David Einhorn & Jim Chanos on Similarities Between Poker & Investing

Bloomberg recently highlighted a poker tournament featuring hedge fund managers David Einhorn and Jim Chanos.  In it, they asked the hedgies to compare poker to investing. 

Einhorn said that, "Over time, as you invest in lots and lots of stocks over a long period of time, skill I think dominates.  And the same is true in poker.  If you play lots and lots of hands and lots and lots of tournaments, eventually the better players are going to come out on top." 

Chanos added that, "Like in investing, poker you deal with incomplete information."

This comparison is by no means new.  A few years ago, we highlighted the link between hedge fund managers and poker as many hedgies have played the game and commented on the similarities.

Embedded below is the Bloomberg video:



H/T Santangel's Review

Joel Greenblatt's New Book: The Big Secret for the Small Investor

Just wanted to give everyone a head's up that value investor and hedge fund manager Joel Greenblatt's new book just came out yesterday. It's called The Big Secret for the Small Investor: A New Route to Long-Term Investment Success.

The book details a new approach to investing based on value investing, common sense, and quantitative discipline. Basically, it intertwines his value investing style with an indexing approach. Greenblatt is the founder of Gotham Capital and has seen 40% annualized returns from 1985-2005. He is also an adjunct professor at Columbia Business School.

Greenblatt has authored numerous other books and they each cater to specific investors, including:

You Can Be a Stock Market Genius - Though the title is somewhat cheesy, this book has been recommended by hedge fund legends like Seth Klarman and David Einhorn. It is the definitive text on spin-offs, restructurings, and special situation investing.

The Little Book That Still Beats the Market - Teaches readers how to find good businesses when they're trading at bargain prices.

Greenblatt's newest book, The Big Secret for the Small Investor, is seemingly aimed at the broadest audience since it looks to be a quick read (150 pages) and details value-weighted indexing as an applicable investment style.

Michael Steinhardt on Differences Between Past & Current Hedge Funds

Michael Steinhardt founded Steinhardt Partners in 1967 and generated 24% average annual returns over a 28 year period. He was one of the true pioneers in the industry and he recently sat down with CNBC for an interview.

The former titan talked about his time as a hedge fund manager, saying "When I was doing it, it was an elite phenomenon. Now it ain't an elite business anymore." Steinhardt is now the chairman of ETF firm, WisdomTree.

Hedge Fund Differences: Then & Now

Performance: He notes that the main difference between hedge funds then and now is the goal of performance. He targeted (and achieved) outsized returns, while many funds today are happy cranking out "only" 12-14% gains.

Assets Under Management (AUM): Steinhardt also slipped in his signature phrase of 'diseconomies of scale,' referring to the fact that as assets under management (AUM) grew, true outperformance was harder to achieve. He chastised modern hedge funds as asset gathering behemoths with goals of making money from the assets (management fee) rather than making money from performance.

Impact of Fund Size on Returns: This is a big talking point amongst investors, especially as of late it seems. The classic example, of course, is John Paulson. His hedge fund Paulson & Co catapulted to fame with his stellar returns shorting subprime. As his AUM has swelled, investors have raised concern and Paulson addressed his fund size in his year-end letter.

Maverick Capital's hedge fund founder Lee Ainslie also wrote a quarterly letter to refute the notion that large fund size negatively impacts a manager's ability to generate returns.

Steinhardt's point (and it's a good one), is that regardless of whether or not these funds generate performance, the funds are still making money due to the management fee on a sizable chunk of assets.

Hedge Fund Herding: The hedge fund legend also points out that so many managers are using similar strategies these days, whereas he was one of the few employing them in his time. This is yet another topic that high profile funds have been forced to address via investor letters. Viking Global's Andreas Halvorsen wrote about hedge fund herding here (scroll down in the post).

In short, Steinhardt raises some valid points about how hedge funds have slightly strayed from their original incarnation. The reason? Money, of course.

He's not alone in his concern, either. After all, so many prominent funds wouldn't have to address such issues had they not seen continuous signs of concern from their investors.

You can watch Steinhardt's interview below where he also gives his macro outlook and oddly enough goes on a tirade against Warren Buffett (email readers come to the site to watch):



In the video, Steinhardt also briefly mentions that he remains short 2 year Treasuries. You can also read his past thoughts on why he thinks treasuries are foolish.

Follow A Hedge Fund Manager's Trades: Exclusive 10% Discount

For our readers, we've secured an exclusive 10% discount to Dasan Stock Digest, a publication that gives you access to the trades of a successful hedge fund manager.

The service provides alerts of buys/sells, in-depth research on the specific stocks bought, as well as quarterly earnings updates and market commentary. Receive 10% off by using discount code: marketfolly10.

After reading Dasan Stock Digest for months, it's very clear the portfolio manager has a solid grasp on secular trends. His portfolio returned 65.4% last year compared to 15.06% for the S&P 500. The portfolio manager spent 13 years at UBS & Merrill Lynch, 4 years as a tech analyst and portfolio manager at a hedge fund, and attended Columbia Business School's value investing program.

This truly is a comprehensive service and makes you feel as if you're just looking over the manager's shoulder as he invests. Included in Dasan Stock Digest:

- Email alerts with buys/sells
- Quarterly earnings updates on holdings with models
- Monthly market commentary
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Receive a 10% discount with code: marketfolly10. Take advantage of this discount because their prices are going up in six days!

For an example of the high quality research Dasan Stock Digest puts out, here's a past earnings summary report he put out on Apple (AAPL). Embedded below is the sample which includes the model, conference call notes, and analysis of the company:

Follow A Hedge Fund Manager's Portfolio

Today we're excited to announce that Market Folly readers receive an exclusive 10% discount to Dasan Stock Digest, a publication that provides the portfolio trades of a successful hedge fund manager.  Receive 10% off by entering the following discount code at checkout: marketfolly10

We've been reading Dasan Stock Digest for a few months now and can personally vouch for it as a high quality source of information with an actionable portfolio. Dasan provides rationale behind each position bought or sold as well as detailed industry metrics. Dasan returned 65.4% last year versus 15.06% for the S&P 500.

