Jim Chanos Shorting Coinstar (CSTR) & Dell (DELL)

Jim Chanos, founder of hedge fund Kynikos Associates, appeared on CNBC this morning talking about some of his latest short positions.

When it comes to shorting, Chanos says that valuation is the least important factor. Instead, he focuses on flawed businesses, accounting problems, and technological changes. He says the internet has been a great 'leveler' in that it's created successful businesses, but it's also destroying many others.

One company in particular he's shorting is Coinstar (CSTR). He points to DVD sales falling as VHS tapes once did. He highlights how cashflow margins are very high because you're "the last guy standing" so everyone looking to rent DVD's goes to them. But he asks what happens when DVD's are replaced by streaming?

He cites Netflix (NFLX) as a company that's been trying to transition to this. Ultimately, he sees streaming as the future and so thinks DVDs die, along with CSTR (assuming they don't adapt).

Chanos is also playing the "death of the PC" and the mobile revolution. He is short Dell (DELL), citing that PC sales are dropping and being replaced by tablets. Though it's unclear if he's short other PC companies, his choice of DELL is slightly puzzling because the bull thesis on this name in the past has focused on a shift to the enterprise.  Perhaps he'd be better served expressing his bet on a secular shift via a different stock.  For the opposite of Chanos, we've posted up why David Einhorn owns DELL as well.

The Kynikos manager also mentioned that he was previously short Research in Motion (RIMM) in the $60's and covered in the $20's last year.

To see what else Chanos has been shorting, we've also posted up another Chanos presentation: beware the global value trap.

Embedded below are is the videos of Chanos' interview (readers click the link to come watch):




To learn more from this manager, head to Chanos on short selling: the power of negative thinking.

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

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

Whitney Tilson On Various Longs/Shorts & Lessons Learned

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

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

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


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


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

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

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

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

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

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


Q&A Session:

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


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

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

- David Einhorn Question & Answer Session

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

- Distressed Investing Panel (Dan Loeb & Daniel Krueger)

- Bill Miller on What Stocks He Likes Now

- Michael Karsch on Risk Management

- Bruce Greenwald's Market Comments

David Einhorn's Extensive Q&A Session from the CIMA Conference

Continuing the series of notes from the CIMA conference (Columbia Investment Management Association), we move on to the portion with Greenlight Capital's David Einhorn. He did his entire session in question and answer format.

David Einhorn's Q&A Session (CIMA Conference)

1. How do you look for ideas on a day-to-day basis? No method for doing it. We are looking for situations where we think something is mispriced. We start with a story, a thesis of why it’s misvalued. There is no systematic way to do this; it’s like going to a bookstore to browse for books. We don’t start with “is it cheap?” That’s easy to find on the computer, but we view cheap as secondary situation. Our goal is weed out as many things as fast as we can.

Example? Process is lack of a process. Sometimes an analyst generates the idea, sometimes other fund managers, a conference, or an idea dinner. Market Folly note: you can also get a good look at Einhorn in action in his book: Fooling Some of the People All of the Time. Be sure to also check out Einhorn's recommended reading list.


2. Once you have an idea, what is your edge? We want to find out what the misunderstanding is. Sometimes it’s a conspiracy to misinform people. Wall Street has this agenda. We like to identify something in which the public has been misinformed. How do you know you’re right? That’s what the work is. We find out what everyone thinks, and then what we think, and then we test it. What we need to know to convince ourselves that we understand it. Fairly informal process, not a firm checklist.


3. Where do you see the most promise today- an example? Long first: large position in AAPL. What could we possibly figure out that not every other person on the planet could figure out? Come to the view that large cap stocks have the same efficiencies as small cap stocks if you take a step back. Compare to KO a decade ago, selling bottlers to make earnings, and it was a high multiple stock. We didn’t short it because, we thought, “What could we possibly know about coke?” KO then declined like crazy- we realized we were making a big mistake by ignoring large companies with large inefficiencies.

