Goldman Sachs Conviction Buy List Updates: May 2009

We used to cover Goldman Sachs' Conviction Buy & Sell lists pretty frequently on the blog, but then we became so inundated with hedge fund tracking that we never had the time. But now, with the 4th quarter 2008 hedge fund portfolio tracking behind us, we've got some spare time before the Q1 2009 portfolios are released and we're swamped again.

Here's the caveat with this coverage: we don't normally place a ton of weight on individual analyst calls and upgrades/downgrades. That said, we are very cognizant that they often move markets and have to at least be monitored. As such, we've covered Goldman Sachs' list because for whatever reason, everyone loves a "V.I.P." or "Best of" and "Worst of" list. So, Goldman's lists are essentially the cream of the crop in either direction. If they add it to their Conviction Buy List, they love it, and if they add it to the Conviction Sell List, they (at least for the moment) hate it. That much is self-explanatory but we just wanted to give a preface for those unaware. Now, to the changes:

Conviction Buy List

The bulk of their recent changes were made to their Conviction Buy List. As the month of May begins, Goldman has decided to ambush everyone with a ton of changes.

Here are the names they have just recently added to their Conviction Buy List: Liz Claiborne (LIZ), Massey Energy (MEE), Joy Global (JOYG), and Research in Motion (RIMM).

And, here are the names that Goldman has removed from their Conviction Buy List: Mastercard (MA).

Their addition of Claiborne to the list is interesting given that they have doubled their price target on the stock from $3.30 to $7.20. Is it just us, or did the economy NOT get 100% better overnight? Apparently all the Wall Street wives and girlfriends who had cut back on their purchases of make-up are rampantly buying again. Previously, Claiborne was rated as neutral but now graces their Conviction Buy List. This seems to stick with the market theme of the past few months of what we crassly call "sh*t rallies." Essentially, all the horribly beaten down stocks with poor fundamentals and poor outlooks are rallying for hardly any reason other than that they are oversold and are hopeful that the economy will rebound a.s.a.p.

Goldman removed Mastercard from the Conviction Buy List, but still retains a 'buy' rating on the name. More than anything, this is due to a combination of the recent earnings release, valuation, and taking some profits off the table after the rally. Interestingly enough, Mastercard (and Visa too) are holdings currently present in our Market Folly portfolio that we created based on hedge fund cloning. Our portfolio has seen a total return of over 190% since mid-2002 and has annualized returns of 17%. Year to date for 2009, our portfolio is outperforming the S&P by a handsomely wide margin, and Mastercard and Visa are certainly to thank for part of that.

We don't have a problem with this Goldman removing MA from the Buy List, as we recently sold some of our Visa (V) into the earnings release pop, as shares have rallied over the past few months. We post all of our portfolio updates in our Twitter stream, so definitely follow us on Twitter if you're not already. Again, MA is still rated a buy, but no longer graces the Conviction List.

Massey Energy (MEE) was also added to their Conviction Buy List as Goldman sees shares more than doubling from their previous $12 price target to a new target of $26. Massey was previously rated as Neutral and now graces the Buy List. And, as we'll touch on below, this upgrade was a part of a sector-wide coal upgrade on Goldman's part. But, it definitely appears as if Massey is their favorite at the moment.

Sticking to the energy and raw material meme, we see that they also added Joy Global (JOYG) to their Conviction Buy List. Joy provides the equipment and servicing related to the mining industry and since Goldman is bullish on the Coal industry, they're projecting somewhat of a trickle-down effect where Joy will see more action as the Coal companies ramp up. Goldman had just recently upgraded Joy from neutral to buy back in late April. But, they've now essentially upgraded it again by adding it to their Conviction List. Also, interestingly enough, we had noted that in Q4 2008, numerous hedge funds had sold out of Joy Global. We'll have to see if they have reversed course when they release their Q1 '09 holdings.

Last, but not least, they've also added Research in Motion (RIMM) to the list and have only mildly adjusted the price target to $85, up from $82. We're not quite sure what exactly has changed or what merited this move, but oh well. We've noted that previously RIMM was hedge fund Maverick Capital's 9th largest holding.

Also, we wanted to touch a major move by Goldman that undoubtedly help shake up the Coal industry yesterday (5/4/09). We couldn't help but notice that coal stocks were all rallying hard, and Goldman is partially responsible for this as they upgraded the entire American coal sector to 'Attractive' from 'Neutral.' And, as we mentioned above, Massey Energy in particular was even added to the Conviction Buy List. Stocks in the specific sector who were all seeing action include: Patriot Coal (PCX), Arch Coal (ACI), Consol Energy (CNX), Alpha Natural Resources (ANR), Peabody Energy (BTU), and Foundation Coal (FCL) among others.

Other Recent Moves

The names mentioned above all were added/subtracted from the list here in the first few days of May. But, in fairness of playing catch-up, we also wanted to quickly list which names Goldman also added/subtracted from their Conviction Lists at the end of April and on the 1st of May.

Further additions to the Conviction Buy List: Brinker (EAT), Activision (ATVI), Och-Ziff (OZM), & CVS Caremark (CVS).

Further removals from the Conviction Buy List: DR Horton (DHI) and ITT (ITT).

So, there you have it. You are now all caught up with Goldman Sachs' Conviction Buy & Sell Lists. (That is, until they release the next batch of changes). From here on out we'll try and update these lists, provided that our hedge fund tracking doesn't get in the way.

Louis Bacon's Moore Capital Management Bets On Energy: 13F Filing Q1 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

This week is 'global macro week' here at Market Folly and we'll be covering some of the equity positions of the major global macro strategy hedge funds. We want to start off this week with a slight disclaimer. Since global macro funds trade all different types of asset classes, they're not an ideal bunch to track or to clone a portfolio from. However, they are some of the smartest minds out there in terms of secular themes, trading, and market timing. As such, we monitor their movements in equities to get a sense as to what sectors they like, when they're moving out of long equity positions, and to see if we can see any secular themes they might be playing. So, this week is not so much about tracking as much as it is about taking a step back and observing the 'bigger picture.'

We've already covered Paul Tudor Jones' hedge fund, and next up we've got Louis Bacon's Moore Capital Management. Louis Bacon comes from the group of "offspring" of the legendary Commodities Corporation. Moore emerged as a successful offspring along with fellow great macro traders Bruce Kovner (Caxton Associates) and Paul Tudor Jones (Tudor Investment Corp). Moore, named after Bacon's middle name, is a $10 billion global macro set of hedge funds. Louis Bacon is a famed trader and risk manager. And, interestingly enough, Bacon helped get his firm off the ground when Paul Tudor Jones stopped accepting capital from investors and instead turned them to Bacon's firm. Returning 31% annually since inception in 1990, Bacon can be very proud of his flagship fund, Moore Global Investments. But, it doesn't stop there. His returns have shown little correlation to the stock market and low volatility. He is the definition of a risk manager. For 2008, their Global Investments fund finished -4.3%, their Global Fixed Income fund finished +1.3%, and their Emerging Markets Fund finished -17.6%, as noted in our comprehensive list of hedge fund performance numbers. In Barron's 2009 hedge fund rankings, Moore came in 33rd out of the top 100.

Bacon credits his risk management skills to the futures markets, where he learned to be sensitive to market action. And, he learned such skills at an early age. While getting his MBA at Columbia, he used his student loan money to trade. And, he lost it all. Clearly, he learned a lesson he would never forget. Such a lesson stuck with him as he worked various jobs in the financial industry before eventually starting his own firm. And, in his first year managing Moore Capital Management, he returned 86%. Bacon strives to identify long running macro trends. While he has a longer-term macroeconomic view, he won't let that stop him from making money by trading around the position in the mean time. If you want to hear some insightful thoughts from Louis Bacon himself, head over to our post on Hedge Fund manager interviews.