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Portfolio Manager Background

The portfolio manager spent 13 years at UBS and Merrill Lynch, 4 years as a tech analyst and a portfolio manager at a hedge fund, and attended Columbia Business School's value investing program.

Research Example: Apple (AAPL)

Since Apple is one of the most popular stocks among hedge funds, we wanted to present Dasan Stock Digest's update on AAPL including earnings summary, model, conference call notes, & more. Embedded below is an example of the type of research you'd receive:





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Harbor Investment Conference: Ideas From Ackman, Berkowitz & More

Want to hear some investment ideas from top hedge fund managers? The Harbor Investment Conference will take place February 3rd, 2011 in New York City and provides the perfect opportunity. All proceeds from the event goes to the Boys and Girls Harbor, so it's a wonderful cause. At last year's event, the 8 stocks that were recommended were up an average of 39% at the end of 2010. There are only 331 seats available so act quickly!

Here are the speakers at the event:

Bill Ackman – Pershing Square Capital Management
Bruce Berkowitz – Fairholme Capital Management
David Darst – Chief Investment Strategist, Morgan Stanley Smith Barney
Alex Klabin – Senator Investment Group LP
Mick McGuire – Marcato Capital Management, LLC
Craig Nerenberg – Brenner West Capital Advisors, LLC
Todd Sullivan – Rand Strategic Partners

Everyone of course knows Bill Ackman and Bruce Berkowitz. However, some of the other speakers should offer great insight as Mick McGuire previously worked at Pershing Square and Craig Nerenberg runs a similar strategy to Pershing Square with a concentrated portfolio. Also, our good friend Todd Sullivan from ValuePlays.net will be speaking as well.

Embedded below is an information and registration sheet for the conference:



You can download a registration .pdf here.

The event is coming up soon and there are only 331 seats available, so sign-up to hear some hedgie investment ideas and support a great cause at the same time.

Invest For Kids: Chicago's Investable Ideas Conference

Invest For Kids is modeled after the Ira Sohn Conference and features prominent hedge fund managers presenting their latest investment ideas to benefit local children in Chicago. Last year the event sold out and raised $800,000. 100% of the money raised directly benefits children via local charities so it's a great cause.

Invest For Kids will take place November 3rd at the Harris Theater in downtown Chicago from 2pm to 6pm with a cocktail reception afterward. Speakers include:

Bill Ackman of Pershing Square Capital Management
Larry Robbins of Glenview Capital
Meredith Whitney of Whitney Advisory Group
Sam Zell of Equity Group Investments
Joshua Friedman of Canyon Partners
William Browder of Hermitage Capital
John W. Rogers of Ariel Investments
Doug Silverman of Senator Investment Group
Richard Driehaus of Driehaus Capital
Brian Feltzin of Sheffield Asset Management
David Herro of Herris Associates


A great line-up of speakers for a great cause. Embedded below is the registration form for Invest For Kids:



You can download a .pdf registration form here.

Given that so many conferences take place on the coasts, this event in Chicago is great for those of you in the Midwest or close by. To learn more about the event, head to http://www.investforkidschicago.org.

Argonaut Capital's David Gerstenhaber: Thoughts On The Economy

Last Thursday, hedge fund manager David Gerstenhaber of Argonaut Capital was on CNBC for an extended period of time and shared his thoughts on the economy. Gerstenhaber of course is a former Managing Director at Julian Roberton's legendary Tiger Management. And since (let's face it) many of us watch CNBC on mute, we wanted to highlight something that's definitely worth listening to.

Gerstenhaber thinks you need to be careful investing in this environment (2010) as the easy money has been made in 2009. He notes that he thinks we're at fair valuations and as such 2010 could be difficult for stocks.

In terms of investments, he thinks the yield curve will remain very steep for quite a while and he's got a play to capitalize on that. He says, "(we're) running a position in the yield curve on a basis where we earn the carry associated with the steepness of the difference between the spot and forward curve." We've seen this type of play from numerous hedge funds and in particular, Gerstenhaber's former employer Tiger Management. Tiger's grand maestro Julian Robertson had been betting on higher interest rates via constant maturity swaps (CMS).

One of Gerstenhaber's other main assertions was that it is unfair to compare the current great recession to previous deep recessions in the 1970's and 1980's. He highlights that de-industrialization in the United States has been occurring since World War II and after each recession, we lose more industrial jobs. As such, this recession is unlike the previous deep recessions we've experienced in recent decades.

Below you will find a series of 3 video interviews where he shares his thoughts (RSS & Email readers will need to come to the site to view it).

Video 1:


Video 2:



Video 3:


It's a rarity to get appearances from prominent hedge fund managers on television, but in the recent past we've seen Bill Ackman interviewed, as well as David Einhorn, and occasionally Jim Chanos too. We've also previously covered Gerstenhaber's appearance on another hedge fund panel that is worth checking out.

Kynikos Associates' Jim Chanos: China Overheating

Kynikos Associates hedge fund manager and renowned short seller Jim Chanos recently gave an hour-long presentation on China and below you'll find the video on his thoughts. Chanos wants to make it clear that they are not calling for an "impending crash" in China. They are merely concerned about the risks having taken a closer look at things.

The main point Chanos makes is that, "GDP drives economic activity in China, and not vice versa." He also goes on to note that while he doesn't want to focus on politics, you almost have to when it comes to China, as it has a direct impact on their economy. He also draws special attention to China's fixed asset investment as a percent of GDP growth. He notes that by this metric, no one has done more than 33% growth for 9 years and China is well on their way to blowing these records out of the water. This figure is growing at levels well above depreciation allowances. This means that all the projects they're creating better be economic, otherwise there is bound to be problems in the future.

