Carl Icahn Dumps Over Half of Chesapeake Energy Position

Activist investor Carl Icahn has filed an amended 13D with the SEC regarding his position in Chesapeake Energy (CHK).  Per the filing, Icahn now owns 4.55% of the company with 28.27 million CHK shares.

This means he sold over 44.77 million shares since the end of the second quarter as he previously owned over 73 million CHK shares.

Per the filing, he sold the bulk of the position on September 19th at prices of $7.06.

Icahn also issued this statement regarding Chesapeake:  "We believe that over the last few years Doug Lawler and his team have done an admirable job, especially in light of the circumstances. We reduced our position to recognize a capital loss for tax planning purposes."

For more on this investor, we recently posted up Icahn's talk at the Delivering Alpha conference.

Per Google Finance, Chesapeake Energy is "a producer of natural gas, oil and natural gas liquids (NGL) in the United States. The Company operates in two segments: Exploration and Production, and Marketing, Gathering and Compression. The exploration and production segment is responsible for finding and producing oil, natural gas and NGL. The marketing, gathering and compression segment is responsible for marketing, gathering and compression of oil, natural gas and NGL. It has positions in resource plays of the Eagle Ford Shale in South Texas; the Utica Shale in Ohio and Pennsylvania; the Anadarko Basin in northwestern Oklahoma and the Texas Panhandle, and the Niobrara Shale in the Powder River Basin in Wyoming. Its natural gas resource plays are the Haynesville/Bossier Shales in northwestern Louisiana and East Texas; the Marcellus Shale in the northern Appalachian Basin in Pennsylvania, and the Barnett Shale in the Fort Worth Basin of north-central Texas."

What We're Reading ~ 3/16/2016

Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism [Jeff Gramm]

Two powerful mental models: network effects and critical mass [Andreessen Horowitz]

How to be wrong as an investor [A Wealth of Common Sense]

A look at the concept of moats in investing [Intrinsic Investing]

The great race: e-commerce in India [The Economist]

A look inside Google's DeepMind [The Verge]

Amazon's Echo brims with groundbreaking promise [NYTimes]

In-depth analysis of Moody's (MCO) [Value Seeker]

A look at Visa & Mastercard [JanaV]

American Express, Synchrony Financial & the changing credit card landscape [PunchCard]

Amex: cheap blue chip or value trap? [Value & Opportunity]

How credit cards tax America [Priceonomics]

After TV: Video's future will be bigger, more diverse & precarious than its past [Redef]

John Malone 'cable cowboy' faces test in rounding up the right mix of assets [Variety]

The television has a business model problem and it's killing good TV [Redef]

The craft beer bubble [VinePair]

The rise and final hours of Chesapeake's Aubrey McClendon [Bloomberg]

Carl Icahn Increases Chesapeake Energy Stake

Activist Investor Carl Icahn has filed an amended 13D with the SEC regarding his stake in Chesapeake Energy (CHK).  Per the filing, Icahn now owns 10.98% of the company with over 73 million shares.

He's increased his position size by 6.6 million shares since the end of the first quarter.  The filing indicates that Icahn was out buying on March 11th at a price of $14.15.

Per Google Finance, Chesapeake Energy is "a producer of natural gas and liquids. The Company’s exploration and production segment is responsible for finding and producing natural gas, oil and natural gas liquids (NGL). The marketing, gathering and compression segment is responsible for marketing, gathering and compression of natural gas, oil and NGL."

You can view some of Icahn's prior portfolio activity here.

Jim Chanos on His Tech Longs/Shorts, China & the Art of Short Selling: CNBC Interview

Kynikos Associates founder Jim Chanos was on CNBC today talking his short positions, China, and even some of his longs.  Here's the key takeaways from his talk:


Chanos' Technology Longs & Shorts

One of the main takeaways here is that he's long leading players in the mobile smartphone/tablet arena: Apple (AAPL) and Samsung (KRX:005930).  At the same time, he's short the slowly dying PC makers like Dell (DELL) and Hewlett Packard (HPQ).  While the trade hasn't been working well as of late, he still thinks the fundamentals will win out over time.  He thinks printers, ink and PCS all face secular declines.