Many successful members of Moore have gone on to start their own funds. For instance, we track Bret Barakett's Tremblant Capital, who learned his trade at Moore. Also, its worth pointing out that Stanley Shopkorn, formerly of Moore Capital, has started his own fund. Additionally, we recently learned that Christopher Pia, another Moore alum will be starting his own fund. But, enough about those who have gone on to do their own thing. Let's check out what Moore was up to.

Back in December of 2008, we posted up an interesting piece about how global macro funds were returning to their roots and Moore was prominently featured. It will be interesting to monitor their developments going forward as they were displeased with the complexities of their portfolio. In terms of recent performance, we saw that Moore was up 6.3% for 2009 at the end of May in our 2009 hedge fund performances post. Special thanks goes out to Patrick McGowan for assembling the data for this 13F analysis.

The following were Moore's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Wyeth (WYE), United Technologies (UTX), China Mobile (CHL), Metlife (MET), CMS Energy (CMS), Electronic Arts (ERTS) Calls, China Petroleum (SNP), Freeport McMoran (FCX), Emerson Electric (EMR), Monsanto (MON), Genentech (DNA) Puts, Caterpillar (CAT), EMC (EMC), Citrix (CTXS), Walmart (WMT), Activision Blizzard (ATVI), Northeast Utilities (NU), Netapp (NTAP), Riverbed (RVBD) Calls, Wyeth (WYE) Calls, Cummins (CMI), Owens Illinois (OI), Joy Global (JOYG), Schering Plough (SGP), & Hess (HES) Puts


Some Increased Positions (A few positions they already owned but added shares to)
Lorillard (LO): Increased by 606%
Petroleo Brasileiro (PBR-A): Increased by 196%
ACE (ACE): Increased by 178%
Select Sector Energy (XLE): Increased by 133%
Occidental Petroleum (OXY): Increased by 100%
Potash (POT): Increased by 92%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
PS Wilderhill (PBW): Reduced by 70%
Micron (MU): Reduced by 47% but their position is only 0.46% of their portfolio


Removed Positions (Positions they sold out of completely)
Transocean (RIG), Home Depot (HD), Lowes (LOW), State Street (STT), SPDR Homebuilders (XHB), Bristol Myers Squibb (BMY), Electronic Arts (ERTS), AMR (AMR), Continental Airliens (CAL), Philip Morris (PM), Whirlpool (WHR), Delta Airliens (DAL), US Steel (X), Exxon Mobil (XOM), Lennar (LEN), Toll Brothers (TOL), Altria (MO), Shaw Group (SGR), Hewlett Packard (HPQ), Foster Wheeler (FWLT), Stanley Works (SWK), First Solar (FSLR), & Procter & Gamble (PG) Puts.


Top 15 Holdings (by % of portfolio)

1. Select Sector Energy (XLE) Calls: 18.9% of portfolio
2. Select Sector Energy (XLE): 13.3% of portfolio
3. Ace (ACE): 8.7% of portfolio
4. Select Sector Energy (XLE) Puts: 8.1% of portfolio
5. Max Capital (MXGL): 5.1% of portfolio
6. Wyeth (WYE): 3.7% of portfolio
7. Lorillard (LO): 2.77% of portfolio
8. United Technologies (UTX): 2.5% of portfolio
9. China Mobile (CHL): 1.8% of portfolio
10. Metlife (MET): 1.7% of portfolio
11. Powershares Water Resource (PHO): 1.5% of portfolio
12. CMS Energy (CMS): 1.5% of portfolio
13. Electronic Arts (ERTS) Calls: 1.5% of portfolio
14. China Petroleum (SNP): 1.4% of portfolio
15. Freeport McMoran (FCX): 1.3% of portfolio

Moore has placed a pretty hefty bet on the energy sector. While they have hedged some of the position with puts, they have a rather large long bias with 18.9% of the portfolio in XLE Calls and 13.3% of the portfolio in XLE shares for a long exposure of 32.2%. That is quite a large bet, even when taking the hedge into account. Then, when you further look at their portfolio, you also see numerous other energy and natural resource plays scattered throughout such as PBR-A, SNP, MON, POT, and more. It's also interesting to note that they too joined in on the WYE trade last quarter as they try to game the event-driven situation there.

As you can see from the massive amount of new positions they put on and the large amount of positions they completely sold out of, Moore (and most other global macro firms) move in and out of plays in bigger chunks than most other funds we follow. This is the perfect illustration as to why macro funds are not necessarily the best to track or clone portfolios from. At the same time, they can lend us hints as to certain macro themes they are seeing. And, in Moore's case, they have shown us a bias towards energy. This is intriguing because just yesterday Paul Tudor Jones was biased towards the financial sector, although they also had a decent sized position in energy via XLE as well.

Assets from the collective holdings reported to the SEC via 13F filing were $787 million this quarter compared to $821 million last quarter, so a slight decrease in long equity assets. Keep in mind also that Moore's equity exposure is just a sliver of their overall global macro portfolio. They are a multi-billion dollar firm and they do not even have $1 billion in long equities. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. We've already covered:

- Gurus such as: Soros Fund Management (George Soros), and Jim Rogers.

- 'Tiger Cub' portfolios like: Andreas Halvorsen's Viking Global, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Shumway Capital Partners (Chris Shumway), Chase Coleman's Tiger Global,

- Outperforming funds like: John Paulson's hedge fund Paulson & Co, Eric Mindich's Eton Park Capital, Raj Rajaratnam's Galleon Group,

- Value and activist funds such as: David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Whitney Tison's T2 Partners, Philip Falcone's Harbinger Capital Partners, Ricky Sandler's Eminence Capital,

- Concentrated funds that play secular/macro themes such as: Timothy Barakett's Atticus Capital, Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, John Burbank's Passport Capital

- Global macro firms such as: Paul Tudor Jones' Tudor Investment Corp,

- And, newer funds on the scene: David Stemerman's Conatus Capital. Check back each day as we cover new fund portfolios.

Hedge Fund Tracking: George Soros (Soros Fund Management) - 13F Filing Q3 2008

This is the 3rd Quarter 2008 edition of our ongoing hedge fund tracking series. Before reading this update, make sure you check out the preface to the series we're doing on Hedge Fund 13F's here. We've already covered:

• Timothy Barakett's Atticus Capital
• Whitney Tilson's T2 Partners
• Peter Thiel's Clarium Capital
• Bill Ackman's Pershing Square
• Bret Barakett's Tremblant Capital
• John Paulson's Paulson & Co
• David Einhorn's Greenlight Capital
• Dan Loeb's Third Point
• Paul Tudor Jones' Tudor Investment Corp
• Louis Bacon's Moore Capital Management
• Bruce Kovner's Caxton Associates
  

Next up is Soros Fund Management ran by George Soros. Soros is famous for his stellar returns with partner Jim Rogers when they ran their Quantum fund. Soros' fund is a switch from some of the more value oriented funds we've been covering, like the 'Tiger Cub' funds including Stephen Mandel's Lone Pine Capital, Lee Ainslie's Maverick Capital, John Griffin's Blue Ridge Capital, and Andreas Halvorsen's Viking Global. Soros is more of a global macro player, seeking investments in whatever market they can gain an edge, whether it be equities, bonds, currencies, debt, commodities, and more. So, keep in mind that these equity positions only represent a portion of the fund's overall holdings. They are not required to disclose holdings outside of equities, notes, and stock options.