Embedded below is the full video presentation from Chanos:



In terms of other recent insight from Chanos, we covered in December that he was shorting automakers. For other insight from the Kynikos manager, head to an in-depth interview with Chanos, as well as his presentation on ten lessons from the financial crisis.

Value Investing Congress Speakers Announced & Discount

The Value Investing Congress is back on May 4th & 5th 2010 in Pasadena, California at The Langham Huntington Hotel & Spa. This event is a great place to network and to hear actionable investment ideas from prominent hedge fund managers. We've secured a discount for our readers and you can save $1,600 off the regular price if you register with code P10MF4 by January 21st.

They've announced the list of speakers at the Spring event and there are some great names lined up:

• John Burbank, Passport Capital
• Bruce Berkowitz, Fairholme Capital Management
• Paul Sonkin, The Hummingbird Value Funds
• Mohnish Pabrai, Pabrai Investment Funds
• Patrick Degorce, Thélème Partners
• Thomas Russo, Gardner, Russo & Gardner
• David Nierenberg, The D³ Family Funds
• Lloyd Khaner, Khaner Capital
• J. Carlo Cannell, Cannell Capital
• Whitney Tilson & Glenn Tongue, T2 Partners

Mohnish Pabrai's hedge funds were up over 118% for 2009 so it will be interesting to see what ideas he has this time around. And then of course here on the blog we've covered portfolio movements from John Burbank's Passport Capital, Whitney Tilson's T2 Partners and Bruce Berkowitz's Fairholme Fund, so we know they'll provide thought provoking ideas as always.

It truly is THE premier investing conference out there. Speaking about his experience at the last event, Joel Greenblatt of Gotham Capital says "it was a fabulous event and I give it my highest recommendation."

Click here to receive your discount to the Value Investing Congress and be sure to use discount code: P10MF4.

Marko Dimitrijevic's Everest Capital: Profile

A handful of readers have requested coverage of Everest Capital, a Miami and Singapore-based firm run by Marko Dimitrijevic. We will make an effort to post what we can find on the firm in the coming weeks. For starters, Everest was founded in 1990 and currently manages $1.9 billion, spread across five individual strategies. The firm is best-known for its devotion to studying global macro and emerging markets trends, and then applying a heavy dose of fundamental, bottom-up research to identify opportunities. Of note, the firm prefers to invest across multiple asset classes, diversifying across not only debt and equity securities, but also commodities and currencies.

Earlier this month, the firm released its latest white paper, “The End of Emerging Markets?” In essence, the paper highlights the rapidly leveling playing field between emerging and developed market economies. Pointing to recent improvements in liquidity, corporate governance, volatility, and overall size, the paper makes the case that investors too easily resort to age-old excuses to limit allocations to emerging markets. By making such assumptions, investors could be penalizing themselves, missing out as more and more emerging economies position themselves as legitimate global economic players.

In addition, Everest's CIO, Dimitrijevic, was featured in a November 2 interview in Barron's. In the piece, he touches upon many of the ideas outlined in Everest's latest white paper. Most notably, he presents a compelling case as to why he believes nominal GDP is a misleading measure of economic production. By using U.S. Dollars as a measuring stick, he feels that countries' economic outputs are being over- and underrepresented on the global scale, too-easily distorted by differences in exchange rates and income levels. As a solution, he proposes that GDP be measured according to purchasing power parity, whereby one dollar basically purchases the same bundle of goods and services in all countries. According to Everest's research, such a measurement would show that emerging market economies are responsible for a much larger share of global economic output; in fact, they produce a nearly-equal amount of global economic output as their developed market counterparts. For more on Everest Capital, visit their website.

This article was by Dave Reynolds from HedgeCo.net.

In the future, we're going to be building out quick profile/biography pieces on various hedge funds and their managers in order to provide reference points going forward. In the mean time, here are some of our past in-depth profiles:

- Julian Robertson & Tiger Management

- Lee Ainslie & Maverick Capital

- Bill Ackman & Pershing Square Capital Management

Hedge Fund Managers & Poker - Texas Holdem Hedgies

The following is a guest post by John (aka The Masked Financier) who writes at TexasHoldemInvesting.com.

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The hedge fund literature is full of references to the poker exploits of some of the great hedge fund managers. This part of hedge fund lore is one of the main inspirations for the Texas Holdem Investing theory. The comments of successful hedge fund managers often refer to the relevance of poker as useful training for investing. This provides a firm basis for the thesis that poker can teach investing.

The following examples of the poker connections of some well known hedge fund managers provide some background on the link between the two fields:


- David Einhorn (Greenlight Capital) – Einhorn (pictured right at the World Series of Poker) demonstrated the link between poker and investing in reverse. After setting up Greenlight and achieving extraordinary investment returns over a 10 year period, Einhorn decided to learn poker. Within a few years he had mastered the game and finished 18th in the World Series of Poker. After his victory, Einhorn outlined many of the similarities between investing and poker.

- James Simons (Renaissance Technologies) – Simons just retired from Renaissance (which he founded in 1977) and has one of the top hedge fund returns track records, resulting in Simons making some huge performance fee paychecks. Simons was an avid poker player at MIT, and according to Rachel Ziemba in the book Scenarios for Risk Management and Global Investment Strategies (The Wiley Finance Series) Simons started Renaissance with a focus on gambling related concepts which were retained in the trading models that underpinned Renaissance’s returns. To complete the link between poker, investing, and education in the case of Simons, apparently he started the “Math for America” program over a game of poker with some fellow investment heavyweights in New York. Math for America is focused on improving math education in America.