What is the inefficiency at AAPL? It trades at a low multiple because people have seen the history of hardware companies, such as the Motorola RAZR, which has been learned. Issue with AAPL is it started with the iPod, got all your music. Now you have the music on your iPhone. TV, iPad, photos. Once you have an Apple device, you buy a second. You become an “Apple customer.” You’re not going to choose your next phone by it being 5% better than the iPhone5. Most people will just go buy the new iPhone5. It’s not a one-time hardware sale; you need a new one every 2 years. They simply wear out, it’s not just to get better phone. Market thinks it’s a hardware company that could lose its edge. Instead, it’s a growth, recurring revenue business that the market has refused to award it. The majority of market practitioners misunderstand it. Bought at 60, sold at 80. Watched, watched, and bought back at 240.


4. More on AAPL: TVs with low margins. Answer: (Note that AAPL shares have jumped 25% since he made these comments) At this valuation, you are not paying for TV at all. You’re not even paying for the current business. $390 per share for business ex cash, earn $45, getting it at 8x p/e. Grew rev at 70% last year, still penetrating the world on early stage iPads, geographically still penetrating for iPhone, especially in China. Even on a bad day, that multiple should be more than a premium of the market. Best company on the market, and trading for half the market premium. Room for value destruction at this price. Never done big acquisitions, R&D expenditure is tight, CAPEX is smart. On TVs: they’ll have to revolutionize the TV like they have the iPhone. Otherwise, they won’t do it. The cable companies might even subsidize the TV. But you don’t have to be right about the TV to make money on the stock.


5. Risk/position sizing? He doesn’t believe in any of the quantitative measures of risk- instead the common sense of risk- how much can you lose? How quickly can you get out of a position? Never bet the whole firm on one position. Large long position is small double digits. Short position smaller, because of upside risk.


6. On poker: skills are somewhat related, you have some information you can see for sure, and some you can deduce, and then you have the future which is a range of possible outcomes. You try to optimize it based on all these factors. In the past, we've highlighted the growing number of hedge fund managers that play poker.


7. Japan- still in trouble, out of the money options are mispriced because people pricing them are using VAR, which is fundamentally flawed.


8. Gold: how do you value it? He is long a lot of gold, has been for a few years, since the financial crisis. Moved all the problems from the private sector to the public sector, which will have an effect on the currency. Gold is money; you don’t value it for its use as a productive commodity. This money only grows at 1-2% per year and the other kind of money changes whenever the central banks decide they need to lend the banks a trillion euros. Policies being pursued now are fraught with risk. Makes sense to have a fraction of your assets that is not exposed to the consequences of their decisions.

Einhorn originally bought physical gold in 2009. Since then, he's also bought gold miners.


9. Emerging Markets? Don’t invest in emerging markets; not comfortable with accounting, risks.


10. Walgreens? Thought about being long WAG, due to fight with ESRX. Idea is they will make up eventually and the stock will pop higher. First, figured out they can’t get any edge on whether they work it out or not. Now they think that since WAG customers can’t use ESRX, it is already a permanent loss for WAG because they may change already. Compromise will still be a lower price per prescription, so everyone else will want the same deal as ESRX gets with WAG. Caremark could demand the same deal since ESRX did. Believe it will be a more sustained, permanent impairment of earnings.


11. Why doesn’t Android win? AAPL has high switching costs. They don’t have a lifetime guaranteed annuity, what they have is a happy, loyal customer. Most of the time these types of franchises have 20-30x multiples, but it’s being priced as a deteriorating business, which it’s not.


12. Fed Balance Sheet: He can’t figure out what the implications of the increased fed balance sheet means, and he doesn’t need to for holding his longs. We’re not going to know what could go wrong, it’s almost certain to be something we don’t think it will be. The fed chairman is a “fanatic” who is living out his academic thesis. We could have a real problem on the way out.


13. New York Mets: of all of his investments, he thought for sure this was the most certain to be negative risk-adjusted return, which made it so irritating that he couldn’t do it.