Soros is great to track because of his excellent macro sense and formidable track record as an investor. His thoughts on the current financial landscape are detailed in his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. Soros sees a vast consolidation in the hedge fund space in the near future, as we noted when we recently checked in on Jim Rogers & George Soros. As such, he testified before Congress recently regarding the hedge fund industry, which you can see via video here. If you want to hear some more insightful thoughts from George Soros himself, head over to our post on Hedge Fund manager interviews or check out his recent interview with Fareed Zakaria to discuss the current crisis. If you want to get a better sense as to how Soros' mind works, we highly recommend reading his first book, The Alchemy of Finance.

Before beginning, you might be interested in checking out Soros' portfolio holdings from Q2 2008. The following were Soros' long equity, note, and options holdings as of September 30th, 2008 as filed with the SEC. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Research in Motion (RIMM)
Arch Coal (ACI)
Ishares Real Estate (IYR)
Powershares QQQ (QQQQ)
Petroleo Brasileiro (PBR) Calls
Whiting Petroleum (WLL)
Global Ship Lease (GSL)
Suncor (SU)
Chesapeake (CHK)
RedHat (RHT) Notes
Best Buy (BBY)
Buffalo Wild Wings (BWLD)
Lattice Semiconductor (LSCC)
Anheuser Busch (BUD)
Frontline (FRO)
Vale (RIO) Calls
Unibanco (UBB)
Bank of America (BAC)
Collective Brands (PSS)
Companhia Siderurgica (SID)
Fidelity National Info (FIS)
Dr Pepper Snapple (DPS)
Entergy (ETR)
Suntrust (STI)
Global Ship Lease (GSL-WS)
Nasdaq (NDAQ)
General Growth Properties (GGP)
Teradata (TDC)


Some Increased Positions (A few positions they already owned but added shares to)
Walmart (WMT): Increased position by 519%
Consol Energy (CNX): Increased position by 428%
Schlumberger (SLB): Increased position by 400%
Emulex (ELX): Increased position by 279%
Hess (HES): Increased position by 277%
Potash (POT): Increased position by 91%
RF Micro (RFMDL): Increased position by 88%
Petroleo Brasileiro (PBR): Increased position by 84%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
JetBlue Airways (JBLU): Reduced position by 51%
Wind River (WIND): Reduced position by 46%
Symmetricom (SYMM): Reduced position by 40%
Auxilium Pharma (AUXL): Reduced position by 14%


Removed Positions (Positions they sold out of completely)
iShares Emerging Markets (EEM) Puts
Lehman Brothers (LEHMQ)
S&P500 (SPY) Puts
Talisman Energy (TLM)
Mosaic (MOS)
Energy Solutions (ES)
Monsanto (MON)
Halliburton (HAL)
BPZ Resources (BPZ)
Freeport McMoran (FCX)
Sandridge Energy (SD)
Bucyrus (BUCY)
Joy Global (JOYG)
Century Aluminum (CENX)
Weatherford (WFT)
Kroger (KR)
Tibco Software (TIBX)
National Oilwell Varco (NOV)
Patterson UTI Energy (PTEN)
Union Pacific (UNP)
McDermott (MDR)
Powershares QQQ (QQQQ) Puts
Costco (COST)
Intrepid Potash (IPI)
Net Servicos Comunicacao (NETC)


Top 20 Holdings (by % of portfolio)

1. Petroleo Brasileiro (PBR): 24.3% of portfolio
2. Potash (POT): 11.5% of portfolio
3. Walmart (WMT): 6% of portfolio
4. Hess (HES): 4.5% of portfolio
5. Conoco Phillips (COP): 3.3% of portfolio
6. RF Micro (RFMDL) 1st batch of Notes: 3.2% of portfolio
7. Mercury Computer (MRCY) Notes: 3% of portfolio
8. Audiocodes (AUDC) Notes: 2.9% of portfolio
9. Research in Motion (RIMM): 2.9% of portfolio
10. LSI Corp (LSI) Notes: 2.5% of portfolio
11. RF Micro (RFMDL) 2nd batch of Notes: 2.5% of portfolio
12. Arch Coal (ACI): 2.5% of portfolio
13. Ishares Real Estate (IYR): 2.1% of portfolio
14. Agere Systems (inactive) Notes - 2.1% of portfolio
15. Powershares QQQ (QQQQ): 2% of portfolio
16. Novell (NOVL) Notes: 2% of portfolio
17. Mcdata (inactive) Notes: 1.9% of portfolio
18. Red Hat (RHT) Notes: 1.4% of portfolio
19. Schlumberger (SLB): 1.1% of portfolio
20. MAP Pharma (MAPP): 1.1% of portfolio

Assets from the collective holdings were $3.6 billion last quarter and were $3.8 billion this quarter. Soros definitely has a lot of Note holdings, opting to take positions in those rather than common stock. Please note that we have not detailed every single change to every single position in this update, but we have covered all the major moves. Also, keep in mind that these filings only include long equity, notes, and options holdings and do not reflect their cash, short portions, or holdings in other markets (currency, commodities, debt, etc). This is just one of many funds in our hedge fund tracking series in which we're tracking 35+ prominent funds. We've already covered Whitney Tilson's T2 Partners, Peter Thiel's Clarium Capital, Bill Ackman's Pershing Square, Stephen Mandel's Lone Pine Capital, Lee Ainslie's Maverick Capital, Timothy Barakett's Atticus Capital, John Griffin's Blue Ridge Capital, Bret Barakett's Tremblant Capital, Andreas Halvorsen's Viking Global, John Paulson's Paulson & Co, David Einhorn's Greenlight Capital, and Dan Loeb's Third Point, Paul Tudor Jones' Tudor Investment Corp, Louis Bacon's Moore Capital Management, and Bruce Kovner's Caxton Associates. Overall, its been one of the worst years ever for hedge funds, as we noted in our new November hedge fund performance update. Thus, the recent moves they've made in their portfolios become all the more interesting given the way the market has played out.

More on Soros:
- Soros' books: The Alchemy of Finance / The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means
- Checking in on George Soros & Jim Rogers
- Soros interview with Fareed Zakaria
- November hedge fund performance numbers
- Soros testimony before Congress
- Soros Q2 holdings
- October hedge fund performance numbers
- Hedge Fund Rankings

Alex Roepers' 5 Investment Ideas: Value Investing Congress

Continuing coverage, we're posting up notes from the Value Investing Congress.  Below are notes and the presentation of Alex Roepers of Atlantic Investment Management.  His presentation was entitled 'Corporate Action, Activism & Takeovers: Gaining Momentum.'

Atlantic: $1.8B in AUM, concentrated in 5-7 core positions in US.  Investment grade, mid-sized.  Uses significant minority positions, 2-7% to for shareholder activism.  Strict buy/sell discipline, buy 7x EBIT, sell around 11x.  1-2 year holding period is typical.  Largest fund 5-7 stocks, that’s it!  Averaged 18.5% annually over 20 years vs. 8.5% for the SPX.  

On Investor Activism

Last year he said environment was good for corporate action, activism and takeovers (JANA's Barry Rosenstein agrees).  Today we have:

1. Attractive valuations, because people are VERY gun-shy due to market crashes.
2.  Strong balance sheets now, much better post-2008
3.  Private Equity under pressure to put capital to work
4.  Super low interest rates, easy to make acquisitions
5.  Moderate organic growth due to economy; "Need to buy growth"
6.  Some hostile in M&A, nowhere near record levels of past  

Earnings yield of SPX is 6.8% vs. 1.8% 10 year treasury.  Expect the decade long outperformance of bonds to reverse; stocks will outperform next ten years.  He also showed the same chart of fund flows of investors pulling money from stocks into bonds.  "You will have phenomenal returns in equities if you pick your stocks right."  

