Australia where he believes the country is due for a housing crisis.


Mohnish Pabrai ~ Pabrai Investment Fund

Pabrai's presentation centered on his 'checklist,' a system of questions/guidelines on how to approach an investment. Pabrai's presentation at the Value Investing Congress West back in May also focused on his checklist. Pabrai will tell you about the checklist, why he created it, and how you can create your own. However, he seemingly does not tell you what is on his checklist as he must regard it as proprietary.

He says the best way to craft an investment checklist is to look at crashes and hone in on others mistakes. By learning from them, you can ensure you don't make the same ones. His checklist is an ongoing process and he's had around 97 questions on the list broken down into categories such as management, ownership, moat, and leverage. While no company can give him the green light by successfully answering all 97 questions, it helps him decide how he should allocate position sizes. This has led to a change in his portfolio allocations. He was previously more concentrated and now is more diversified. A 2% position is a basket trade, a 5% bet is baseline, and a 10% position would be considered a 'home run.'

In his presentation this time around, Pabrai addressed the mistakes that famous value investors have made in order to learn from them. Currently, he is seeing opportunity in Japan and he's building a basket of high quality Japanese stocks. It's interesting to see Bass pound the table on Japan's demise one minute, and the next to see Pabrai recommending the country. Lastly, Pabrai echoed the sentiment from yesterday's presenter Zeke Ashton as he also likes Fairfax Financial (FRFHF). For more from this value investor and Warren Buffett emulator, we've highlighted notes from Pabrai's annual meeting as well.


Michael Kao ~ Akanthos Capital Management

Kao invests across the capital structure including equity and debt. While he usually takes around 40 positions, his top ten positions typically comprise up to 50% of his portfolio. Giving a case study, Kao in particular liked GM convertible bonds. He mentioned he was long the convertible bond and short the stock. Overall, he thinks we're close to a bottom in vehicle sales.

Speaking on GM, Kao highlights their 13% market share in China and consolidation of car brands. The current iteration of the trade would be long GM convertible bonds and then short Ford (F). We've detailed in the past how Jim Chanos is short Ford as well, although his does not seem to be a pair trade. The Akanthos manager thinks GM debt has around 50% upside. He says that GM convertible debt is trading at 2x EBITDA while F is over 4x EBITDA.


That wraps up this set of presentations. To see what top hedge funds are buying and selling on a daily basis, receive our free updates via email or our free updates via RSS reader.

Mark Foley & Tina Larsson's Pendo LLC: International Value Investing

Today we're taking a look at the latest commentary from Tina Larsson and Mark Foley's investment firm, Pendo LLC. Pendo seeks absolute returns (or as they put it, "We don't hug an index") through in-house bottom-up fundamental analysis in order to find undervalued companies outside the United States while remaining agnostic regarding market cap, industry, sector, geography, traditional weightings, etc. As of the end of August, Pendo's International Strategy Fund was -5.34%. Their trailing twelve month return is 8.83%.

In the letter, Larsson and Foley note that despite tumultuous and volatile world markets, they remain quite optimistic about the future of their international investments, and not just for the long term, as they believe their investments will out perform their benchmark indices over the next 6-12 months. While not satisfied with their recent performance, they believe their strategy is now ready to outperform as the global economy improves and they continue to hold businesses that are insulated from the ails of the US market and dollar.

Their portfolio is currently trading at 13.5x trailing earnings, down from an ~18x multiple at the beginning of the year. A PE expansion back to previous multiple would provide a 33% return on its own. They believe this is reasonable considering that the MSCI EAFE benchmark currently only trades at ~20x but has traded at an average PE ratio of ~25.5x real earnings since 1982. Larsson reiterates that they are not market timers, but they remain committed to actively managing their long-term value approach by reducing positions as they become over-valued while increasing positions that become undervalued.

As of August 31st, Pendo International Strategy's top ten holdings are as follows:

1. Sichuan Expressway (China)
2. Tsingtao Brewery (TSGTY)
3. Canadian Natural Resources (CNQ)
4. Hong Kong Exchanges & Clearing (Hong Kong)
5. Philip Morris International (PM)
6. JSE Ltd (South Africa)
7. CEMIG (Brazil)
8. CNOOC (CEO)
9. Anglo American (UK)
10. Silver Wheaton (SLW)


Pendo's Global Value Strategy holds different names and here is their top ten:

1. BM&F Bovespa (Brazil)
2. Deluxe Corp (DLX)
3. McDonald's (MCD)
4. Sanofi-Aventis (France)
5. Vodafone (VOD)
6. Walt Disney (DIS)
7. Canadian Natural Resources (CNQ)
8. Newmont Mining (NEM)
9. Philip Morris International (PM)
10. Leucadia (LUK)

There are some names worth highlighting above because Warren Buffett's Berkshire Hathaway has been fond of Sanofi-Aventis. Additionally, David Einhorn's hedge fund Greenlight Capital has a large position in Vodafone (VOD) and you can see their investment thesis here. In terms of overlap between both of Pendo's portfolios, Philip Morris International (PM) and Canadian Natural Resources (CNQ) are found in both strategies.