14. Research in Motion (RIMM): has problems, but could be an interesting long (Einhorn established a new long position in RIMM in Q4 2011). Critical mass for app developers, and they may have missed it. Has a good B/S, trades at a low multiple, and has some IP that a lot of tech companies would want. Trades on a run-off basis, it’s a reasonable speculation that it won’t melt. Not a fantastic investment, but the price has come down so far, that it makes no sense to short it.


15. Shorting GMCR and being public about it - do you have confidence in the SEC? He has no confidence in the SEC. There are about 20 or 30 ways he can win on the GMCR short, but SEC is not on the top of the list. Accounting practices are rather blatant and obvious that the SEC should do something about it, but they don’t look likely to do anything.

If you haven't seen it yet, you can view Einhorn's short case on Green Mountain Coffee Roasters (GMCR).


16. Time arbitrage: he thinks their time horizons of 1-3 years is longer than most market active participants. Most hedge funds under 6 months, long only 6-12 months. Don’t want to hold things that could be in half before it works. But don’t say “dead money” because it could move when you least expect it.

MF note: Blue Ridge Capital's John Griffin has often classified investments as time arbitrage or catalyst driven. Joel Greenblatt's Gotham Capital also utilizes time arbitrage as part of its investment strategy.


17. Long DELL: AAPL is much better than DELL, but DELL has been a great business innovator. They were lousy capital allocators, bought back stock at 40-50x earnings. Then once the stock collapsed, they bought businesses at high multiples instead. In the middle of 2011, they woke up and started buying back stock cheap. They haven’t made any bad acquisitions lately either. $15 stock, $7 per share, $2 EPS, getting stock at 4x P/E even if they’re not growing fast. If they use part of the $7 to buy back stock, you could win. Misunderstanding is at least half of their business is not PCs or notebooks. If you put 8x p/e on other stuff, you get the PC business for free. You can see further thoughts on DELL in Einhorn's investor letter.


18. Industries he won’t touch? He learned to never say never. Six months before he bought gold, he said never to buy gold. His mind can change at times. Betting on outcome of clinical trials is very challenging, and he has no expertise. But he still won’t rule it out. He never would have a large allocation in technology 11 years ago. Time and place for everything just recognize which areas are harder for you.


19. Economics is not a science, it’s an art. He’s very critical of it, people make some very bad conclusions that have had awful consequences for our society. Winning Nobel prizes, but enacting their views as if their science instead of art, have had huge negative consequences.


20. Online gaming? He has no idea how it will sort out. If it opens up, it will be very competitive.


21. St. Joe (JOE): concept stock runs into a math problem. You know exactly what the values are today, because you have transactions and you know what the value is. They can’t create value through actively managing. All they can do is reduce the amount of value that’s being destroyed every day. Land worth $7, stock worth $14. not levered, but it’s also good that it can’t rocket up either. Only way it works is if they discover oil, and his diligence says they’ve already looked.

If you haven't seen it, check out Einhorn's short thesis on JOE.


22. Commodities business? Very hard- need to figure out the normal price of the company, and see if the business is value added or subtractive, and then see if the business is cheap. So when the prices swing quick, you can get hurt badly. You need to have an insight on which way the commodity price will go.


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

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

- Distressed Investing Panel (Dan Loeb & Daniel Krueger)

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

- Long/Short Equity Investing Panel: Whitney Tilson

- Bill Miller on What Stocks He Likes Now

- Michael Karsch on Risk Management

- Bruce Greenwald's Market Comments

Leon Cooperman on Bonds, Stocks, and Apple vs. Research in Motion

Leon Cooperman of hedge fund firm Omega Advisors yesterday sat down with Bloomberg Television to talk about the markets, his portfolio, and what he likes/dislikes at this juncture.

On Treasuries:

Cooperman said that, "I have great confidence the Fed is ultimately going to get their way. The Fed is trying to elevate asset prices, help consumption, help the economy and in two-three years time, we will be worrying about inflation and interest rates will be materially higher. An instrument that I have absolutely no interest in - the most widely traded instrument in the world - is US government bonds. I don’t think people understand how risky a US government bond is at 2% return."