PE firms have $400B in dry powder for buyouts. VIX is greatly reduced, which helps create environment more buyouts. Japanese and Chinese are stepping up cross-border M&A.

Atlantic's Approach:

1. Sufficient size and liquidity. >$1B to move the needle, but <$10B or it's too big to get a deal done 2.  Strong strategic franchises with high barriers to entry
3.  Attractive valuations: <8x ebit="ebit" forward="forward" nbsp="nbsp" p="p">4.  Strong balance sheets: EBITDA> 4x interest expense
5.  Predictable and recurring cash flows, high MRO content
6.  Low insider ownership <10 blocking="blocking" by="by" family="family" held="held" management="management" nbsp="nbsp" or="or" p="p" shareholders="shareholders">7. Noticeable activity in a sector; e.g. chemicals, mining equipment
8.  Liquidity.  Take 2-7% ownership stakes, no board seats, so proxy battles
9.  Write detailed shareholder engagement letters and have active discussions with management  

Recap of last year's investment ideas: ENR up 5%, ASH up 59%, FLS up 63% (sold it), MTX GY up 22% (sold it), and ATO FP up 53%.


Roepers' 5 Investment Ideas

Energizer (ENR).  $75.43, $4.9B market cap.  47% of business is batteries; the other 53% is personal care products: Schick shaving, Hawaiian tropic skin care.  Margins should be higher; eps should be $7.50 up from $6.00.  Target price is about $100 in 6-12 months.  

Rockwood Holdings (ROC).  $49.  $3.9B market cap. Specialty chemical company.  Lithium, Advanced Ceramics, TiO2, Surface treatment, Performance additives.  Stock trades on the TiO2 business, but they should IPO or spin this segment.  Real bull case here is Lithium, 8% organic growth without the electric car.  #2 lithium producer in the world.  Sum of the Parts (SOTP) to get valuation.  Catalysts are IPO of TiO2 business. Target price $70/share in 12-18 months based on 10x 2013e EBIT.   

Clariant (CLN VX).  Swiss conglomerate.  Disposal group, pigments, oil and mining services.  Being restructured, de-levering now.  46% capital appreciation potential in a year.  

FLSmidth (FLS DC), Danish mining supply company.  Concerns about China slowing.  Cement, Customer service for mining, and non-ferrous metals.  They help mining companies set up operations.  33% upside at DKK 467/share in 12-18 months.   

Joy Global (JOY).  $59.41.  Coal mining equipment.  Coal is out of favor.  Half surface mining, half underground.  Actually though, a lot of coal buying out of the most green countries, Japan and Germany.  Growth industry, but not in the US as much.  But he says all the switching from coal to gas that could happen, has already.  Stock has dropped in half this year on China slowdown and emergence of natural gas in the US.  Says 2013 is the trough year, but it will grow over time.  Their only competition was bought for 13x by CAT.  Very likely takeover candidate. Price target is $105 in 12-18 months based on 11x FY13E EBIT, 77% upside.


Q&A Session: 

1.  Why did ENR not do well?  Part of it was FX, the Euro. Also they've been slow and shareholders have become disenchanted with management.

2. Still own Owens Illinois?  They own 6.5% of the company, number one glass bottle maker in the world.  40% of business from Europe, demand a bit slow and FX issues, but trades at only 6x next year P/E and they are paying down debt.  Trades at only $18 now.

3.  Will JOY survive the "war on coal?"  It still generates 35-40% of the electricity in the US.  Gas prices coming up. US segment is only 22% for JOY.  He says when being activist "I'll fade out of the stock when you achieve X, Y and Z" which makes people listen to them.

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





Check out the rest of the hedge fund presentations from the Value Investing Congress.

Jim Simons Renaissance Technologies (Rentec) 13F Filing: Q4 2008

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up is Jim Simons' Renaissance Technologies, ranked 4th in Alpha's 2008 hedge fund rankings. Rentec, as they are commonly known, was started by Simons in 1982 and has around $25 billion in assets total. They employ mathematical and statistical methods to execute their investments and trades. Their flagship $7 billion Medallion fund has averaged annual returns around 35%. Unlike most hedge funds which charge a flat 2% management fee on assets and then a 20% performance fee, Medallion charges a 5% management fee and a performance fee > 40%. The fees are high, but after seeing their returns, one could argue it is easily worth it. Medallion finished up 80% for 2008, as noted in our hedge fund year end performance post. The bad news to anyone reading is that the fund is pretty much limited to only former and current Renaissance employees. Simons other funds, which are open to other investors, were both down in '08. In terms of recent performance, we saw that their Institutional Equities Fund was -4.61% for February and -8.84% for 2009 at that time, as mentioned in our January & February hedge fund performance post. Rentec is noted to be the most successful hedge fund in the industry, with returns eclipsing other legendary investors including Paul Tudor Jones, Bruce Kovner, and George Soros.

Jim Simons was recently listed on both Forbes' billionaire list and the list of the top 25 highest paid hedge fund managers of 2008. Obviously, he is a very accomplished man and his fund has put up impressive numbers. Mr. Simons previously testified before Congress with numerous other hedge fund managers and discouraged the SEC from making funds' short positions available to the public. For more on Simons & Renaissance, check out our post on hedge fund manager interviews.

Disclaimer: Do note that tracking Rentec through 13F filings is not beneficial due to the quant nature of their firm. We are tracking them because they are a popular, prominent fund with solid returns and many readers continually request it. While the majority of funds we cover are appropriate for tracking given their strategy and research methods, there is no way for us to know why Rentec holds a certain position. So, we are simply posting this up for fun. Use this information for entertainment purposes only. Again, they are mainly a quant firm and they trade every asset class under the sun. The majority of equity holdings you will see in their portfolio are most likely from their Institutional Equities Fund. Please keep this info in mind when viewing below.

The following were their long equity, note, and options holdings as of December 31st, 2008 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Monsanto (MON), General Electric (GE), Transocean (RIG), Conoco Phillips (COP), Altria (MO), Lorillard (LO), Kimberly Clark (KMB), Merrill Lynch (MER), BP (BP), Abbott Labs (ABT), Norfolk Southern (NSC), Verizon (VZ), Google (GOOG), General Mills (GIS), Texas Instruments (TXN), US Bancorp (USB), Intuitive Surgical (ISRG), Duke Energy (DUK), Dow Chemical (DOW), Dupont (DD), Panasonic (PC), American Express (AXP), Covidien (COV), Devon (DVN), Wachovia (WB), Public Storage (PSA), Joy Global (JOYG), Kellogg (K), L3 Communications (LLL)


Some Increased Positions (A few positions they already owned but added shares to)
Citigroup (C): Increased by 10,046%
McDonald's (MCD): Increased by 2,072%
Coca Cola (KO): Increased by 1,536%
Pfizer (PFE): Increased by 1,378%
Philip Morris (PM): Increased by 1,109%
Pepsico (PEP): Increased by 995%
HSBC (HBC): Increased by 722%
CSX Corp (CSX): Increased by 641%
Research in Motion (RIMM): Increased by 289%
AT&T (T): Increased by 218%
Family Dollar (FDO): Increased by 118%
Baxter (BAX): Increased by 111%
Union Pacific (UNP): Increased by 91%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Amgen (AMGN): Reduced by 41%
Forest Labs (FRX): Reduced by 36%
Walmart (WMT): Reduced by 35%
Glaxosmithkline (GSK): Reduced by 29%
Linear (LLTC): Reduced by 26%
UST (UST): Reduced by 20%
Humana (HUM): Reduced by 19%


Removed Positions (Positions they sold out of completely)
Noble Energy (NBL), Polo Ralph Lauren (RL), SPX Corp (SPW), BJ Services (BJS), ITT Corp (ITT), Limited Brands (LTD), Travelers (TRV), Philadelphia Consolidated (PHLY), Chesapeake Energy (CHK), Baker Hughes (BHI), Covance (CVD), Metlife (MET), Alcoa (AA), Assurant (AIZ), Tyco Electronics (TEL), Grey Wolf (GW), Equitable Resources (EQT), Halliburton (HAL), Avon (AVP), Praxair (PX), Honeywell (HON), Freeport McMoran (FCX). Inactives: Northwest Airlines, Activision (old shares), Ace, Matsushita, Applera, & Wrigley.