On China

A few days ago, we posted up Jim Chanos' presentation on China from the Wine Country Conference.  On CNBC today, he talked about why he feels China's economic situation has actually gotten worse.  He points to the rapid credit expansion over there and sees a potential bubble. He likes to be short companies related to real estate and construction in China and also pointed out steelmakers and iron ore players.  Greenlight Capital's David Einhorn has also said to short iron ore.


On What He Looks For in Shorts

The Kynikos manager says that "timing is not my forte" and the ever-rising markets of today can be difficult for a short-seller.  He says, "It's problematic because it's more frustrating, but on the other hand you're given more opportunities."  He feels that ultimately, the fundamentals will win out because these rallies have also propped up the 'leaky boats'.  He also somewhat joked that they like to look at companies that put their names on sports team arenas.

Chanos looks for an edge in something that everyone's not focused on.  Two simple indicators he likes: wholesale executive departures and large amounts of insider selling from multiple individuals.  He says, "Those two indicators together are about as big of red flag as you can get."


Embedded below are the videos of Chanos' interview on CNBC:

Video 1 on China

Video 2 on tech stocks

Video 3 on natural gas and coal

Video 4 on what he looks for in short selling


For more from this hedge fund manager, head to Chanos' recent China presentation.

Third Point Starts Chesapeake Energy & News Corp Stakes: June Exposure Report

Dan Loeb's Third Point Offshore Fund finished June up 0.2% and is up 3.9% for the year.  The big takeaway from their June exposure report is a large new holding in Chesapeake Energy (CHK).


Third Point's Top Positions

1. Yahoo!
2. Gold
3. Delphi
4. Chesapeake Energy
5. Apple

This is the first time Chesapeake has appeared under their top holdings' column.  They did not disclose a position back in the first quarter.  Mason Hawkins' Southeastern Asset Management has a 13.9% activist stake in the company as well.

Noted activist investor Carl Icahn has also taken over a 7% ownership stake in CHK and sees it as an undervalued company.  Icahn argues that they can turnaround the story "if you clean this company up ... and natural gas prices go higher, which I think they will."

We've also posted up Third Point's Q1 letter which details their thesis on Apple and other positions.

Top winners from the quarter include Yahoo, Gold, as well as News Corp, Portugal Obrigacoes do Tesouro and Progress Energy (multiple securities held), the last three of which are newly disclosed positions as well.

News Corp recently announced that it would be splitting into two: an entertainment business (FOX properties) and a newspaper/publishing business (Wall Street Journal, book publishing etc).  This is obviously an event-driven trade for the hedge fund with a catalyst that shareholders and management hope unlocks value.

Third Point's top losers from the second quarter included Delphi, Sara Lee (which completed its spin-off), two healthcare shorts and an ABS short.


Third Point's Latest Exposure Levels

In equities, they are now net long 27.3% (50.2% long, -22.9% short).  This is a slight decrease in net exposure from last month.  Their largest sector exposure comes in technology, media & telecom (largely due to their YHOO stake) at 16.9% net long.  Geographically, they are net long the Americas 65%, net short EMEA -11% and net short Asia -4%.

In credit, Loeb's fund is net long to the tune of 29.8% (long 38.5%, short -8.7%).  This is a decisive increase from the month prior where they were only net long by 14.2%.


Dan Loeb is featured in the new book The Alpha Masters and you can check out our review here.

Monthly Performance: June 08

Paul Kedrosky posted up this lovely breakdown of the worst "June" returns on the Dow in History. And, although the month indeed was bad, it didn't necessarily feel that way. We never saw true panic, we never saw capitulation. Instead, we saw stocks slowly bleed it out. And, that led us to a month where the S&P500 was -8.60%. And, halfway through the year, the S&P sits at -12.5% YTD. But, for those of us with some sense and a solid gameplan, the month wasn't so bad. Why, might you ask? Well, because we saw this coming a mile away. We know the U.S. is still in a recession, we know the housing sector is accelerating to the downside, we know oil is setting record highs, and we know that the financials are still sorting through the rubble of the credit crisis. We are by no means out of the woods yet and my portfolio has been based on that for quite some time. I figured I would start posting up my monthly performance here, to stick with my theme of complete transparency. (Well that and the fact that I had a pretty damn good month and this seemed like an ideal time to brag, er I mean start logging my results on the blog haha). For the month of June, MarketFolly's portfolio was up 5.56%. And, year to date, the portfolio is up 10.5%.

