Warren Buffett Interview: Summary, Video & Transcript

Yesterday on CNBC Warren Buffett sat down for a 2-hour interview with Becky Quick and shared his thoughts on a number of financial topics.  Here's a summary and select quotes, with videos and transcript below.


Warren Buffett Interview Summary

- On the economic signals he sees from all his businesses:  "The rate of improvement has tapered but certainly hasn't flattened ... Home construction has been disappointing, but our retail figures in January were not strong, but January is a peculiar month.  Right now things look fine."  He also noted he sees some signs of inflation in raw material costs.

- On the Federal Reserve & interest rates: "I don't second guess (Jay Powell) at all.  He's a terrific choice."  He said what the Fed does doesn't affect what Berkshire does.

- He's amazed that ten years after the crisis that rates are where they are worldwide (especially negative rates) with the world doing 'really well' now.  "The real question for investors: are these rates the new normal?"

-  On Apple (AAPL): "The lower it goes, the better I like it obviously ...  If it were cheaper, we'd be buying it.  We aren't buying it here"  This quote is interesting considering that AAPL was recently down as much as 30+% in the fourth quarter, but Berkshire was a net seller of shares as one of the portfolio managers (not Buffett) was selling.  His average cost basis is around $141 per share.

- Likes financials as "very good investments at sensible prices.  They're cheaper than other businesses that are also good businesses by some margin."  Says Moynihan at Bank of America (BAC) was underestimated and has done excellent.  Says JPMorgan Chase (JPM) is a very well managed bank.

-  Wanted to be buying stocks in Q4 as they were cheaper, but it sounds like Berkshire was keeping cash on hand for a potential acquisition that didn't materialize.  He said they haven't been buying equities yet in 2019 as the market as 'basically gone straight up.'

- Notes that portfolio managers Ted Weschler and Todd Combs since joining Berkshire: "Overall, they are a tiny bit behind the S&P, each, by almost the same margin."  The now manage around $13 billion each.  Buffett says they've also done better than he has over that time period.

-  On the trade war: The tariffs have had some impact on some of his businesses.  "It pushes prices up, there's no question about that."  It hasn't had a big impact at 10% but 25% you'll have to make changes (pricing, sourcing, etc).

- On KraftHeinz (KHC): Brands in general aren't what they used to be, and in many cases consumer packaged goods companies are being threatened by a ton of new brands, increasingly strong private label, and more.  "The ability to price has been changed, and that's huge."  On his investments he noted: "We didn't overpay for Heinz ... but we overpaid for Kraft."  Says the co still has real debt to be reduced.

- Sold Oracle (ORCL) quickly after concluding he didn't understand the business well enough.  His past dalliance with IBM also entered his mind.  "I don't think I understand exactly where the cloud is going."

- "You do not want to have a political view in investing."

- If Bloomberg announced he were running for President, he would be for him.  If Howard Schulz runs as an independent, he thinks he'd take votes away from Democrats, so it'd be a mistake for him to run.  Generally, third party candidates are going to hurt one side.


Warren Buffett Interview Video

Embedded below is the video of the full interview




Warren Buffett Interview Full Transcript

You can also read a full transcript here.

For more from Berkshire, be sure to also read Warren Buffett's annual letter 2018.

Zack Buckley Shorts Splunk: Value Investing Congress

Continuing coverage, we're posting up notes from the Value Investing Congress.  Below are notes from the presentation of Zack Buckley of Buckley Capital Partners.  His talk was entitled 'Is it 1999 Again?' alluding to the year when tech company valuations were sky high with bad business models

Buckley made a head-turning statement when he said he was long China frauds and visited 50 Chinese companies.  "When I went to China, I was long, when I came back, I was short."  He argued that shorting all the various Chinese frauds is "played out."


Short Splunk (SPLK)

The company monitors web traffic.  Revenue model: one-time fee for use of the software with a maintenance contract. Annual term fees to license the software, based on indexing capacity. IPO at $17, up 90% first day.  Now $36.72, $4.23B market cap, easy to short, P/TTM sales 27x, Trades at 271x street 2015 EBITDA.

Not just a valuation short, it has a business model problem: switching costs are very low for customers, very little patent protection. Not really a Software-as-a-Service (SaaS) business, since they sell a package.