Top 15 Holdings (by % of portfolio)

1. UST (UST): 1.31% of portfolio
2. McDonalds (MCD): 0.91% of portfolio
3. Coca Cola (KO): 0.8% of portfolio
4. Monsanto (MON): 0.8% of portfolio
5. Walmart (WMT): 0.7% of portfolio
6. General Electric (GE): 0.7% of portfolio
7. Amgen (AMGN): 0.66% of portfolio
8. Baxter (BAX): 0.66% of portfolio
9. Transocean (RIG): 0.64% of portfolio
10. Research in Motion (RIMM): 0.63% of portfolio
11. Linear (LLTC): 0.61% of portfolio
12. Chunghwa Telecom (CHT): 0.58% of portfolio
13. Eli Lilly (LLY): 0.57% of portfolio
14. Philippine Long Distance (PHI): 0.57% of portfolio
15. Pfizer (PFE): 0.56% of portfolio

Like we mentioned earlier, there is practically zero explanation for the rhyme or reason of any of their moves due to Rentec's quantitative nature. As you can see in the "increased" category, Renaissance ratcheted up their positions big time, many a time by over 500%. But, you also have to keep in mind that since they hold so many equities, those positions still aren't even over 0.75% of their overall portfolio. The only names that really rocketed up to the top of the portfolio were McDonald's, Coca Cola, Transocean, General Electric, and Monsanto. While many typical long/short equity funds we follow will have 4-8% of their portfolio in their top holding, Renaissance's top equity holding is only 1.3% of their overall portfolio. Assets from the collective long US equity, options, and note holdings were $38.1 billion last quarter and were $27.6 billion this quarter. This is just one of many funds in our hedge fund portfolio tracking series in which we're tracking 35+ prominent funds. We've already covered:

• Well known gurus such as: Carl Icahn, Warren Buffett, & George Soros
• 'Tiger Cub' portfolios: Stephen Mandel's Lone Pine Capital, Andreas Halvorsen's Viking Global, Lee Ainslie's Maverick Capital, Chase Coleman's Tiger Global, Chris Shumway's Shumway Capital Partners, Touradji Capital Management (Paul Touradji), and John Griffin's Blue Ridge Capital
• Global macro giants: Bruce Kovner's Caxton Associates, Louis Bacon's Moore Capital Management, Peter Thiel's Clarium Capital, & Paul Tudor Jones' Tudor Investment Corp
  
• Value & Activist players like: Bill Ackman's Pershing Square, Seth Klarman's Baupost Group, Art Samberg's Pequot Capital, & David Einhorn's Greenlight Capital
• Concentrated portfolios like: Bret Barakett's Tremblant Capital, & Timothy Barakett's Atticus Capital
• Some solid names: Paulson & Co (John Paulson), Thomas Steyer's Farallon Capital Management, and Eric Mindich's Eton Park Capital
• Newer funds on the scene: James Pallotta's Raptor Capital Management, Anand Parekh's Alyeska Investment Group, & David Stemerman's Conatus Capital
• Troubled funds: Jeffrey Gendell's Tontine Associates

We cover a new hedge fund each day and you can see the complete list of hedge fund portfolios here.

Renaissance Technologies (Jim Simons): Hedge Fund Portfolio Tracking - 13F Filing Q3 2008

This is the 3rd Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the preface to the series we're doing on Hedge Fund 13F filings here.


Next up is Jim Simons' Renaissance Technologies, ranked 4th in Alpha's 2008 hedge fund rankings. Rentec, as they are commonly known, was started by Simons in 1982 and has around $25 billion in assets total. They employ mathematical and statistical methods to execute their investments and trades. Their flagship $7 billion Medallion fund has averaged annual returns around 35%. Unlike most hedge funds which charge a flat 2% management fee on assets and then a 20% performance fee, Medallion charges a 5% management fee and a performance fee > 40%. The fees are high, but after seeing their returns, one could argue it is easily worth it. Medallion finished up 80% for 2008, as noted in our hedge fund year end performance post. The bad news to anyone reading is that the fund is pretty much limited to only former and current Renaissance employees. Simons other funds, which are open to other investors, were both down in '08.

Rentec is noted to be the most successful hedge fund in the industry, with returns eclipsing other legendary investors including Paul Tudor Jones, Bruce Kovner, and George Soros. Recently, Mr. Simons recently testified before Congress with numerous other hedge fund managers and discouraged the SEC from making funds' short positions available to the public. For more on Simons & Renaissance, check out our post on hedge fund manager interviews.

Disclaimer: Do note that tracking Rentec through 13F filings is not beneficial at all due to the quant nature of their firm. We are tracking them because they are a popular, prominent fund with solid returns and many readers requested it just for fun. Use this information for entertainment purposes only. Again, they are mainly a quant firm and they trade every asset under the sun. The majority of equity holdings you will see in their portfolio are most likely from their Institutional Equities Fund. Please keep this info in mind when viewing below. We don't want anyone doing anything stupid simply because they were unaware of Rentec's background.


The following were their long equity, note, and options holdings as of September 30th, 2008 as filed with the SEC. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Emerson Electric (EMR)
Air Products (APD)
US Steel (X)
Visa (V)
Celgene (CELG)
Praxair (PX)
Bunge (BG)
CVS Caremark (CVS)
Tyco (TYC)
Deere (DE)
National Oilwell Varco (NOV)
Alcoa (AA)
Baker Hughes (BHI)
Ralcorp (RAH)
Questar (STR)
Weatherford (WFT)
Chesapeake Energy (CHK)
Vodafone (VOD)
Williams Companies (WMB)
Cardinal Health (CAH)
Banco Itau (ITU)
BJ Services (BJS)
FMC (FMC)
Hologic (HOLX)
PNC Financial (PNC)
HCP (HCP)
Anheuser Busch (BUD)
Centex (CTX)
Sara Lee (SLE)
ABB (ABB)


Some Increased Positions (A few positions they already owned but added shares to)
Costco (COST): Increased position by 2,030%
Apple (AAPL): Increased position by 1,650%
Freeport McMoran (FCX): Increased position by 1,029%
Wrigley (WWY): Increased position by 496%
General Dynamics (GD): Increased position by 258%
Amgen (AMGN): Increased position by 192%
DirecTV (DTV): Increased position by 90%
Gilead Sciences (GILD): Increased position by 65%
Honeywell (HON): Increased position by 44%
Eli Lilly (LLY): Increased position by 32%
Apollo Group (APOL): Increased position by 22.5%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Berkshire Hathaway Class A (BRK-A): Reduced position by 50%
Colgate Palmolive (CL): Reduced position by 30%
AstraZeneca (AZN): Reduced position by 29%
Paychex (PAYX): Reduced position by 15%
Nationwide Financial Services (NFS): Reduced position by 14.5%
Philippine Long Distance (PHI): Reduced position by 14%
Walmart (WMT): Reduced position by 11%
GlaxoSmithKline (GSK): Reduced position by 10%