- Steve Cohen (SAC Capital) – Along with James Simons, Ken Griffin, and John Paulson, Cohen is one of the top hedge fund managers of the past 20 years. Cohen played poker frequently in high school, often playing through the night. According to his brother, Cohen excelled at poker and would have lots of cash stored at his desk. Cohen eventually quit his part time job to focus on poker and says that it taught him how to take risks. Cohen continued to play poker successfully at Wharton while earning his economics degree and developing a fascination with the stock market. One of SAC’s own investors was in awe of Cohen’s poker skills – perhaps it was a factor in making the investment in SAC. Cohen’s poker skill can be discerned in the few public comments he has made on trading. A notable example of his thinking appeared in Market Wizards: Interviews with Top Traders where he stated that 90% of trading is about containing losses – as is the case in poker where most of your time will be spent deciding why not to play a hand to avoid losses.

- Jeff Yass (Susquehanna) – Jeff Yass founded Susquehanna with some of his poker playing friends and has turned it into one of the largest options trading firms in the world. Susquehanna is effectively a hedge fund that specialises in options as its asset class. Poker is now infused throughout the entire hiring and education processes at Susquehanna. The firm has hosted poker tournaments to identify potential employees, and it uses poker as an education tool when training its traders.

- Andy Beal (Beal Bank) – Beal is a long time poker player who participated in one of the most epic games of poker with some of the greatest professionals in recent times. The game was immortalised in the book The Professor, the Banker, and the Suicide King: Inside the Richest Poker Game of All Time. Beal Bank, which is effectively a credit hedge fund that focuses on property loans, has generated extraordinary returns since the recent credit bubble burst. However, Andy Beal had to wait through “a very long run of awful pocket cards” while the banking world boomed around him for almost 5 years while he made no investments because no opportunities fit his criteria. However, when the bust hit Beal felt vindicated and it must have felt like he was being dealt a lot of full houses. Since the downturn Beal has moved into the Forbes 400 of wealthy Americans through the implementation of a poker-like attitude in the world of credit investing.

- Carl Icahn (Icahn Partners) – Icahn apparently generated his first investing stake by winning $4,000 playing poker while in the US Army after graduating from Princeton. He still plays poker at high stakes in Las Vegas. Icahn now uses the skills he learned whilst playing poker to make big activist bets with Icahn Enterprises on companies while looking to read the intentions of both management teams and other investors.

Daniel Strachman takes the comparison one step further in his book The Fundamentals of Hedge Fund Management: How to Successfully Launch and Operate a Hedge Fund. Strachman notes that tracing the explosive growth of the hedge fund industry is analogous to the growth in popularity of Texas Holdem poker over the last 25 years.

Strachman also draws some interesting parallels between Texas Holdem and hedge fund management.

· The barriers to entry are low in both fields. A budding hedgie can have a fund set up and launched for $50,000 all-in (excuse the pun). Although theoretically a Texas Holdem player could start with far less, to start in the Texas Holdem arena aiming for success would require a reasonable bankroll - $10,000 would be a good starting point. Also, from a regulatory standpoint setting up a hedge fund is considerably easier than starting a mutual fund. As for the regulatory situation in Texas Holdem – well there is none unless you’re the person that wants to open a casino. And in some ways it is ironic that getting approved by the Nevada Gaming Board to run a casino may well be more difficult than becoming a market maker (the Wall Street equivalent of the “house” in the casino).

· Hedge fund management and Texas Holdem poker both offer great wealth to successful players in each field. The scales are different, because hedge fund managers can accumulate vast wealth by leveraging off their clients money (as Bruce Kovner said) but good Texas Holdem poker players can earn many millions of dollars.

· Both fields started to gain critical mass in the early 1990s and then took off into the stratosphere in the early 2000s.

The hedge fund industry benefited significantly from the crash of 1987 as many investment managers and support services personnel were laid off and then began to move into the hedge fund arena. The hedge fund concept was quite old at that point, given that Alfred Winslow had started the first hedge fund in 1957. However, clever individuals in Wall Street repackaged the concept with slick marketing and the perception of privileged access. And at the same time some of the best investors on Wall Street moved into the hedge fund space such as George Soros, Julian Robertson, and Bruce Kovner. But the supernova “moment” came after the dotcom crash occurred in early 2000. As general stock markets (and markets of many other kinds) tanked the hedge fund industry in general managed to either not lose money for investors, or even make money. Suddenly funds poured into the industry from 2002-3 onwards until the inevitable happened in 2007 and even the hedge fund industry found it hard to cope with the global recession.

The Texas Holdem market started to grow rapidly during the 1980s as the World Series of Poker got larger and larger. Then clever casino executives started to package the whole Texas Holdem experience with slick marketing, and moved it away from the backroom smoke filled rooms into bright casinos and onto popular TV properties such as the Travel Channel. Texas Holdem had its own “lift off” moment in 2003 that, like hedge fund performance during the dotcom crash, demonstrated the money that could be made from Texas Holdem. This occurred when the complete unknown Chris Moneymaker won the World Series of Poker and a $2.5 million payoff. New “fish” players swarmed to the offline and online casinos. But as with hedge funds even Texas Holdem’s popularity waned with the rest of the casino word in the face of the 2007 global downturn.

Having reflected on these similarities I have added some further points to Strachman’s list which emphasise the connection between the fields of investing and poker, albeit with a cautionary final point.

· Texas Holdem and the hedge fund arena are two of the most capitalistic activities in the world. The score is kept brutally in financial terms, and at the end of each day neither the Texas Holdem player nor the hedge fund manager can hide from the results.

· The capital preservation mindset of both fields is similar – avoiding losses is a vital element of success. With Texas Holdem one of the key objectives is to minimise losses during bad runs of cards and so have maximum bankroll to benefit from successful situations. Hedge funds don’t focus on the benchmarks that plague the mutual fund industry – the main objective is not to lose investors money, even if it means underperforming the broad market in good years.