Only 35% of revenue is recurring, still Salesforce.com (CRM) trades at 8x sales, SPLK at 20x.  Lots of competition: SAP, EMC, ORCL. Squeezed by both huge listed competition, and small new VC-backed firms.

Potential price war, competition charges $34k for what they charge $120k for. 90% gross margin business with negative 10% operating margins. Also insiders are selling aggressively, filing a secondary right after they went public. 65 employees, directors, VC funds, CEO, CFO, CTO.  Lock-up ends in 2 weeks, 31M shares, Oct 15th.

Look at what happened at Groupon (GRPN), Zynga (ZNGA). Trades at 27x TTM, unprofitable.  Buyout unlikely, as comps were around 7-8x price/sales.  68% over-valued, could be a $12 stock.

Assumptions for bull case to work: 40% 5 year growth, 29% FCF margins, and 45x multiple.  FCF margins are 1/6 that level now.

Question & Answer

But revenue is doubling every year?  Yes, but the rate of growth is slowing. shorts have been wrong on CRM for a long time, is it the same?  He says if it does grow like that, maybe, but it has very little recurring revenue, whereas CRM has 90% recurring revenue with high switching costs.


Embedded below is Buckley's slideshow presentation from the Value Investing Congress:





Be sure to check out the rest of the hedge fund presentations from the Value Investing Congress.

Jim Chanos Still Short China, Talks Other Positions (Interview)

Jim Chanos appeared on CNBC this morning to share his latest thoughts on the market and his positioning.  The Kynikos Associates hedge fund founder said that 20% of his global short fund is China.  We've posted up the hedge fund China bear thesis before as Chanos notes it's a credit boom over there.

Why He's Short China

He's been quite patient with his China short and it's paid off.  He noted that "we get criticized that China's not in smoking ruins ... we've done just fine."  Chanos says that corporate profits are imploding in the country.

He points out that while China's exports are important, their imports are also very relevant to watch.  While the trade export balance has been decreasing (not a new phenomenon), capital is also leaving and that's a new development Chanos drew attention to.

Lastly, he notes that he wouldn't trust any accounting in China and he could spend an hour talking about that issue alone as corporate accounting is that bad over there.

Chanos' Other Shorts

In regards to what else he's been shorting, he continues to dislike Hewlett Packard (HPQ).  He's long Microsoft (MSFT) and Oracle (ORCL) as hedges to that stake.

Chanos again addressed the notion of global value traps (his presentation via that link).  He says you want to be short printers and ink.  The cloud is fundamentally changing the tech landscape.

On the financial side, he likes to use the term "deleveraging credit python,"  noting that China, Europe, and the US are the three to watch.  In banking, they're long JPMorgan (JPM) and Citi (C).  For the other side of the coin, we recently detailed why Bill Ackman sold Citi.  Kynikos has also been short Chinese and Spanish banks.

Back in 2007 and 2009, Chanos was short healthcare but he no longer is short.  Though he says that longer term, healthcare is a huge issue.

Embedded below are the videos from Chanos' TV appearance this morning.  Video 1 on China:



Video 2 on tech companies & banks:




For more from the well known short seller, check out:

- Chanos on the psychology of short selling

- Chanos on the power of negative thinking

Stocks vs Bonds & Risk vs Reward: Value & Risk in the Eye of the Beholder

Herbert Abramson and Randall Abramson's Trapeze Asset Management is out with their second quarter market commentary and in it they touch on two choices that often confound investors: stocks versus bonds and risk versus reward. They argue that both stocks and bonds involve risk but given the current potential reward each offers, the choice is a no-brainer: stocks. Given the low rates associated with bonds these days, they believe these vehicles are more akin to cash than investments.

In particular, Trapeze (like many other value investors) have shifted their focus to undervalued large-cap stocks. The interesting dynamic here is that this is essentially the first time investors have been able to purchase such high quality companies at what many are deeming cheap prices. You'll recall that during the panic, cyclical and leveraged businesses declined the most and then subsequently rallied the most during 2009. High quality stocks were seemingly left behind and this theme has been highlighted by numerous managers and strategists including Jeremy Grantham, Legg Mason's Bill Miller, hedge fund manager Whitney Tilson, and many more.