The second half of Pendo's letter focuses on recent developments in China where the visiting Premier Wen Jiabao addressed the need for political reform, or more specifically, the need to curtail excessive political control. Such sentiment reassured Larsson that China understands they will have to continue to allow more freedom in the marketplace in order for China’s 30+ years of overall growth and development to continue.

Larsson and Foley feel that centralized planning can work very well in steering a nascent economy towards a more developed, functioning entity. Yet, she also acknowledges that, “in order to fully develop and remain an expanding, dynamic, and innovative powerhouse, free markets must be respected and embraced.” Like China, Brazil is another country that has benefited from starting to separate itself from socialism, as GDP growth is expected to be a robust 7.34% in 2010. Brazil is becoming a global leader through providing financial and technological aid to developing countries, and thus building good will and valuable trading partners (Larsson notes that these developing countries are notably commodity-rich).

Pendo cites a quote from July 17th issue of The Economist to drive home their point: “This aid effort—though it is not called that by the government—has wide implications. Lavishing assistance on Africa helps Brazil compete with China and India for soft-power influence in the developing world. It also garners support for the country’s lonely quest for a permanent seat on the UN Security Council. Since rising powers like Brazil will one day run the world, argues Samuel Pinheiro Guimarães Neto, the [minister for strategic affairs], they can save trouble later by reducing poverty in developing countries now.”

Embedded below is Pendo's latest commentary:



You can download a .pdf copy here.

We almost exclusively cover fundamental bottom-up stockpickers and you can follow our coverage of these hedge funds and their investments here. For more commentary and market analysis, head to our compilation of recent hedge fund investor letters as well.

Broyhill's Affinity Hedge Fund: Betting on Deflation (Q2 Letter)

Broyhill started as a family office to manage Paul H. Broyhill's assets and has since evolved into a multifaceted investment firm. Their Affinity hedge fund was up 4.6% for June and was up 6.6% for the year at that time. We've touched on how the majority of hedge funds had a very rough second quarter performance wise. That said, not every hedgie out there as been battered down and Broyhill is evidence of that. So, how did they sidestep the volatility, you ask? They called in an old fashioned contrarian prescription to combat the market's sickness.

Their hedge fund has put on a contrarian bet on long-term treasuries (outlined via their ten reasons to buy bonds). Yet with a lack of inflationary signals as of late, maybe their bet isn't so contrarian after all. While hedge funds in general have had below average net long exposure, it was still evident that many funds were taking on more risk than they realized when May and June came around. The fact that most asset classes seemed to move in lockstep didn't help things either as everything seemed correlated to the downside. Everything but treasuries, that is.

Believe it or not, Broyhill had actually been short treasuries up until about March of this year. They then went long essentially as a hedge against deflation. Broyhill isn't the only one worried about deflation either. We just detailed how David Gerstenhaber's global macro hedge fund Argonaut Capital thinks deflation is the greater risk.

In recent commentary, Broyhill has reminded us that legendary hedge fund manager Michael Steinhardt coined the term 'variant perception' in which he focused on contrarian analysis and wagers by taking positions opposite those of consensus opinion. East Coast Asset Management recently highlighted the consensus versus variant perceptions in today's market as well. Broyhill has done the same as their bet on treasuries represents their highest conviction variant perception.

Christopher Pavese, the fund's Chief Investment Officer writes,

"Quite simply, we believe investors are worrying about the wrong type of 'flation' here and now. In the near term, the ongoing contraction in private sector credit - estimated by the OECD to reach 7% of the developed world's GDP or $3 trillion - combined with the threat of fresh credit strains ahead, should more than offset the long-term inflationary impact of increased government spending. The major point here is that most strategists today remain adamant bond bears, and after missing the call at four percent, it is near impossible for them to recommend buying treasuries yielding three percent!! We welcome Wall Street's hatred of government bonds and expect to hold our position at least until the consensus capitulates .... which looks to be a ways off given today's sentiment."