On Equities:

After bashing government bonds, Cooperman also examined the potential of investing in high yield bonds but dismissed them as fully priced. So he turned to equities and said that, "the S&P, which is 13 ½ earnings, yields a bit over 2%, 10% below the historical multiple at a time when interest rates are below historical and you can find lots of cheap stocks out there that will yield more than bonds today that are good companies that will grow over time."

This is largely in line with what the hedgie has been preaching for sometime now. We've highlighted in the past his trademark phrase that equities are the best house in the financial asset neighborhood.

On Apple (AAPL) versus Research in Motion (RIMM):

The Omega Advisors founder thinks Apple (AAPL) is worth north of $600. On Research in Motion (RIMM), he notes that, "It's funny, it was really like a mass hysteria. We put about a half of one percent of our assets into RIM late last year on a theory that they had a revenue base that was being mispriced by the market. Which was 20% of what we had in Apple, we've owned Apple now for a long time, and we continue to own a big position, so we had five times more Apple investment than RIM."

He says they sold RIMM due to stop loss discipline, but he admits that it's still intriguing. David Einhorn's hedge fund Greenlight Capital recently bought shares of RIMM, as highlighted in this free excerpt from our newsletter.

Cooperman also mentioned that he likes gold, Qualcomm (QCOM), JPMorgan (JPM), Bank of America (BAC), Altisource Portfolio Solutions (ASPS), Unitedhealthcare (UNH), WellPoint (WLP), Boston Scientific (BSX), Echostar (SATS), and Dish Network (DISH).

Embedded below is the video from Cooperman's interview with Bloomberg TV:



For more from this hedgie, you can view Cooperman's presentation on risks to the equity outlook.

Kleinheinz Capital: Inflation is Biggest Threat to Emerging Markets

John Kleinheinz's hedge fund Kleinheinz Capital recently sent out its year-end market commentary and 2011 outlook. The focus? Emerging markets and why inflation is the biggest threat to the belief that those countries can rebalance global growth.


Emerging Markets / Developing Economies

In the hedge fund's third quarter commentary, Kleinheinz said Russia is the cheapest emerging market. Their commentary this time around focuses on developing nations in general. They feel that food inflation is a large threat as it causes social unrest. However, the most important reason inflation is a concern is because,

"if developing economies cannot grow at above trend levels in a non-inflationary way then the whole proposition that these economies can gently rebalance the world economy may be untrue. The above average rates of growth in markets like China may simply be the result of trade surpluses that arise from lower cost of labor and fast monetary growth spurred by large domestic and foreign investment in capacity. Without real productivity advances and a migration to higher value-added products and services, which would allow higher incomes, the citizens of those countries cannot be expected to upgrade to a Western lifestyle that favors consumption over savings."


End of Bull Market in Treasury Bonds?

Another interesting focus of Kleinheinz's year-end letter is the notion that the three decade long bull market in US Treasuries is over. In the past, Kleinheinz held some bonds as a hedge. However, they sold out of those positions in the third quarter of last year.

Since then, they've begun "tactically shorting bonds ... until we become more certain about the timing and magnitude of a secular decline in longer dated bonds."


Japanese Yen

On the other side of the spectrum, the hedge fund has also started short positions in the Japanese Yen and Japanese government bonds. The rationale behind the play?

"Simply put - because Japan cannot afford to let its interest rates go higher, its currency will likely go lower to adjust interest rate differentials, slowing trade surplus and dwindling savings."

Readers will recall that hedge fund colleague Kyle Bass is short Japanese government bonds as well.