Trapeze interestingly intertwines compelling valuations with contrarianism by highlighting the current investor distaste for equities. Just yesterday we highlighted how market strategist Jeff Saut viewed massive equity fund outflows as a possible contrarian indicator. Investors are fearful of numerous economic factors ranging from unemployment, to a double-dip recession, to deflation. This resulted in a stampede into bonds. Such positioning requires a dose of macro outlook and Trapeze's viewpoint appropriately falls in line with the "no double-dip" crowd.

Trapeze writes, "It has been argued that, if one takes a longer term horizon to smooth out the fluctuations, equities can be viewed as long-term bonds with an earnings yield in lieu of a bond yield and often with a fixed dividend yield, mostly reliable, mostly growing. In the current environment if one takes, say, a 5-year horizon to even allow for the possibility of an interim double-dip recession with a lower stock market from a poorer outlook for earnings, stocks should still be the preferred asset class in that extended period."

Many investors have often quoted Warren Buffett in saying, "Be greedy when others are fearful." Investors certainly seem more fearful of equities than they have been in quite some time. While equities haven't experienced extreme declines in absolute value, many investors have traded in their stocks for the supposed safety of bonds. And the problem with that, Trapeze argues, is that cash is desperately searching for return and yield; something that is currently better found in stocks than bonds. They feel that eventually all of the cash and fixed income parked on the sidelines will seek higher returns, eventually ending up back in equities.

In terms of specific stocks, Trapeze offers Clorox (CLX), Aflac (AFL), Kroger (KR), Aetna (AET), Hewlett Packard (HPQ) and Jack in the Box (JACK) as some of the large-cap stalwarts that they've been playing. Additionally, they also continue to hold positions in Oracle (ORCL), IBM (IBM), Walgreens (WAG), Wal-Mart (WMT), Mastercard (MA) and more.

For the bullish case on equities, we highly recommend reading Trapeze Asset Management's second quarter letter to investors in its entirety, embedded below:



You can download a .pdf copy here.

In the end, it's an epic and ongoing debate: stocks versus bonds, risk versus reward. Add in your stance on the macro environment and the decision is essentially made for you. However, what Trapeze is trying to illustrate is that such extreme pessimism (among other factors) can be interpreted as an opportunity for contrarian optimism. We'll end with another quote from Trapeze's letter: "Like beauty, value and risk too are often in the eye of the beholder."

To see what stocks prominent hedge funds have been investing in, head to our brand new quarterly newsletter, hedge fund wisdom by market folly (receive a free sample here). And if the above article is just too bullish on equities for you, last month we presented the opposite side of the coin with David Gerstenhaber's hedge fund Argonaut Capital who thinks that deflation is the greater risk.

Hedge Fund Viking Global Likes American Tower (AMT), Invesco (IVZ): Q2 Letter

Andreas Halvorsen's hedge fund firm Viking Global is out with its second quarter 2010 investor letter and courtesy of Dealbreaker we wanted to highlight some of their latest portfolio maneuvers. Here are Viking's latest top 10 positions:

1. Invesco (IVZ)
2. Unilever (UN)
3. American Tower (AMT)
4. Oracle (ORCL)
5. Comcast (CMCSA)
6. News Corp (NWSA)
7. Tyco International (TYC)
8. Sherwin-Williams (SHW)
9. Goodrich (GR)
10. Adobe Systems (ADBE)

Right off the bat there are several changes to highlight between Q1 and Q2. Back in the first quarter, Visa (V) was Viking's largest position. This time around, Visa is nowhere to be found in their top 10 positions. One might assume they reduced or exited this position, but there was no commentary on this stake to verify. If you read into their letter, you'll see that they are more focused on building concentrated positions and as a result ramped up stakes in various companies. Visa, apparently, was not one of them.

It's quite possible that the credit card processor is still a holding at Viking and other portfolio positions merely leapfrogged their V stake. The same could be said for their position in Express Scripts (ESRX) as it was their fourth largest holding in the first quarter and is nowhere to be found on their top 10 holdings for Q2. These positions will certainly be something to look for in their Q2 13F filing that we'll cover when it's released in a few weeks.