Here are the Affinity hedge fund's top ten longs:

1. iShares Barclays 20+ Year Treasury (TLT): 11.1% of assets
2. Vodafone (VOD): 3.2%
3. Wal-Mart (WMT): 3.2%
4. Kraft Foods (KFT): 3.1%
5. Humana (HUM): 3.0%
6. Nintendo (NTDOY): 2.9%
7. Market Vector Gold Miners (GDX): 2.8%
8. iShares Silver Trust (SLV): 2.8%
9. PowerShares US Dollar Index (UUP): 2.7%
10. Republic Airways (RJET): 2.7%

Keep in mind that we've previously detailed Broyhill's write-up of the bullish case for St. Joe Company (JOE) as well. So in addition to their hefty treasury position, it's clear that Broyhill has two other portfolio themes in play: high quality large caps, as well as precious metals exposure. For the latter, they've chosen to play silver and a bundle of gold miners. For the former, they've picked Vodafone (VOD), one of David Einhorn and hedge fund Greenlight Capital's largest holdings. Additionally, we've seen many hedgies favor Kraft (KFT), including Bill Ackman's Pershing Square.

Although they do not disclose specific positions, Broyhill's Affinity hedge fund has revealed its top sector short positions, including:

Education (5.2%) of assets
Global Financials (2.9%)
Business Equipment (2.9%)
Euro (2.7%)
Automotive (2.5%)
Appliances (1.9%)
Employment Services (1.8%)
Credit Rating Agencies (1.7%)
Global Resources (1.7%)
Recreational Vehicles (1.2%)

We'll continue to keep an eye on this hedge fund's successful wager on treasuries and embedded below is Broyhill's second quarter letter:



You can download a .pdf copy here.

For more on this deflationary wager, head to Broyhill's ten reasons to buy bonds as well as the thesis behind their bet on long-term treasuries. Additionally, more research from the hedge fund can be found in their bullish case for St. Joe (JOE).

David Einhorn & Greenlight Capital: Long Apple, Ensco, NCR (Q2 Letter)

Dealbreaker posted up hedge fund Greenlight Capital's second quarter 2010 letter and we wanted to highlight the latest portfolio moves from David Einhorn's camp. Year to date for 2010, Greenlight's funds are up 1.6%, 2.2% and 0.8% respectively. Some of their portfolio gains as of late can be attributed to their long position in physical gold as well as their short of Moody's (MCO). It sounds as though Greenlight will maintain this short position as well, writing "we believe that an eventual, but likely, legal loss will have a significant impact on MCO shares."

While David Einhorn will be presenting investment ideas in October at the upcoming Value Investing Congress (special discount here), we still get an intermediate update on his current portfolio. The main talking point in the hedge fund's letter is their revelation of various new positions. Firstly, they revealed they are long Apple (AAPL) at an average purchase price of $248.09 per share. Greenlight highlights the company's more than $40 per share in cash and thinks that while growth in the next few years will be slower than recent times, the company still has not fully penetrated its various markets. We've highlighted numerous times how AAPL is one of the most popular hedge fund holdings.

Secondly, Greenlight took a new position in African Barrick Gold (LON: ABG). They like that it trades "at less than 6x 2010 EBITDA, a 10% free cash flow yield and $200 per ounce of reserves." Einhorn previously talked about this new stake in his Ira Sohn Investment Conference presentation.

Thirdly, Einhorn touches on their new stake in Ensco plc (ESV). While we revealed Greenlight's ESV stake last week, we now get some color on their thesis. They point out the company's $7 per share in net cash and tangible book value of $37.50. They feel shares of ESV were unjustly sold off as it was not involved in the oil spill and the drilling moratorium should not affect the company's long-term potential. Greenlight's average purchase price of Ensco was $39.41.

Lastly, Greenlight Capital purchased a stake in NCR (NCR) in the second quarter as the stock sold off due to accounting losses on pension obligations, among other reasons. Einhorn points to NCR's strong cash flow generating business and strong net cash balance sheet position. Greenlight purchased NCR at $13.58 per share and MarketFolly actually revealed this stake back in May when Greenlight acquired it.

In terms of positions the hedge fund sold completely out of, we see that they have finally exited their short of Allied Capital (AFC). Their commentary next to this position jokingly says, "So much to say we could write a book about it." If you're unfamiliar, David Einhorn did write a book on this very short-selling battle entitled, Fooling Some of the People All of the Time.

Embedded below is the entire second quarter letter from hedge fund Greenlight Capital:



You can download a .pdf copy here.

Greenlight's top five largest disclosed long positions are: CIT Group (CIT), Ensco (ESV), gold, Pfizer (PFE), and Vodafone Group (VOD). While shares of Pfizer (PFE) continue to trade lower and lower, Greenlight still owns their stake as they feel the company deserves to be trading at a higher earnings multiple than current levels. Remember that you can hear David Einhorn's newest investment ideas at the upcoming Value Investing Congress (special discount here) where he and other top hedge fund managers will be presenting in October.