At the end of 2010, here were Kleinheinz's Top Holdings:

1. Apple (AAPL)
2. Research in Motion (RIMM)
3. China Mobile (CHL)
4. Veeco Instruments (VECO)
5. Monsanto (MON)
6. Hong Kong Exchange & Clearing (HK:0388)
7. LUKoil Holdings
8. Google (GOOG)
9. Major Drilling Group (MDI)
10. Yahoo! (YHOO)

From the third quarter to the fourth quarter, the most notable change in the upper echelon of their portfolio was Baidu (BIDU) falling just outside of the top 10 and their position in VECO ramping up a few spots.

Since inception, the fund has seen a compound annual growth rate of 26.6%. Intriguingly, you can replicate Kleinheinz's portfolio via Alphaclone. Investing in Kleinheinz's top 10 US equity holdings returned 19.5% 2010 compared to the hedge fund's actual performance of 22.86% (get free access to Alphaclone here).

To conclude, we'll leave you with a quote from John Kleinheinz's letter that stuck out the most: "A broad correction in stock market multiples will only occur if ten year U.S. government bond rates exceed 5% and corporate earnings growth slows to low single digit levels."

Kleinheinz Capital Says Russia is the Cheapest Emerging Market: Q3 Letter

John Kleinheinz founded Kleinheinz Capital Partners in 1996 and manages the Global Undervalued Securities Fund. He has seen a compound annual growth rate (CAGR) of 26.8% since inception and a total compound return of 3,162%. Given the solid performance, we've added this hedge fund to our portfolio tracking series and today we're detailing Kleinheinz's third quarter letter/market commentary.

Kleinheinz's fund primarily focuses on equities but also invests in emerging market debt. They utilize macroeconomic analysis to identify various investment themes across the globe with solid risk/reward profiles. Prior to founding his fund, he worked in the corporate finance unit of Nomura Securities in Tokyo as well as Merrill Lynch. Kleinheinz graduated from Stanford University with a degree in Economics.

Current Market Commentary

Kleinheinz's fund is up over 18% year to date. Interestingly enough, you can replicate Kleinheinz's portfolio at Alphaclone and investing in their top 5 holdings has returned 31.6% year-to-date and their top 10 holdings 19.7% ytd (get a free membership to Alphaclone here). This past quarter, Kleinheinz has lost money on their puts and hedges as the market practically prices in another round of quantitative easing. Their short positions in the energy sector (specifically in high beta natural gas producers) also hurt the fund.

While talk of an emerging market bubble seems to have increased, Kleinheinz is quick to point out that despite the fierce rallies, these valuations are still "within historical norms and economic fundamentals appear favorable relative to developed market peers." He believes that the formation of a consumer society in these emerging markets will be a key investment theme for them going forward.

Currently, their focus is on the geographies of Russia, Africa, China, and Brazil. In China, they like healthcare, telecom and technology. They also believe Russia is the cheapest emerging market and they're honing in on energy and utilities. Kleinheinz is generally focused on markets "with stable banking systems, under-levered consumers with rising disposable incomes and attractive valuations relative to growth prospects."

Specific Investment: Yahoo (YHOO)

Kleinheinz also dedicates a portion of the letter to talk about Yahoo (YHOO). He feels the market is under-appreciating Yahoo's international assets such as Alibaba Group and Yahoo Japan. He writes, "assuming an average multiple of 8-10x EBITDA for its core U.S. internet assets on a sum of the parts basis, we believe Yahoo could be worth $32 per share, more than double the Fund's acquisition cost and about equal to the price Microsoft was willing to pay for Yahoo during its aborted takeover attempt in May 2008."

Top 10 Positions (as of September 30th):

1. Apple (AAPL)
2. China Mobile (CHL)
3. Research in Motion (RIMM)
4. Baidu (BIDU)
5. LUKoil Holdings
6. Hong Kong Exchange & Clearing (HK:0388)
7. Veeco Instruments (VECO)
8. Google (GOOG)
9. Akamai Technologies (AKAM)
10. Chubb Corp (CB)

Embedded below is Kleinheinz's third quarter letter to investors:

*Update: Letter removed per request of representatives from Klenheinz

For thoughts from more great managers we also posted up Lee Ainslie & Maverick Capital's letter as well as Jeremy Grantham's commentary and Corsair Capital's latest ideas.