For the second quarter, Halvorsen's hedge fund maintains its long-held position in Invesco as it moves back up to their top holding. Halvorsen writes,

"Our largest loss in the quarter was Invesco which cost us 1.3% in VGE and 1.4% in VLF. Invesco has been in our top ten list since we initiated the position in the fourth quarter of 2007 and was our second most profitable investment in 2009. During the second quarter, Invesco sold off along with other asset managers despite reporting better than consensus first quarter earnings and higher synergy estimates from the Van Kampen acquisition. Encouraged by the fundamental strength of the company and financial and strategic benefits from the Van Kampen acquisition, our core thesis has not changed and we continue to believe that Invesco will outperform its competitors. Viking is currently net long 2.4% in the Asset Management and Custody Banks sub-industry group, which includes the Invesco long position and short positions in asset managers that we believe will experience deteriorating fundamentals and are more levered towards a declining market."

In terms of other Viking positions, Unilever also remains a high conviction pick for them. Moving down the top 10 positions list, News Corp and Tyco also retain their status as a top holding from Q1 to Q2. In terms of new additions, Viking has moved up the following positions: Adobe, American Tower, Comcast, Goodrich, Oracle, and Sherwin-Williams.

Of those stakes, Viking has increased conviction in their new American Tower (AMT) position. Viking likes the company due to its solid business model with high barriers of entry, pricing power, and strong secular growth. Additionally, the company has compelling operations overseas in numerous growth markets. Of this stake, Halvorsen writes,

"We have owned American Tower in the past and we re-initiated a position this quarter because we believe the market has taken many of these characteristics for granted and is underestimating future growth opportunities both domestically and internationally. Additionally, we believe that American Tower’s shareholder remuneration will accelerate over the next several quarters and that, in light of certain tax incentives, the company may convert to a REIT. We find American Tower to have a superior business model relative to most traditional REITs, yet it trades at a discount to the REIT-average. We believe the combination of predictable growth, accelerating shareholder returns, and pending REIT status will generate greater shareholder interest over the next several quarters causing the stock to trade closer to our price target over time. As of June 30, American Tower was our third largest long position at 4.3% of VGE capital and 4.9% of VLF capital."

We've touched on this industry as a compelling investment numerous times as hedge funds favor wireless tower stocks. Numerous high profile managers have moved in and around AMT. Additionally, we've highlighted how hedge funds are bullish on rival company Crown Castle International (CCI) as well. SBA Communications (SBAC) is the other player in the sector and some funds have moved in and out of stakes there as well.

In addition to these portfolio changes, it's obviously worth noting that Viking has struggled performance-wise this year as their Viking Global Equities portfolio was down 5% in the second quarter. As such, Halvorsen penned quite an explanation as to how Viking will strive to atone for these errors and the solution apparently circles around the idea of increased concentration in their highest conviction picks. As such, Viking has added to numerous positions, many of which we've detailed recently. It will be interesting to see if Viking's increased concentration (and possibly increased volatility) is a recipe for correcting their recent struggles.

We highly recommend reading Viking Global's entire letter on Dealbreaker here.

Ricky Sandler's Hedge Fund Eminence Capital Boosts Bet On Financials: 13F Filing

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

Next up is Ricky Sandler's hedge fund Eminence Capital. Prior to Eminence, Sandler started his career as a research analyst for Mark Asset Management and then went on to start Fusion Partners at the age of 25 with Wayne Cooperman. As their investment styles started to differ, Sandler went on to start his new hedge fund. Sandler employs a 'quality value' approach to running his portfolio, spending equal time on both the long and short sides of his portfolio. In the past, he has said they employ gross leverage and are typically around 120% long and 70% short. Sandler attended the University of Wisconsin and holds a CFA designation. You can find a more in-depth look at Sandler and his investment process at the bottom of the article.

The positions listed below were Eminence's long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.