· Although seemingly glamorous occupations in reality they are very difficult and stressful. It is easy for an outsider to look in and see the ease of sitting at a poker table or a Bloomberg terminal and speculating with large sums of money with the click of a mouse or flick of a chip. But mentally both professions exert tremendous strain on the participants. Human nature is such that the negative emotional effects of monetary losses are much greater than the positive effects of gains. The fortitude required to endure protracted periods of Texas Holdem or investing losses is immense.

· While the upside of both hedge fundery and Texas Holdem can be quick and massive, the downside can be equally fast and quite devastating. One year of a bad run of cards with poor money management will bankrupt even the most successful Texas Holdem player. One year of poor returns and mass client redemptions can hit even the best hedgies, as the impressive managers at Drake Management and Ospraie Management found out in 2008. Some of the fortresses of the hedge fund world also had scary moments in 2008 such as Ken Griffin at Citadel.

The strong connection between investing, trading, and poker is demonstrated by the examples cited in this article. And a final key similarity between both fields is the part played by luck. It is important, but over the long run the good investors and players can outperform the randomness of the market and the cards.

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The above was a guest post by John (aka The Masked Financier) who writes at TexasHoldemInvesting.com.


If you're serious about your poker chips look no further than PokerChips.com for the best poker chips on the web!

Market Wizards: Advice From 15 Top Hedge Fund Managers & Traders

For some excellent advice from 15 of the top hedge fund managers and traders in the game, check out Jack Schwager's talk in this Market Wizards video. It is a free video from INO TV where Schwager talks for an hour about all the advice he has compiled from these famous hedgies. Schwager is the author of the famous Market Wizards series of books that details advice from some of the top hedge fund managers and traders in the history of the game. He has written an invaluable resource and that is why Market Wizards is one of the staples on our recommended reading list.

Investors he has interviewed in the past include:

• Paul Tudor Jones (legendary trader & founder of hedge fund Tudor Investment Corp)
• Michael Steinhardt (founder of the modern day hedge fund via his old Steinhardt Partners)
• Bruce Kovner (runs the global macro hedge fund giant Caxton Associaties)
• Ed Seykota
• Michael Marcus
• Richard Dennis
• & many more

Check out Schwager's talk where he shares the advice he learned from the Market Wizards here. You have to fill out your information to see the free video and we wouldn't post about it unless it was worth your time. We're sure you'll enjoy hearing from Jack Schwager as he talks about what the investing legends shared with him. Don't forget to also check out Schwager's book too as it contains a wealth of information about these hedgies and how they got to where they are. It's definitely one of our favorite resources.

Jim Chanos' Presentation: Ten Lessons From The Financial Crisis

If you're unfamiliar with Jim Chanos then here's what you need to know: He graduated from Yale and is well known for his short selling prowess where he puts a large focus on identifying fundamental flaws in valuation due to underestimated or unearthed problems within a given company. His most notable work in this regard comes from uncovering the issues at Enron. Having previously worked for other firms, he went on to found Kynikos which is Greek for "cynic," a very appropriate name given his strategy and prowess. We also recently covered an in-depth interview he did with the media if you would like to learn more about his thoughts.

Recently, Chanos delivered a presentation entitled "Ten Lessons From The Financial Crisis That Investors Will Soon Forget (If They Haven't Already!)" He delivered this at the second annual Value Investors Conference at the University of Virginia, an event put on by their McIntire School of Commerce and Darden School of Business. In addition to Chanos, numerous 'Tiger Cub' hedge fund managers were present as panel members and contributors. We'll have a post detailing the event tomorrow, but for now we wanted to post up the entirety of Chanos' presentation.

His talking points centered around the following:

- Borrowing short and lending long is still a bad idea
- Accounting matters (a lot)
- Conflicted rating agencies are still not unbiased
- Regulate the activities, not the actors
- Messrs. Glass & Seagall were right
- Too big to fail = too big to exist
- Capitalism on the upside & socialism on the downside = bad policy
- Quantitative easing has its cost
- Insurance without reserves is not insurance
- Shooting the messenger does not change reality

While a couple of his points obviously play to his role as a short seller, he still brings up very valid thoughts. The topic of the ratings agencies is one that has been hotly debated as many have pointed the fault-finger their way for their role in the financial crisis. David Einhorn of hedge fund Greenlight Capital has even shorted the ratings agencies. One of Chanos' points that we think investors actually *won't* forget is that 'helicopter finance' has a cost. Many prominent hedge fund managers (in addition to him) have harped on this point as the consequences of such actions will definitely come to fruition down the line. You have seen more and more people bring this to the front of the discussion and we have a feeling that people have actually started to realize the impact here. Lastly, we absolutely loved this line of his: "Too big to fail = too big to exist." Amen.

Embedded below is Jim Chanos' presentation, Ten Lessons From the Financial Crisis (RSS & Email readers come to the blog to view it:



Alternatively, you can download the .pdf here.

In addition to his solid presentation, we've also learned that Chanos is negative on the municipal bond market, saying that "state and local municipal finance are a mess and going to get worse... (the poor economy) is masking real problems in municipal cost structures." He cites the largest problem as healthcare and retirement benefits given to both local and state workers and as those people start to retire, the problem worsens. He believes that the Fed can (and will) ultimately bail them out if things get that bad. Obviously the muni-market has shown signs of cracking already and he is predicting the situation to deteriorate further so it will be something to keep an eye on.

For more on Chanos, you can check out his recent in-depth interview, as well as another lengthy interview he did in September. It's always good to check in on his thoughts, especially given his short bias and keen eye. While the media prominently focuses on long managers, Chanos is one of the few shorts that they seem to pay attention to.