Brett Barakett's Tremblant Capital Bets Big On Research In Motion (RIMM): 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 Brett Barakett's hedge fund Tremblant Capital Group. Before founding his own firm, Brett previously was a portfolio manager for Louis Bacon's global macro hedge fund Moore Capital. Taken from their site, Tremblant Capital Group's objective is "to achieve superior risk adjust returns for our investors through our focused and disciplined investment process." The name Barakett might ring a bell because his brother Timothy used to run fellow hedge fund Atticus Capital (who previously announced they'd be shutting down). So while Timothy may have stepped away from the hedge fund game, Brett is still going at it. And, in his spare time he enjoys ice hockey.

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
Mastercard (MA) Calls
Macys (M) Calls
Chipotle Mexican Grill (CMG)
Macys (M)
Liberty Media Starz (LSTZA)
CVS Caremark (CVS)
Citigroup (C)
The rest of their new stakes were less than 0.5% of reported assets each: Apollo Group (APOL) Calls, Lowe Companies (LOW), AGA Medical (AGAM), DirecTV (DTV), Symmetry Medical (SMA), Union Pacific (UNP) Calls, Greatbatch (GB), Liberty Media (LINTA) Calls, America Movil (AMX), Apollo Group (APOL) Puts, Cypress Semiconductor (CY), Gannett (GCI) Calls, & Liz Claiborne (LIZ)


Increased Positions
Research in Motion (RIMM) Calls: Increased by 312%
Procter & Gamble (PG) Calls: Increased by 107%
Charles Schwab (SCHW): Increased by 37.9%
Hologic (HOLX): Increased by 20.5%
Green Mountain Coffee Roasters (GMCR): Increased by 13.6%
Integra Lifesciences (IART): Increased by 13%


Reduced Positions
Walmart (WMT): Reduced by 33%
Visa (V): Reduced by 32%
Apple (AAPL): Reduced by 26%
Mastercard (MA): Reduced by 25%
Procter & Gamble (PF): Reduced by 20%
Redhat (RHT): Reduced by 11.3%


Removed Positions (Sold out completely):
Qualcomm (QCOM) Calls
Chipotle (CMG-B)
DirecTV (DTV) Calls
Redhat (RHT) Calls
Liberty Media (LMDIA)
CBS (CBS) Puts
Viacom (VIA-B) Puts
Palm (PALM) Puts
The rest of their sold positions were less than 0.5% of assets reported on previous filings each: iShares HongKong (EWH) Puts, Intuitive Surgical (ISRG) Calls, iShares FTSE (FXI) Puts, Werner (WERN) Calls, Baidu (BIDU) Puts, Lamar Advertising (LAMR) Calls, Corporate Executive Board (EXBD) Calls, Burlington Northern (BNI), Peet Coffee (PEET), & China Biotics (CHBT)


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

1. Research in Motion (RIMM) Calls: 28%
   
2. Procter & Gamble (PG) Calls: 8.37%
   
3. Procter & Gamble (PG): 3.34%
   
4. Visa (V): 2.15%
   
5. Mastercard (MA): 2.13%
   
6. Mastercard (MA) Puts: 2.09%
   
7. Research in Motion (RIMM): 1.98%
   
8. Mastercard (MA) Calls: 1.97%
   
9. Green Mountain Coffee Roasters (GMCR): 1.91%
   
10. Hologic (HOLX): 1.91%
    
11. Macys (M) Calls: 1.86%
    
12. Baidu (BIDU): 1.67%
    
13. Walmart (WMT): 1.65%
    
14. Apple (AAPL): 1.64%
    
15. Charles Schwab (SCHW): 1.63%
    

Tremblant Capital uses options to express a lot of their positions so keep in mind that this can get tricky when trying to assess their net exposure to a specific stock. For instance, they own Mastercard (MA) common stock, but also own both calls and puts on the name. Since we don't know the strike prices or expiration dates, it's nearly impossible for us to know what their overall bet is on the name. At the same time though, we know they are bullish on Research in Motion (RIMM) because they own both the common stock and and calls. Not to mention, they added massively to their call position over the past quarter.