Since I've now turned to focusing on absolute return rather than relative return, I'll leave you to do the math in terms of outperformance. And, as a matter of fact, after having some discussions with numerous absolute return portfolio managers, I've come to the conclusion that people still pay attention to the indexes no matter what. Even if absolute return technically has no metric for comparison, you still want to be outperforming the next best alternative (ie: stocks, bonds, cash, or other alternatives). And, the next best alternative could very well be the indexes on certain months, you never know. In the end, its all about semantics and just depends on the portfolio managers absolute return goals. There will always be people who will want to compare results to the indexes just because that is what has been ingrained in everyone's mind to begin with. As long as I know my goals in running an absolute return portfolio, then relevant return is meaningless and is just a moot talking point. I'm very happy with my results thus far, but I can merely attribute it to creating a gameplan and sticking with it. I didn't panic and I stayed disciplined. That is one of the most valuable lessons you can learn when dealing with financial markets.

The macro themes we've seen have continued to play out. Housing sucks, financials suck, the dollar sucks, the economy sucks, and commodities are roaring. Many of the gains for me this month are attributed to taking a strong round of profits in my Natural Gas (UNG, CHK) and Coal (ACI, MEE) names. Additionally, I locked in profits in the fertilizer plays at the new highs (POT, MOS) and then am starting to buy them back here down at these levels. Additionally, I have been shorting the market itself through SDS, which is the etf for Ultrashorting the S&P500. It seeks twice the inverse performance of the S&P. So, if the index goes down 1%, SDS should theoretically go up 2%. I usually use this (and a few other etf's) as a 'hedge' in my portfolio, layering in and out when the market makes drastic moves one way or the other. For instance, in the bear market rally we saw leading up to this recent decline, I was adding heavily to the SDS, seeing as I knew we were still in a bear markets and the charts showed this clear as daylight. And, I posted this chart a few weeks back reminding everyone we were still in a downtrend here :
And, if we pulled up that same chart now, you would see we have fallen another 50 points on the S&P. The green circle below shows what happened to the S&P in the few weeks after I posted the original chart above. Here's what things look like currently:
In the end, everything played out like we anticipated and locked in some nice gains. I have now been taking profits in SDS as I feel we are due for an oversold bounce (and apparently everyone else feels this way too, which is concerning.... but that's a whole different conversation).

The rest of the gains this month were due to some shorter term moves I had made, most notably with Capital One (COF). I have been in and out of this name on the short side, as I feel they truly have the most exposure to the 'next leg' of problems in the financials: increasing credit card receivables/rising delinquincies & bad auto loans. COF has exposure to both and is having problems. This name has been a major component of the short side of my portfolio, to ensure I'm truly hedged. And, what better way to reap the gains than to short a financial, right? My thoughts exactly. (Note: I've covered the last of my position last week and I am no longer short this name, but I will be looking to re-short on any major pops). I didn't actually blog post about this name in my portfolio, but I did 'tweet' about it numerous times on twitter (here's an example and here's another). So, this just goes to show why you should be following me on twitter! Or at the very least, reading the twitter posts that stream as I post them on the upper right hand corner of my blog. Here's a chart outlining my entry and exit from this name:So, as you can see, all I did was stick to the gameplan and watch the charts for excellent entry/exit points in terms of risk/reward. I realize that these plays could have easily gone against me and continued to rally. But, if they did, I would have been stopped out right above the moving averages, and no harm done. It's all about knowing your risk/reward before even entering a position. For me, this month can be summed up by patience. The whole rally in the indexes from the middle of March until May was simply a rally in the midst of a bear market. I waited patiently until it found resistance, and then entered some short positions in financials (COF) and the market in general (through SDS). I continued to hold my fertilizer, coal, natural gas, and resource plays as they continued to benefit while the overall market struggled. Now, having taken profits in these names, I'll be waiting for pullbacks to re-enter the strong sectors of the market.

Next up: July. Will we see an oversold bounce? Will we continue to bleed it out slowly? Who knows. All I know is I'll be monitoring things closely, waiting patiently to set up my next move based on what happens at this test of support/the March lows on the indexes.