Brand New Positions
Becton Dickinson (BDX)
Accenture (ACN)
Carnival (CCL)
Baxter (BAX)
Northrop Grumman (NOC)
Fidelity National Information (FIS)
Henry Schein (HSIC)
Burger King (BKC)
Autodesk (ADSK)
Burlington Northern Santa Fe (BNI)
Talecris (TLCR)
Raytheon (RTN)
Walgreen (WAG)
Chipotle (CMG)


Increased Positions
Hasbro (HAS): Increased position by 1,342%
Goldman Sachs (GS): Increased by 349%
Lowes (LOW): Increased by 161.3%
Equifax (EFX): Increased by 107.4%
US Bancorp (USB): Increased by 105.6%
Qualcomm (QCOM): Increased by 98.5%
JPMorgan Chase (JPM): Increased by 96.9%
Thermo Fisher Scientific (TMO): Increased by 59.2%
Lockheed Martin (LMT): Increased by 57.4%
Ebay (EBAY): Increased by 38.7%
Abbott Laboratories (ABT): Increased by 29%
Walmart (WMT): Increased by 27.9%
Fiserv (FISV): Increased by 26.3%
Mastercard (MA): Increased by 19.4%
Apple (AAPL): Increased by 16.8%


Reduced Positions
Cognizant Technology (CTSH): Reduced position by 61.8%
Cisco Systems (CSCO): Reduced by 28%
Google (GOOG): Reduced by 24.6%


Removed Positions (Sold out completely):
Monsanto (MON)
Cintas (CTAS)
Abercrombie & Fitch (ANF)
Morgan Stanley (MS)


Top 15 Holdings by percentage of assets reported on 13F filing

1. Oracle (ORCL): 5.63%
2. Abbott Laboratories (ABT): 4.92%
3. Apple (AAPL): 4.24%
4. Lockheed Martin (LMT): 4.21%
5. Thermo Fisher Scientific (TMO): 3.46%
6. Walmart (WMT): 3.33%
7. US Bancorp (USB): 3.15%
8. Fiserv (FISV): 3.15%
9. JPMorgan Chase (JPM): 3.11%
10. Goldman Sachs (GS): 2.95%
11. Equifax (EFX): 2.74%
12. Becton Dickinson (BDX): 2.72%
13. Qualcomm (QCOM): 2.71%
14. ccenture (ACN): 2.70%
15. Carnival (CCL): 2.61%
    

Ricky Sandler's hedge fund increased their long US equity exposure in dramatic fashion in the fourth quarter as assets reported via 13F filing were $5.2 billion, way up from the previous $3.1 billion. And obviously you can see that with all the increased and new positions listed above. Some of their more notable additions were massive increases in their positions in financials via US Bancorp, JPMorgan Chase, and Goldman Sachs. Just earlier this morning we saw that hedge fund Valinor Management added heavily to their GS stake, and Sandler's Eminence has as well.

In addition to financials, Eminence added to Hasbro, Qualcomm, Thermo Fisher Scientific, and Lockheed Martin. While their portfolio shows hints of the most popular hedge fund holdings with AAPL, WMT, & QCOM, they also have some interesting picks mixed in as well. We haven't seen many funds with positions in Equifax, Oracle or Lockheed Martin, but Sandler's hedge fund owns all three.

They also added a bevy of stocks as brand new positions and their new stakes in BDX, ACN, CCL and BAX are all pretty sizable as well, all in the top ten holdings. In terms of positions they sold completely out of, we see yet another hedge fund has dumped Monsanto. Overall, Eminence increased financials and healthcare exposure and reduced technology exposure.

Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $5.2 billion this quarter compared to $3.1 billion last quarter, a whopping 66% increase. Remember that these filings are not representative of the hedge fund's entire base of AUM.

For more on Ricky Sandler and Eminence's investing style, we've attached this old copy of Value Investor Insight:




We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, Warren Buffett's portfolio, John Paulson's hedge fund Paulson & Co, Lee Ainslie's Maverick Capital, Dan Loeb's Third Point, Eddie Lampert's RBS Partners, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, Roberto Mignone's Bridger Management, Thomas Steyer's Farallon Capital, John Burbank's Passport Capital, Brett Barakett's Tremblant Capital, George Soros' hedge fund Soros Fund Management, and Philippe Laffont's Coatue Management Charles Anderson's Fox Point Capital, Bill Ackman's Pershing Square Capital Management, Jonathan Auerbach's Hound Partners, Lee Hobson's Highside Capital, David Stemerman's Conatus Capital, Matt Iorio's White Elm Capital, and David Gallo's Valinor Management. Check back daily for our new updates.