Lastly, be sure to check out HedgeFundFacts.org. It is a hedge fund advocacy site with a focus on dispelling myths related to hedge funds and short selling created by Chanos. This site is certainly a step in the right direction in terms of removing the 'villainous' title hedge funds are often labeled with.

(Hat tip to My investing notebook for posting the presentation up).

Paul Touradji Launches Counterattack Lawsuit

Originally, Gentry Beach and then Robert Vollero sued former employer Touradji Capital claiming they were owed $50 million in unpaid bonuses. Well, Paul Touradji & hedge fund Touradji Capital have sued right back, seeking $250 million as they claim the two men were "responsible for the destruction of millions of dollars of investor capital through a pattern of fraud, breaches of fiduciary duty, mismanagement and utter disregard for the interests of the investors whose capital they were obligated to protect."

The Touradji counter-attack took a no holds barred approach visible even from the table of contents of the legal proceedings with some heated talking points referring to Beach and Vollero, citing their lackluster 2007 performance, construction and supervision of an 'abysmal' private equity effort, and of course the demotion back to analyst. Rather than writing all the details out, we figured you should just check out all the juicy stuff in the legal filing itself. All you need to read is the table of contents and first section to see how Touradji has come out swinging.

Embedded below is the legal document (RSS & Email readers come to the blog to read it):



Also, you can download the .pdf here.

In the original suit launched against Touradji, all counts but two were dismissed. Touradji of course is a 'Tiger Cub' as he previously worked for Julian Robertson at Tiger Management before launching his commodities hedge fund that is now ranked 16th in Barron's hedge fund rankings.

Taken from our post on 'Tiger Cub' biographies, "Paul Touradji is the President and Chief Investment Officer of Touradji Capital Management LP, a New York-based hedge fund specializing in fundamental research and active investment in commodities and related assets. The firm manages approximately $3.5 billion and invests in both the public and private markets. Mr. Touradji has well over a decade of experience investing in the commodity, equity, and macro markets. Mr. Touradji began his commodities career at Tiger Management in the mid '90s, where he managed the commodities team; it was at Tiger that he developed his fundamental approach to analysis and investment in commodities. Prior to Tiger, Mr. Touradji’s specialty was quantitative arbitrage, principally with O’Connor Partners. Mr. Touradji is a 1993 graduate of the McIntire School of Commerce at the University of Virginia and a Certified Financial Analyst."

We'll watch as this case develops as it is the first public response from Touradji after they were hit with the initial suit.

Great Investors' Best Ideas Symposium: Notes Part 2

If you missed our first post, we've already covered our first set of notes from the Great Investors' Best Ideas Symposium. In that particular post, we detailed investment ideas from prominent hedge fund players Bill Ackman of Pershing Square & David Einhorn of Greenlight Capital amongst many others and we highly recommend checking it out. This post is a continuation of those notes as we wanted to post up some other notable investors' ideas that weren't covered in the first article.

Mario Gabelli, GAMCO Investors

Gabelli thinks the stock market will center around 7-9% returns for the next decade but thinks that talented managers will outperform that. His investment idea was National Fuel Gas (NFG). They are a major natural gas player and have a large holding in the Marcellus Shale, something he feels is not reflected in the stock price. Gabelli said that their business has a value of $42 per share and if it's trading around $46, you are getting around a million acres in the Marcellus shale for only a 'few bucks.'


Karen Finerman, Metropolitan Capital Advisors

Some of you may recognize this name from her frequent appearances on CNBC's show Fast Money. If you're unfamiliar, Finerman runs a long/short equity hedge fund. At the conference, Finerman focused on Golar LNG Limited (GLNG), a liquid natural gas carrier. She has presented this pick numerous times on television before and clearly has conviction in this play. Her thoughts were that GLNG is the premier player in the space and that they would eventually pay up to a 10% dividend based on the companies they own.


James Grant, Grant's Interest Rate Observer

We already covered some of James Grant's thoughts in our first set of notes, but we wanted to cover his insight in more detail. He presented two stock picks that are essentially options on inflation, citing that the Federal Reserve is 'late to arrive and late to leave.' He focused on UTS Energy (UTS) a Canadian company focused on the Canadian oil sands and he mentions this is a speculative play as they do not yet have income. If inflation rises, his thesis is that oil prices should rise and the hard-to-reach oil sands region will become more lucrative. Grant's second pick was Fidelity National Financial (FNF), an insurance company. He is not wagering on an increase in house prices here, but rather an increase in the number of transactions. Grant notes that the title insurance business is essentially an oligopoly and is controlled by 4 players where FNF controls 46%.


Mark Hart, Corriente Advisors

He focused on the trade of long the US dollar and short the Chinese Renminbi. He feels that the short US dollar is the most crowded trade in the history of financial markets and is set to explode. On the other side of the trade, he thinks that the practices in China are generating essentially the same outcome as if the central bank had been diluting the Renminbi. He cites the fact that often foreigners bring foreign currency into China and convert it at a bank who then takes it to the central bank and deposits them into their reserves and prints up Renminbi in order to repay the original bank.


Michael Price, MFP Investors

We touched on Price's thoughts briefly in our first article on the GIBI conference, but we wanted to add some more of his thoughts. In addition to his bullishness on the Washington Post (WPO) cited in our earlier article, Price also likes Smithfield Foods (SFD), a supplier of ham. The 'swine flu' name has caused shares to be beaten down and he feels the government now calling it H1N1 should help the tarnished 'image' of pork products. He also mentioned Vornado Realty Trust (VNO) as 'one of the best run REITs in the world.' However, he thinks it is overpriced and that they will likely come out with an equity offering, diluting shareholders like we have seen with many other REITs do this year. As is the case with much of the industry, VNO is facing a massive debt load and needs to pay it down.