Removed Positions (Positions they sold out of completely)
Beckman Coulter (BEC)
Republic Services (RSG)
L3 Comm (LLL)
Occidental Petroleum (OXY)
Burlington Northern (BNI)
China Mobile (CHL)
CH Robinson (CHRW)
Fiserv (FISV)
Whiting Petroleum (WLL)
JPMorgan Chase (JPM)
Centurytel (CTL)
Grey Wolf (GW)
Joy Global (JOYG)
Omnicom (OMC)
Aeropostale (ARO)
Canadian Natural Resources (CNQ)
Reinsurance Group (RGA-A)
Best Buy (BBY)
Procter & Gamble (PG)
Petroleo Brasileiro (PBR-A)
American Express (AXP)
Kellogg (K)
Navteq - inactive
Wells Fargo (WFC)
3M (MMM)
United Technologies (UTX)
Agrium (AGU)
General Electric (GE)
Linear Technology (LLTC)


Top 20 Holdings (by % of portfolio)

1. UST (UST): 1.17% of portfolio
2. Walmart (WMT): 0.88% of portfolio
3. Amgen (AMGN): 0.86% of portfolio
4. Apple (AAPL): 0.78% of portfolio
5. Wrigley (WWY): 0.7% of portfolio
6. Forest Labs (FRX): 0.58% of portfolio
7. Colgate Palmolive (CL): 0.54% of portfolio
8. Philippine Long Distance (PHI): 0.52% of portfolio
9. GlaxoSmithKline (GSK): 0.51% of portfolio
10. Lockheed Martin (LMT): 0.5% of portfolio
11. DirecTV (DTV): 0.49% of portfolio
12. General Dynamics (GD): 0.48% of portfolio
13. Emerson Electric (EMR): 0.45% of portfolio
14. Air Products (APD): 0.45% of portfolio
15. Chunghwa Telecom (CHT): 0.45% of portfolio
16. Novo-Nordisk (NVO): 0.44% of portfolio
17. Paychex (PAYX): 0.42% of portfolio
18. Dun & Bradstreet (DNB): 0.41% of portfolio
19. Humana (HUM): 0.41% of portfolio
20. Freeport McMoran (FCX): 0.39% of portfolio

Assets from the collective long US equity, options, and note holdings were $43.9 billion last quarter and were $37.1 billion this quarter. Please note that we have not detailed changes to every single position in this update, but we have covered all the major moves. Also, keep in mind that these filings only include long equity, notes, and options holdings. They do not reflect their cash, short portions, or holdings in other markets (currency, commodities, debt, foreign markets, private equity, etc). This is just one of many funds in our hedge fund portfolio tracking series in which we're tracking 35+ prominent funds. The other funds we've already covered include:

• Timothy Barakett's Atticus Capital
• Whitney Tilson's T2 Partners
• Peter Thiel's Clarium Capital
• Bill Ackman's Pershing Square
• Bret Barakett's Tremblant Capital
• John Paulson's Paulson & Co
• David Einhorn's Greenlight Capital
• Dan Loeb's Third Point
• Paul Tudor Jones' Tudor Investment Corp
• Louis Bacon's Moore Capital Management
• Bruce Kovner's Caxton Associates
• George Soros Soros Fund Management
• Chase Coleman's Tiger Global
• Stephen Mandel's Lone Pine Capital
• Lee Ainslie's Maverick Capital
• John Griffin's Blue Ridge Capital
• Andreas Halvorsen's Viking Global
• Chris Shumway's Shumway Capital Partners
• Touradji Capital (Paul Touradji)
• Eric Mindich's Eton Park Capital
• Barry Rosenstein's Jana Partners
• Seth Klarman's Baupost Group
• Art Samberg's Pequot Capital Management
• Ricky Sandler's Eminence Capital
• Thomas Steyer's Farallon Capital Management
• Harbinger Capital Partners (Philip Falcone)
• Jeffrey Gendell's Tontine Associates
  

Overall, its been one of the worst years ever for hedge funds, as we noted in our new November hedge fund performance number update. Thus, the recent moves they've made in their portfolios become all the more interesting given the way the market has played out.

More on Simons, Renaissance, & hedge funds:
- Simons testifies before Congress
- Simons' Hedge Fund manager interviews
- Hedge Fund investor letters
- Hedge Fund Rankings
- November hedge fund performance numbers
- October hedge fund performance numbers

Alex Roepers' 5 New Ideas: Value Investing Congress Presentation

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Alex Roepers of Atlantic Investment Management and his presentation was called: "Insights from 25 Years of Constructive Shareholder Activism."  He also pitched 5 new ideas.

Alex Roepers' Value Investing Congress Presentation

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19.2% compounded net of fees return over last 25 years.

Tips:  Define your universe. Stay in your area of competence. Build conviction by doing your homework. Wait for opportunity to arise, stalk stock until then. Don't be greedy: scale out as you reach your valuation. Don't use leverage. Concentrate funds on your highest conviction ideas. (They do best 6 or 7 ideas). Be honest and transparent with your investors.

Last year’s ideas:

Energizer (ENR): Sold with 29% profit

Rockwood (ROC): Still own up 39%

Clariant (CLN.VX): Still own, sold some, up 42%

FL Smidth (FLS.DC): Sold. Lost 5%

Joy Global (JOY): Sold. Only up 8%

Roepers' Five New Ideas

Baker Hughes (BHI): 43% upside. Third largest energy services. BJ services acquisition with zero margins. Activist to improve margins. $71 PT on 12x 2014 EBIT. 

Faurecia (EO.FP): Auto parts. Trading at 20c on the dollar. Deleveraging story. 50% owned by troubled Fiat. 41% upside to pt.

Itochu Techno Solutions (4739.JP): IT services.  Domestic company benefiting from Japanese financial firms recovery. 

Lanxess (LXS.GY) German polymer company. Rubber used in tires. Benefits from replacement cycle that has been delayed. 

Harman (HAR): Speakers. Mainly in cars. Jbl. Professional segment is arenas, concerts, etc. Infotainment 9 of top 15 car companies in the world. 

Be sure to check out the other presentations from the New York VIC here.

Stock Pick Performance From Value Investing Congress Speakers Presenting at September's Event

The Value Investing Congress is only a few weeks away and will take place on September 16th & 17th in New York.  MarketFolly readers can receive discounted admission by clicking here and using code: N13MF7  This code expires tonight so be sure to take advantage.


Performance of Last Year's Picks From Speakers

We thought we'd check in on the performance of the stock picks from last year's Value Investing Congress.  These picks are from speakers who presented last year that will also be presenting again this year.