Thomas Steyer's Farallon Capital Focused On Risk Arbitrage: 13F Filing

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

Next up is Thomas Steyer's hedge fund Farallon Capital. Steyer founded Farallon in 1986 and today it is a multi-billion dollar hedge fund that invests in equities, private investments, debt, and real estate. Typically though, they're focused on risk arbitrage strategies and you'll find a lot of evidence of this in their portfolio below. In terms of other recent activity, we saw that Farallon disclosed their large position in FreightCar America (RAIL) and have been selling shares of Knology (KNOL).

The positions listed below were Farallon's long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.


Brand New Positions
Sun Microsystems (JAVA) ~ inactive
Affiliated Comp Services (ACS) ~ inactive
Home Depot (HD) ~ inactive
Wells Fargo (WFC)
XTO Energy (XTO)
Dollar General (DG)
Encore Acquisition (EAC)
Sherwin Williams (SHW)
Verisk Analytics (VRSK)
Covidien (COV)
Energy Partners (EPL) ~ this was a result of a debt to equity conversion
Expedia (EXPE) Puts
Delta Airlines (DAL)


Increased Positions
Charles Schwab (SCHW): Increased by 309%
Beacon Roofing (BECN): Increased by 167% ~ we also detailed this increase
Burlington Northern (BNI): Increased by 137% ~ now inactive after the Berkshire Hathaway purchase
Old Dominion (ODFL): Increased by 103%
BMC Software (BMC): Increased by 98%
China Housing & Land (CHLN): Increased by 88%
Crown Castle (CCI): Increased by 75.5%
Monsanto (MON): Increased by 62.5%
SBA Communications (SBAC): Increased by 44.8%
Oracle (ORCL): Increased by 43%
Jones Lang Lasalle (JLL): Increased by 33.5%
Express Scripts (ESRX): Increased by 30.8%


Reduced Positions
Visa (V): Reduced by 53.8%
MSCI (MXB): Reduced by 47%
Hurray Holdings (HRAY): Reduced by 43.5%
GeoEye (GEOY): Reduced by 33.2%
JB Hunt (JBHT): Reduced by 22.4%
Discovery Communications (DISCA): Reduced by 20.4%
Knology (KNOL): Reduced by 14.8% ~ we already knew of these sales


Removed Positions (Sold out completely):
Aetna (AET) Calls
Capitalsource (CSE)
Apollo Group (APOL)
iShares Russell 2000 (IWM) Puts
Focus Media (FMCN)
Mastercard (MA)
America Movil (AMX)
Rockwell Collins (COL)
Eastman Kodak Bonds
Priceline.com (PCLN)
Marvel Entertainment (MVL)
Google (GOOG)


Top 15 Holdings by percentage of assets reported on 13F filing

1. Sun Microsystems (JAVA): 12.97%
   
2. Burlington Northern Santa Fe (BNI): 7.63%
   
3. Affiliated Comp Services (ACS): 6.99%
   
4. Visa (V): 3.88%
   
5. Home Depot (HD): 3.69%
   
6. Wells Fargo (WFC): 3.59%
   
7. XTO Energy (XTO): 3.50%
   
8. Oracle (ORCL): 3.41%
   
9. Jones Lang Lasalle (JLL): 3.08%
   
10. Crown Castle (CCI): 3.06%
    
11. Dollar General (DG): 2.85%
    
12. Charles Schwab (SCHW): 2.80%
    
13. BMC Software (BMC): 2.77%
    
14. Monsanto (MON): 2.40%
    
15. Yingli Green Energy Bonds: 2.40%
    

As you can see, a lot of Farallon's holdings were arbitrage related. Their top three holdings are no longer active stocks as they've all completed their merger processes: Sun Micro, Burlington Northern, and Affiliated Comp. A lot of their top holdings were also brand new holdings including Wells Fargo, Home Depot and Dollar General. This is directly in line with what we've seen out of hedge fund land lately. In fact, Wells Fargo was one of the most added stocks by hedge funds in the fourth quarter. Overall, Farallon reduced exposure to services and increased technology exposure.