Jim Barrow of Barrow, Hanley, Mewhinney & Strauss

He thinks there is a potential bubble in speculative raw materials and Asian markets. His picks included Cooper Industries (CBE) and Sysco (SYY). He likes CBE as a play on energy savings and also for their strong balance sheet and 3% dividend. He likes SYY, a food distributor, as a play on the economic recovery and for their 4% dividend.

Rusty Rose, Cardinal Investment Company

He feels that there will be a reversion to the mean in housing and expects an 18% further drop, citing that the Case Schiller Index is still 18% above the historical average.


So there you have it, some more thoughts from the various speakers at the Great Investors' Best Ideas symposium. Check out our first set of notes from the conference as well, where we covered what other hedge fund managers presented. These past few weeks have been ripe with investment conferences and have provided us with many potential investment ideas to sort through. If you've missed any of our coverage, it's well worth your time to check them out as they have been some of our most popular articles. You can read up on the following:

- Notes from prominent hedge fund managers at the Value Investing Congress Part 1

- Notes from the Value Investing Congress Part 2

- Bill Ackman's presentation on his short of Realty Income (O)

- Pershing Square's presentation on Corrections Corp of America (CXW)

- Our first set of Great Investors' Best Ideas conference notes


Thanks for reading and be sure to check back daily as we sort through the portfolio moves of prominent hedge funds.

Julian Robertson's Interview With The Financial Times

On his recent media escapade, Tiger Management founder and hedge fund legend Julian Robertson stopped off to chat with the Financial Times about many topics. He has been out talking a lot about his curve caps play lately where he essentially is buying puts on long-term treasuries as he expects prices to fall and yields to rise. Julian again touched on this position in this interview but we want to turn the focus to other topics that he hasn't previously discussed in his other recent media appearances. Here are some notable excerpts from the Tiger Management founder and hedge fund legend's interview with the FT:

"FT: Does this conservative bent mean you’re very interested in gold right now?

JR: I’m interested in gold but not for the reason that a lot of other people are interested. First let me say, I don’t believe in gold – no one has ever, since it was ever discovered, really ever used up any gold. So all of it is here, there’s no supply and demand situation; you can’t eat it. So I think it’s a psychological store of value and I think that probably a psychiatrist is better able to analyse gold than I am. But we do have here the world’s, I think, leading authority on gold – as a matter of fact, he’s giving a talk downstairs now – and I think that’s why we seated him was because I knew he was the world’s best in this.

FT: So who is your Babe Ruth of gold?

JR: You can check him out but he’s a terrific man, and probably has as good a record as anybody in the world over the last five years. And one of the other things about gold – not just the gold bugs who, generally speaking, are some of the craziest people on the face of the globe, but people like me who suddenly get worried and people like you who are concerned about inflation and you say, show me how do I get into gold? And our man will say, Julian, you don’t get into gold now; the price of mining gold, the cost of mining gold is going down very fast and it’s very possible that the companies can make a fortune on the planning price of gold, simply because the costs are going down. So the point is, to buy gold stocks instead of gold."

You can watch the rest of Julian's interview in this 3-part video series starting with part 1 here. At the end, they also played a game of 'long/short' where Julian identified some of his favorite plays at the moment.

He said he was bullish on the following: Google, Gold Stocks, Visa, Apple, Goldman Sachs, and the Australian Dollar.

And he was bearish on the following: The US Dollar and Copper.


Thanks to the FT for another great interview. We think another key point he touches on is the notion of focusing on avoiding big losses rather than gunning for big gains. That's what can truly set a fund manager apart from others an where the true talent shines. Generating returns in a market rally is one thing, but protecting from drawdowns is an entirely different beast. We also found it curious that Robertson avoided the question as to who his 'Babe Ruth of Gold' was. Anybody out there have any ideas as to which manager he might be talking about? Robertson has seeded a bunch of managers, so we can certainly narrow down the list but just found it peculiar he wouldn't outright mention the manager's name.

Lastly, we found it intriguing that Robertson finds gold stocks more appealing than gold itself. Many other prominent hedge fund managers we cover have entered gold plays over the course of the past year so it's always good to find someone who has a bit of a different opinion regarding the precious metal. For more recent insight from hedge fund legend Julian Robertson, make sure to check out his Bloomberg interview, as well as our detailed post on his curve caps play which he has been talking about a lot recently. If you're not familiar with Robertson, then read up on him here.


Source: FT interview

Notes From Great Investors' Best Ideas Symposium (Einhorn, Ackman, Grant & More)

This is part 1 of our post, so check back in tomorrow for part 2! Last week the Great Investors' Best Ideas symposium took place in Dallas, Texas and some prominent hedge fund managers presented actionable investment ideas which we wanted to cover. Notable presenters included David Einhorn of Greenlight Capital, Bill Ackman of Pershing Square Capital Management, Mario Gabelli of Gamco Investors, and James Grant of Grant's Interest Rate Observer, amongst others. We've already detailed a separate post on Bill Ackman's latest short position which he revealed at this conference. So this time around we also wanted to touch on what other hedge fund players presented.

David Einhorn, hedge fund Greenlight Capital

Since we cover David Einhorn's Greenlight Capital fairly extensively on Market Folly, we figured he would be an appropriate place to start. Einhorn's presentation centered around his worry over Japan and the potential for a global currency crisis, noting that Japan has too much debt and an aging population. Specifically, he says, "Should the market reprice the Japanese credit risk, it's hard to see how Japan would avoid government default or a hyperinflationary currency death spiral." Well, 'death spiral' certainly sounds pleasant, doesn't it?

As such, Einhorn recommended buying gold, options on gold, and gold stocks in order to reduce risk to this potential calamity. This is by no means new advice from him, as we've covered Einhorn's physical gold investment much earlier on. It does seem though that his conviction in this play has steadily grown over time. Einhorn also mentioned that he was buying interest-rate options that he will profit from should yields head higher on US Treasuries. This is very likely a similar inflationary bet to that of hedge fund legend Julian Robertson's curve caps play. We have seen a lot of hedge funds in this type of bet over the past 6 months, although some funds have recently lightened up on the play as noted in our recent post on what hedge funds are buying & selling.