Here's the performance breakdown from October 3rd, 2012 until August 29th, 2013:

- 17 out of 21 picks outperformed the S&P 500

- Average performance of picks: +49%

- Performance of S&P 500 over same time frame: +13.3%


Jeff Ubben's Picks
Long Valeant Pharmaceuticals (VRX) +77.1%
Long Moody's (MCO): +44.2%
Long CBRE (CBG): +14.3%
Long Motorola Solutions (MSI): +11.7%

He also mentioned these names: Halliburton (HAL): +42.5%, Adobe (ADBE) +41%, & C.R. Bard (BCR): +9.8%


Mick McGuire's Picks
Long Gencorp (GY): +50.5% 
Long Brookfield Residential Properties (BRP): +39.6%

Long Alexander & Baldwin (ALEX): +28.7%


Alex Roepers' Picks
Long Rockwood Holdings (ROC): +34.9%
Long Energizer (ENR): +34%
Long Clariant (CLN VX): +33.9%
Long FLSmidth (FLS DC): -5.7%
Long Joy Global (JOY): -45.1%


Whitney Tilson's Picks
Long Netflix (NFLX): +409.8%
Long Howard Hughes (HHC): +46%
Long Berkshire Hathaway (BRK.A): +26.1%


Guy Gottfried's Picks
Long Canam Group (TSE:CAM): +81.2%
Long ClubLink Enterprises (TSE:CLK): +19.1%


Bob Robotti's Picks
Long Calfrac Well Services (TSE:CFW): +34.8%


As you can see, these managers' picks performed quite well on average.  And don't forget: each one of them will be presenting their new picks at this year's event in a few weeks along with plenty of other new speakers (full list of speakers here).


Hear Ubben, McGuire, Roepers & More Pitch Their Latest Ideas

Find out what stock picks these hedge fund managers will pitch at this year's Value Investing Congress in September.  Market Folly readers can save $800 off admission by registering here and using code: N13MF7  Remember, the code expires tonight!

David Einhorn: Short Iron Ore (Great Investors Best Ideas Conference)

We're posting up notes from the Great Investors' Best Ideas Investment Symposium in Dallas and next up is David Einhorn of Greenlight Capital.  Einhorn made a presentation entitled 'If you give a miner a dollar..." and said to short dirt.  And by dirt, what he means is to short iron ore.

While Einhorn said that everyone "should have gold miners in their portfolio," it became clear he was less sanguine about other types of miners.


Iron Ore Supply/Demand

Einhorn started his presentation with the supply/demand dynamics of iron ore, noting that the infrastructure to get ore out of the ground is not cheap.  He pointed out that it's cheaper for China to import ore from Australia than to dig it out of their own ground.  Einhorn put up a chart showing iron ore prices from 1981-2011, peaking in the most recent year.

He went on to say that, if you give miners dollars, they dig holes.  Higher prices attracted new supply and new players.  It takes years to bring new supply online and he points out that there's a massive amount of supply about to hit the market.

He points out the Chinese investment binge as the driver of demand and notes that "something that's unsustainable persists... until it doesn't."

Einhorn then shifted to steel and noted that 2010 was the last year where steel saw double-digit demand growth.  Supply now exceeds demand and they're in the midst of expansion.  Big projects from 2010/2011 are coming online and the cost of stopping development is too high.
 
Einhorn argues that you can't contain the near-term situation since it's so expensive to halt projects.  He feels that ore prices will head below 100/ton and could get as low as 80/ton.  He even said that by 2014 it could go as low as the 60's.  He opined that the iron ore situation could soon reflect the same situations that took place in polysilicon and LEDs.


Losers Singled Out By Einhorn

While Einhorn did not explicitly come out and say he was short any of these names, he put up a list of companies that will lose in this scenario:

Iron Ore Miners (huge projects that will come online into declining markets): Vale (VALE), BHP Billiton (BHP), Rio Tinto (RIO), Fortescue (FMG), Cliffs (CLF)

Equipment Makers (already have seen growth into infrastructure build): Caterpillar (CAT), Joy Global (JOY)

Integrated Steel Companies: US Steel (X), Arcelor Mittal (MT).


Einhorn pointed out that X and MT have had an advantage because they own their ore supplies while their competition purchases ore in the markets.  However, he says this competitive advantage erodes as the price of ore falls.  The price of steel is also falling.  These integrated steel companies are also facing competition from irrational Chinese steel mills that are willing to operate at a loss.

Last week we also highlighted that Tiger Management's Julian Robertson said to avoid steel stocks as well.

Einhorn argues that the equities of the above companies reflect resumption of Chinese demand but that seems dubious.  He feels like companies are investing a lot at the top.  For more from this hedgie, also check out Einhorn's presentation on 3 ideas from the Value Investing Congress.


For the rest of the GIBI presentations, head to notes from the Great Investors' Best Ideas conference.

Jim Chanos Short Cheniere Energy, Caterpillar, Solar City & More: Interview

Noted short seller Jim Chanos, founder of Kynikos Associates recently appeared on CNBC to share his thoughts.

During the interview, he revealed a new short position: Cheniere Energy (LNG).  We've highlighted how Carl Icahn went long LNG recently.  There are also numerous other prominent hedge funds long.

Chanos, on the other hand, has been negative on the liquefied natural gas space over the past six months, thinking it's a "looming disaster" because it's tied into Asia and that LNG demand isn't growing anymore.

He went on to say, "LNG has been seen as a unique animal because it's going to be U.S. based, they're opening its Sabine Pass later this year.  With the stock at 30 times 2020 earnings, with the upside coming from a glutted market, we think the risk/reward in this, given where other LNG plays are in Australia and elsewhere, is just completely out of whack."

Chanos noted he's still short Caterpillar (CAT) but has covered his Joy Global (JOYG) short.  He argues CAT is trading at a rich multiple relative to its peers and that the company isn't letting on just how bad things are out there.

Chanos is also negative on pretty much everything in the PC chain.  He argues that "the value in the hardware chain gets competed away" as the products are commoditized.  He's short Hewlett Packard (HPQ) and some PC manufacturers in Asia.  He's hedged this by being long Apple (AAPL) with better growth and products.

He called Tesla (TSLA) "silly" as it trades on 2025 earnings that's become a momentum and concept stock. Regarding other Elon Musk companies, he thinks Solar City (SCTY) is the most problematic.

On China, Chanos continues to be concerned.  He says that "one of the worries we've always had was they were going to lose control of their currency ... that's why I think the markets took a real shudder in August."  That said, he argued that the US is the country "least affected by what's happening in China."

Lastly, Chanos also said cybersecurity is one of the few areas of growth.

Embedded below are videos from Chanos' interview:

Video 1:



Video 2:



Video 3:



Video 4:



Video 5:




For more from this short seller, be sure to also check out another recent Jim Chanos interview.

What We're Reading ~ 8/8/2012

Best Buy founder looking for graceful, confusing exit [Dealbreaker]

Looks like JAT Capital is going back to its TMT roots [FINalternatives]

Mark Casella on future of the hedge fund industry [AllAboutAlpha]

Yale's David Swensen on asset allocation [Mutual Fund Observer]

Facebook's lock-up release problem [Business Insider]

Why Fidelity dumping Facebook is a bad sign for the market [LeighDrogen]

Joy Global: a misunderstood cyclical? [Rational Walk]

Some smaller hedge funds outshine their bigger rivals [Reuters]

The hot new mutual fund company you've never heard of [Forbes]

Hedge fund marketing implications from new survey [FINalternatives]

Do individual investors learn from their mistakes? [SSRN]

Profile on Five Guys Burgers [Forbes]

America's top colleges [Forbes]

Dynamic Investment Panel: Alpha Hedge West Conference

Next up in our series of notes from the Alpha Hedge West Conference is the dynamic investment panel featuring John Claisse of Albourne America, Joy Xu of Verizon Investment Management and Andrew Karsh of CALPERS.

Comments below: JC = John Claisse, JX = Joy Xu and AK = Andrew Karsh


Dynamic Investment Panel: Alpha Hedge West Conference 

MD> Just because you got away with it doesn't mean you didn't take a risk.  Missing 40 worst days more than two times better than getting 40 best days.