Steyer's hedge fund firm completely sold out of a number of notable stakes (including Capitalsource which we previously detailed). They also dumped shares of Apollo Group (APOL) which is interesting as we've started to see hedge funds take divergent paths on this name. Some funds like Farallon have sold out, while others like Chase Coleman's Tiger Global have taken large stakes. Another interesting choice Steyer's hedge fund made was to sell completely out of Mastercard (MA) while still holding shares of Visa. Previously, hedgies had owned both of the payment processors. Nowadays it seems many funds are choosing one or the other. Farallon has chosen Visa, but note that they did sell some shares of V as well.

Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $2.0 billion this quarter compared to $1.4 billion last quarter. Remember that these filings are not representative of the hedge fund's entire base of AUM.

We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, Warren Buffett's portfolio, John Paulson's hedge fund Paulson & Co, Lee Ainslie's Maverick Capital, Dan Loeb's Third Point, Eddie Lampert's RBS Partners, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, and Roberto Mignone's Bridger Management. Check back daily for our new updates.

Lee Ainslie's Maverick Capital Focused On Technology & Health Stocks: 13F Filing

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

Next up is Lee Ainslie's hedge fund Maverick Capital. Maverick focuses on intensive fundamental research to identify positions on both the long and short side of the portfolio, but they do not employ pairs trades. Positions typically do not exceed 5-8% of the portfolio as Ainslie's big focus is on risk management. Maverick looks at enterprise value to sustainable free cash flow and their analytical team is segmented by sector.

Ainslie founded Maverick after leaving Julian Robertson's legendary hedge fund Tiger Management. As such, Ainslie's hedge fund is a part of the Tiger Cub Portfolio created with Alphaclone where you can replicate the portfolios of some of the top hedge funds around. Additionally, you can read more about Lee Ainslie in our profile of Maverick Capital.

For Ainslie's recent take on the economy and markets, we highly recommend reading Maverick's recent investor letter as well as our post on Ainslie's appearance at a prominent hedge fund panel. The positions listed below were their long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.


Brand New Positions
Bank of America preferred (BAC-S)
Oracle (ORCL)
Express Scripts (ESRX)
Wells Fargo (WFC)
Commscope (CTV)
Brocade Communication (BRCD)
Autodesk (ADSK)
Mead Johnson (MJN)
Family Dollar Stores (FDO)
Autozone (AZO)
State Street (STT)
Banco Santander (BSBR)
Dish Network (DISH)
Viacom (VIA.B)
Citrix (CTXS)
Target (TGT)
Illumina (ILMN)
Healthnet (HNT)
Carnival (CCL)
Green Mountain
Coffee Roasters (GMCR)
Ericsson (ERIC)
Longtop Financial (LFT)
Dollar General (DG)
American International Group (AIG)

The rest of their brand new positions are less than 0.5% of reported assets each: American Public Education (APEI), Vanceinfo Tech (VIT), Artio Global (ART), Discovery Communication (DISCK), Northwest Banchsares (NWBI), China Nuokang (NKBP), & Anadys Pharma (ANDS)


Increased Positions
Perfect World (PWRD): Increased by 530.6%
Sears Holdings (SHLD): Increased by 320.6%
Expedia (EXPE): Increased by 176.2%
DirecTV (DTV): Increased by 153.6%
Winnebago (WGO): Increased by 123.3%
Fedex (FDX): Increased by 97.8%
Apollo Group (APOL): Increased by 82.4%
Wellpoint (WLP): Increased by 67.6%
Digitalglobe (DGI): Increased by 55.2%
Brinks Home Security (CFL): Increased by 30.9%
Cypress Biosciences (CYPB): Increased by 30.5%
Macys (M): Increased by 26.1%
Pfizer (PFE): Increased by 21.2%
Bluefly (BFLY): Increased by 21.2%