In terms of other additions, they doubled their stake in Procter & Gamble (PG) calls and started new call positions in both Macys and Mastercard. Of the positions they completely sold out of, Qualcomm was notable because it had previously been a sizable stake for Barakett's hedge fund. Overall though, their portfolio looks pretty similar to last quarter and they've certainly retained (and even expanded) their large exposure to Research in Motion.

There are also a few transactions we need to clarify. In regards to their Chipotle positions, you'll notice they "sold out" of Chipotle's B shares and added a 'new' stake in Chipotle's A shares. In actuality, Chipotle converted into a single shareclass of common stock in the fourth quarter. As such, Tremblant owns the regular CMG shares. In addition, Barakett's hedge fund 'sold out' of LMDIA and started 'new' stakes in DTV and LSTZA. In reality, this was just a result of a merger transaction.

Assets reported on the 13F filing were $3.8 billion this quarter compared to $3.0 billion last quarter, an increase of 28% in exposure to equities and options. 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, Roberto Mignone's Bridger Management, Thomas Steyer's Farallon Capital, and John Burbank's Passport Capital. Check back daily for our new updates.

Brett Barakett's Tremblant Capital: Large Research in Motion (RIMM) Exposure

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

Next up in our series is Brett Barakett's hedge fund Tremblant Capital. The name Barakett might ring a bell because his brother Timothy used to run fellow hedge fund Atticus Capital (who recently announced they'd be shutting down). So while Timothy may have stepped away from the hedge fund game, Brett is still going at it. Before founding his own firm, Brett was previously a portfolio manager for Louis Bacon's hedge fund Moore Capital and in his spare time he enjoys ice hockey. Taken from their site, Tremblant Capital Group's objective is "to achieve superior risk adjust returns for our investors through our focused and disciplined investment process." The only major notable portfolio activity out of Tremblant has been their 13G filing on IMAX.

Keep in mind that the positions listed below were Tremblant's long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.


Some New Positions
Brand new positions that they initiated last quarter:
Qualcomm (QCOM) Calls
Procter and Gamble (PG) Calls
Wynn Resorts (WYNN) Puts
Union Pacific (UNP) Puts
Monsanto (MON)
DirecTV (DTV) Calls
Apollo Group (APOL)
Viacom (VIA-B) Puts


Some Increased Positions
Positions they already owned but added shares to:
Imax Corp (IMAX): Increased position by 187.7% (we previously detailed this)
Mastercard (MA) Puts: Increased by 115.2%
Melco Crown (MPEL) Calls: Increased by 45.9%
Green Mountain Coffee Roasters (GMCR): Increased by 42%
Walmart (WMT): Increased by 38.5%
Cheesecake Factory (CAKE): Increased by 36%
Intel (INTC) Puts: Increased by 34%
Liberty Media (LINTA): Increased by 27.3%
Charles Schwab (SCHW): Increased by 24.6%


Some Reduced Positions
Stakes they sold shares in but still own:
Red Hat (RHT) Calls: Reduced by 70.2%
Apple (AAPL) Puts: Reduced by 63.7%
RedHat (RHT): Reduced by 45.7%
Google (GOOG): Reduced by 43.5%
Melco Crown (MPEL): Reduced by 35.7%
Icon (ICLR): Reduced by 35.7%
Eclipsys (ECLP): Reduced by 31.7%
Hologic (HOLX): Reduced by 29.8%
Baidu (BIDU): Reduced by 26.8%
Costco (COST): Reduced by 24.8%
Apple (AAPL): Reduced by 24.4%
Qualcomm (QCOM): Reduced by 22.2%