In terms of other positions Greenlight Capital has on, we've detailed their short thesis on the ratings agencies here. Lastly, make sure you check out the Value Investing Congress where you can hear Einhorn present more investment ideas next week.


James Grant, Grant's Interest Rate Observer

Grant focused on his forecast of inflation. He said, "The Fed is in the business of price-fixing. It fixes interest rates and then tries to predict the future. Well, price-fixing doesn't work, and the future cannot be predicted. Other than that, I love the business model." Grant went on to add that he is only mildly enthused by gold, at best. He does, however, see the eventual recovery as a bountiful one and is bullish on the stock market as a whole.


Bill Ackman, hedge fund Pershing Square Capital Management

As cited in the introduction, we detailed Ackman's presentation in more detail last week so check out the specifics there. However, for the sake of cohesion in this article, we note that Ackman presented a short thesis on REIT player Realty Income (O). His case is largely contingent upon Realty Income's poorer credit quality tenants. He also notes that the company continually engages in equity raises and he thinks that eventually they will have to cut their dividend, which will send the large retail investor base fleeing. Head here for the rest of the specifics on this play.

For more on Ackman and Pershing Square, check out their Q2 investor letter. In addition to Einhorn, you can also hear more investment ideas from Ackman at the upcoming Value Investing Congress, which we highly recommend attending.


Michael Price, MFP Investors LLC

In a very contrarian play, Michael Price recommended buying beaten down newspaper stocks, as his $1.6 billion firm has a large stake in The Washington Post. The vast majority of money he manages is his own, so he has certainly done well for himself. For his thesis, Price hopes that newspapers will turn to foundations, hopefully luring some brave souls (Bill Gates or Warren Buffett?) to the rescue who can absorb the losses newspapers are seeing. Then, the newspapers could give these foundations a percentage of their online revenue. What's interesting is that he thinks this all plays out over the next few years. If so, the ball better start rolling. In the past, we've discussed whether newspapers are a dying industry as it seems they are in desperate need of saving. Price is not alone in his play as Philip Falcone's hedge fund Harbinger Capital Partners also has a large stake in a newspaper: The New York Times (NYT). However, Harbinger has recently sold some of their stake.


Overall, a great symposium with some interesting investment ideas. Lots of general investing advice was given out as well, including to know the management team you're investing in. So many investors often pay attention to the financials and valution, but you need to make sure to also hone in on the management team to ensure the company is headed in the right direction. Also, some presenters noted that it pays to be contrarian. When everyone is already leaning one way, trends tend to start heading in the opposite direction. One presenter noted that a contrarian play can be "like a mudslide after a heavy rain. The more it rains, the more unstable the hillside becomes; eventually a landslide ensues." Lastly, we'll end on an interesting fact that Mario Gabelli presented, as he noted that almost all major market indexes are now almost back where they were a year ago. Imagine that.

Note that we wanted to get this out quickly so it's not as in-depth as we'd like. We'll be posting up an addendum to this post tomorrow so stay tuned.

Activist Investing Interview With Eric Jackson

Our buddy Misstrade is out with another installment of his interview series and this time he's brought on Eric Jackson of activist investment firm Ironfire Capital LLC. Eric also writes for TheStreet.com and publishes his blog, Breakout Performance. In the 2 videos below, they discuss the topic of activist investing. (RSS & Email readers, come to the blog to view the videos).

Here's part 1:




And here's part 2:



Great conversation from those two guys on the topic of activist investing and our thanks for that. Don't forget we've covered Misstrade's other interview with Lawrence McDonald, author of the New York Times Bestseller book, A Colossal Failure of Common Snese: The Insider Story of the Collapse of Lehman Brothers. You can check out that previous interview here.

Lastly, if you're on Twitter, make sure to check both of those guys out, @misstrade and @ericjackson. And of course, make sure you follow @marketfolly too.

Final Discount to the Value Investing Congress

This is the final discount to the Value Investing Congress so take advantage of it because it expires October 4th! Save $300 right now with discount code N09MF4 before it expires. After that, you'll be stuck paying full retail price for admission to the two-day event. We repeat: This is the final discount and you only have four days to take advantage of it, so act fast!

If you want to hear investment ideas from some of the best hedge fund managers out there, this is the event for you. We've said all along that if you enjoy reading Market Folly, the Value Investing Congress is THE must-attend event of the year. It's not often you get to hear presentations by this many prominent players in the hedge fund game. Once again, the list of confirmed speakers:

• Julian Robertson, Tiger Management
• Joel Greenblatt, Gotham Capital
• Bill Ackman, Pershing Square L.P.
• David Einhorn, Greenlight Capital
• Alexander Roepers, Atlantic Investment Management
• Eric Sprott, Sprott Asset Management
• Sean Dobson, Amherst Securities
• Lloyd Khaner, Khaner Capital
• David Nierenberg, The D3 Family Funds
• Paul Isaac, Cadogan Management
• Candace King Weir & Amelia Weir, Paradigm Capital Management
• William C. Waller & Jason A. Stock, M3 Funds
• Zeke Ashton, Centaur Capital Partners
• Kian Ghazi, Hawkshaw Capital Management
• Whitney Tilson & Glenn Tongue, T2 Partners

Not to mention, it's a ridiculously good networking opportunity given the quality and amount of people that will be there. The Value Investing Congress takes place on October 19th & 20th in New York City. It's at the Marriott Marquis Times Square and they've also secured room discounts if you are coming from out of town, so take advantage of that as well. Remember, this is the final discount and it expires in 4 days. Click here to receive $300 off regular price (discount code: N09MF4).