Reduced Positions
Priceline (PCLN): Reduced by 73.6%
Bank of America (BAC): Reduced by 63.7%
America Movil (AMX): Reduced by 63.4%
Infinera (INFN): Reduced by 58.4%
Qualcomm (QCOM): Reduced by 55.9%
Discovery Communications (DISCA): Reduced by 47.6%
Berkshire Hathaway (BRK.A): Reduced by 37%
Home Inns & Hotels (HMIN): Reduced by 35.5%
Covidien (COV): Reduced by 32.4%
Corning (GLW): Reduced by 32.2%
RenaissanceRe (RNR): Reduced by 30%
Equinix (EQIX): Reduced by 29.5%
Itron (ITRI): Reduced by 28.7%
Visa (V): Reduced by 28.5%
Cablevision (CVC): Reduced by 28.1%
Berkshire Hathaway (BRK.B): Reduced by 24.7%
Athenahealth (ATHN): Reduced by 24.6%
Pepsico (PEP): Reduced by 24.5%
Black & Decker (BDK): Reduced by 22%
Amgen (AMGN): Reduced by 20.1%
Lender Processing (LPS): Reduced by 19.8%
XTO Energy (XTO): Reduced by 17.3%


Removed Positions (Sold out completely):
Hewlett Packard (HPQ)
JPMorgan Chase (JPM)
Liberty Media (LSTZA)
First Solar (FSLR)
Staples (SPLS)
Accenture (ACN)
Microsoft (MSFT)
Cummins (CMI)
Gap (GPS)
Williams Sonoma (WSM)
Palm (PALM)
Celgene (CELG)
Strayer Education (STRA)
Google (GOOG)
Whole Foods (WFMI)
King Pharma (KG)
Cognizant Technology (CTSH)
Cemex (CX)
Nii Holdings (NIHD)
Skechers (SKX)
Chicos (CHS)
First Advantage (inactive)
MB Financial (MBFI)


Top 15 Holdings by percentage of assets reported on 13F filing

1. Apple (AAPL): 3.7%
   
2. Apollo Group (APOL): 3.5%
   
3. Bank of America preferred (BAC-S): 3.0%
   
4. DirecTV (DTV): 2.9%
   
5. Oracle (ORCL): 2.8%
   
6. Macys (M): 2.6%
   
7. Marvell Technology (MRVL): 2.6%
   
8. Corning (GLW): 2.5%
   
9. Gilead Sciences (GILD): 2.3%
   
10. Wellpoint (WLP): 2.1%
    
11. Progressive (PGR): 2.1%
    
12. Express Scripts (ESRX): 2.0%
    
13. CVS Caremark (CVS): 2.0%
    
14. Wells Fargo (WFC): 2.0%
    
15. Pfizer (PFE): 1.9%
    

One thing you'll notice about Lee Ainslie's portfolio is that there are no highly concentrated positions. He is very big on risk management & position sizing and therefore you see a lot of holdings that each represent around the same percentage of their US equity exposure. To see how exactly Ainslie likes to construct his portfolio, head to our profile on Maverick Capital.

Their stakes in Apple and Apollo Group are the only two that are really sizable compared to the rest of the disclosed holdings. And, there's an interesting dynamic between those two positions. In Apple you have one of the most popular stocks amongst hedge funds. In Apollo Group you have some controversy and difference of opinion between hedgies. David Stemerman's Conatus Capital recently dumped their APOL while Chase Coleman's Tiger Global started a new APOL stake. Maverick sides with Tiger Global at the moment.

Lee Ainslie's hedge fund started brand new stakes in Bank of America preferreds, Oracle, Express Scripts & Wells Fargo and brought them all up to top 15 holdings. As you can see they made a lot of portfolio adjustments as they added to various holdings and sold partial positions in others. Of all the hedge funds we've covered thus far, they by far have the most position size changes on a quarter over quarter basis.

Maverick also sold out of a bunch of well-known large cap plays. Their most notable sale was in shares of HPQ because last time around it had been their 2nd largest US equity long position. Ainslie's hedge fund also dumped their 7th largest holding from the last 13F filing in JPMorgan Chase. Their sale of Palm (PALM) continues to mark a wave of pessimism and negativity that we've seen amongst hedge funds. Many funds are even shorting PALM as they seem to be losing ground in the fierce battle known as the smartphone industry. Additionally, we note their sale of their entire First Solar (FSLR) stake.

Assets reported on the 13F filing were $8.98 billion this quarter compared to $8.3 billion last quarter. Remember that these filings are not representative of the hedge fund's entire base of AUM.

We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, Warren Buffett's portfolio, and John Paulson's hedge fund Paulson & Co. Check back daily for our new updates.