Removed Positions
Positions they sold out of completely:
Apple (AAPL) Calls
Amazon (AMZN) Puts
Qualcomm (QCOM) Puts
Canadian Natural Resources (CNQ)
AU Optronics (AUO) Puts
Hologic (HOLX) Puts
Catalyst Health (CHSI)
Research in Motion (RIMM) Puts
Symantec (SYMC)
Bankrate (RATE)
Weingarten Realty (WRI)
MGM Mirage (MGM) Calls
Las Vegas Sands (LVS) Calls
MEMC Electronics (WFR)
Wynn Resorts (WYNN) Calls
Gannett (GCI) Calls
Harley Davidson (HOG) Calls
Commscope (CTV)
Sequenom (SQNM)


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

1. Research in Motion (RIMM) Calls: 8.7%
2. Qualcomm (QCOM) Calls: 5.43%
3. Procter and Gamble (PG): 5.08%
4. Procter and Gamble (PG) Calls: 4.94%
5. Visa (V): 3.21%
6. Walmart (WMT): 2.9%
7. Mastercard (MA): 2.87%
8. Research in Motion (RIMM): 2.7%
9. Apple (AAPL): 2.5%
10. Hologic (HOLX): 2.29%
11. Baidu (BIDU): 2.19%
12. Mastercard (MA) Puts: 2.12%
13. Melco Crown (MPEL): 2.08%
14. Visa (V) Calls: 1.97%
15. Green Mountain Coffee Roasters (GMCR): 1.95%
    

Tremblant was out reducing technology exposure across the board as it was previously almost 49% of their long US equity holdings. While they were moving out of that sector, they were moving into consumer goods as around 18% of their longs are in that sector now. The tough thing to decipher about their portfolio is their net position in a given name. As you can see above, they hold a bevy of puts and calls in addition to the underlying common in many stocks. As such, we do not have access to the strike prices or expirations of those options so it's hard to tell if they are net bullish or net bearish on some of their positions.

By far and away their largest position though is calls in Research in Motion (RIMM) and this carries over from the second quarter where it was their largest stake then as well. Their second largest holding is a brand new position in Qualcomm (QCOM) calls which is notable. So while they were reducing tech exposure, don't get us wrong... they definitely still have tech positions.

Below are some graphical illustrations of the changes made to Tremblant Capital's portfolio courtesy of Drew Robertson at Financial Research Station:

(click to enlarge)

(click to enlarge)

Assets from the collective holdings reported to the SEC via 13F filing were $3 billion this quarter compared to $2.7 billion last quarter. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Also, please again note that these positions were as of September 30th so two months have elapsed and they've undoubtedly shifted around their portfolio since then.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Dan Loeb's Third Point LLC, David Einhorn's Greenlight Capital, John Paulson's firm Paulson & Co, Lee Ainslie's Maverick Capital, Andreas Halvorsen's Viking Global, and Chase Coleman's Tiger Global. Check back daily as we'll be covering new hedge fund portfolios.

Stocks Around Multi Year Support

Blain over at StockTradingToGo has again assembled a nice arsenal of charts that could be very beneficial to some investors. While I know not everyone agrees with/uses technical analysis, I think its a great tool that should be added to any investor's toolbox to help them making investing/trading decisions. Still need convincing? Numerous prominent and successful hedge fund managers use technicals religiously to help gauge price action, especially Paul Tudor Jones of Tudor Investment Corp.

Last week, I posted up some charts showing bearish continuation patterns, courtesy of Blain. This time around, he's got some great charts up showing stocks that are hovering around multi-year support levels. A few of those stocks are:

Fuel Systems Solutions (FSYS)

(click to enlarge)

Mastercard (MA)

(click to enlarge)

Research in Motion (RIMM)

(click to enlarge)

So, if you're a trader, you could play these levels for short-term bounces, placing stops just below the multi-year support levels (or short on a break below the support). If you're an investor, you could look to place orders around these levels to help accumulate shares at levels that historically have been important to the stock. Blain's got a few more charts of stocks that fit this criteria here.