JX> Ben Graham said investors need to manage "risk" not "returns".  Risk premium not static.  If you put $1M into market for 20 years each year from '28 to '93, the range of outcomes is between roughly $650K and more than $13M.  Very wide range.  Not losing money is key.  Liquidity is never there when you need it.  Risk premium, not stable, in other words, bonds have frequently outperformed stocks.

AK> $260B in AUM.  Bonds allocated internally.  Real estate and hedge funds managed externally. Goal of 7.5% returns.

JC> Lots of turnover at Board and Trustee level.

SB> Manages about $7B AUM.  Good Harbor Financial.  If they like risk they go equity, don't like risk they go fixed income.  Better to be out of market worst 10 days than in 10 best days.  Is currently 50% stocks and 50% bonds.  Neutral.

JX> They use models or internal management.

AK> Allocates to partners that generates absolute returns vs relative and better dialogue vs normal hedge fund process.

JC> Smaller managers, if they get standard info on active risk taking by global, macro, etc.  They can use that info and insight.

Be sure to check out the rest of our summary of the Alpha Hedge West Conference.

Marc Andreessen's Recommended Reading List 2018

If you're looking for some good summer reads, here you go.  Marc Andreessen, founder of venture capital firm Andreessen Horowitz recently tweeted a list of books he's read and recommends. 

It's a diverse list and isn't filled with finance books like so many other recommended reading lists we post, so this will certainly broaden your horizons.  Here's the list with his tweeted comments about each book.


Marc Andreessen's Recommended Reading List 2018


Expert Political Judgment: How Good Is It?  How Can We Know? by Phil Tetlock:  "Is the future knowable, and by whom?  All pundits and commentators should publish their prediction track records, yet don't.  What to pay attention to and what to ignore."


Thinking, Fast and Slow by Daniel Kahneman:  "Captivating dive into human decision making, marred by inclusion of several/many? psychology studies that fail to replicate.  Will stand as a cautionary tale?"


Thinking in Bets by Annie Duke:  "Compact guide to probabilistic domains like poker, or venture capital.  Best articulation of 'resulting', drawing bad conclusions from confusing process and outcome.  Recommend for people operating in the real world."


The Spider Network by David Enrich: " 'Billions'-esque saga of global financial market manipulation, at mind-boggling scale and hiding in plain sight, by a small cabal of bankers in London."


A Guide to the Good Life: The Ancient Art of Stoic Joy by William B. Irvine: "Best (?) walk through the ancient/current philosophy of Stoicism.  You can't control other people but you can control yourself, so do that."


The Courage to Be Disliked by Ichiro Kishimi & Fumitake Koga:  "Smash hit in Japan, and easy to see why.  Adlerian psychology meets Stoic philosophy in Socratic dialogue.  Compelling from front to back.   Highly recommended."


All Out War: The Full Story of How Brexit Sank Britain's Political Class by Tim Shipman:  "Inside story of how Britain decided to exit the EU.  Economic self-destruction or national liberation?  Repercussions to play out for decades."


When the Wolves Bite: Two Billionaires, One Company, and an Epic Wall Street Battle by Scott Wapner.  " 'Wall Street'-esque battle between Bill Ackman and Carl Icahn over unlikely target Herbalife.  Sip a delicious Herbal Aloe Shake while reading."


But What If We're Wrong?: Thinking About the Present As If It Were the Past by Chuck Klosterman:  "Wide-ranging meditation on how to think about the reality that we're probably wrong about most things we believe.  Hard to read and not emerge humbled."


Chasing Hillary:  Ten Years, Two Presidential Campaigns, and One Intact Glass Ceiling by Amy Chozick:  "On the bus/in the plane with the Hillary campaign.  Revealing in many dimensions at once, and highly entertaining.  Best book on the 2016 campaign so far?"


The Strange Death of Europe by Douglas Murray: "One perspective on the politics of immigration in Europe, playing out in real time, e.g. Merkel almost getting deposed days ago.  Confusing on multiple levels from US perspective."


A Higher Loyalty: Truth, Lies and Leadership by James Comey:  "Certainly the story is well known, but given author's propensity to post photos of himself wearing running shoes in Iowa, potentially relevant again starting next year?"


Conspiracy:  Peter Thiel, Hulk Hogan, Gawker, and the Anatomy of Intrigue by Ryan Holiday: "Startlingly deep cultural history of conspiracies, examined through the lens of the brutally effective Gawker takedown, with full access to the main players."


Skin in the Game by Nicholas Taleb:  "Skin in the game as conflict of interest, or as attaching one's livelihood to one's speech?  Who to listen to, and why.  Ideal counterpart to Phil Tetlock's Expert Political Judgment."


12 Rules for Life: An Antidote to Chaos by Jordan Peterson: "A bracing disassembly and reconstruction of a theory of individual progress in the modern world.  Fascinating compare and contrast with The Courage To Be Disliked."


Slugfest: Inside the Epic, 50-year Battle between Marvel and DC by Reed Tucker: "Spellbinding creative and business history of the incredibly imaginative comic book industry in the decades before it ate Hollywood."


Hacks: The Inside Story of the Break-ins and Breakdowns That Put Donald Trump in the White House by Donna Brazile: "Visceral, raw, you-are-there recounting of living through the hack attacks and resulting meltdown of the DNC in 2016."


Days of Rage: America's Radical Underground, the FBI, and the Forgotten Age of Revolutionary Violence by Bryan Burrough: "How 1960s racial politics descended into 1970s terrorist bombings, thanks to privileged college students breaking very bad."


Civilian Warriors: The Inside Story of Blackwater by Erik Prince: "The founding and growth of military contractor Blackwater as told by its founder and CEO; newly relevant due to the Mueller investigation."


The Rise of Superman: Decoding the Science of Ultimate Human Performance by Steve Kotler: "Startling walk through a series of domains where peak human performance is rising at remarkable rates due to 'flow state'.  Thought provoking and then some."


Devil's Bargain: Steve Bannon, Donald Trump, and the Storming of the Presidency by Joshua Green: "Best (?) book so far on the Republican side of the 2016 race, and a deep dive into the intellectual origins of Bannonism and to some extent Trumpism."


Shattered: Inside Hillary Clinton's Doomed Campaign by Jonathan Allen & Amie Parnes: "Best (?) book so far on the Democratic side of the 2016 race, most provocatively on the impact of the press coverage of the email hacks on the last stages of the race."


Living with a SEAL: 31 Days Training with the Toughest Man on the Planet by Jesse Itzler: "What's it like to train with a Navy SEAL in winter in New York for a whole month?  Featuring the truly remarkable American hero David Goggins."


The Myth of the Rational Voter by Bryan Caplan: "The median American is a moderate national socialist - statist to the core on both economic and social policy.  Given public opinion, the policies of First World democracies are surprisingly libertarian."


A Very Expensive Poison: The Assassination of Alexander Litvinenko by Luke Harding: "The astonishing story of the Litvinenko and Perepilichnyy assassinations in the UK; reads like a Lee Child thriller; plenty topical now."


Lone Survivor: The Eyewitness Account of Operation Redwing and the Lost Heroes of SEAL Team 10 by Marcus Luttrell: "The film was fine but the book is unreal; incredibly vivid story of superlative American heroes."


How to Live: A Life of Montaigne in One Question and Twenty Attempts at an Answer by Sarah Blakewell: " 'How to get along with people, how to deal with violence, how to adjust to losing someone you love - All versions of a bigger question: How do you live?' "



If you're looking for even more books, be sure to also check out Ray Dalio's recommended reading list, as well as Mohnish Pabrai's recommended reading list, or any of the others we've linked on the right sidebar of the MarketFolly homepage.