Graham & Doddsville New Issue: Lee Cooperman, David Poppe, John Harris & More

The Winter 2018 issue of Columbia Business School's Graham & Doddsville newsletter is out.  It features interviews with Lee Cooperman of Omega Advisors as well as David Poppe and John Harris of Ruane, Cunniff & Goldfarb.  Also, they talk with Vulcan Value Partners' C.T. Fitzpatrick, as well as Seth Fischer of Oasis Management.

Cooperman talked about the market's run: "I believe we're adequately priced.  I think we're heading to a normalization.  We have been living through a very strange period."  He doesn't see euphoria in the market yet, though notes everyone expects the market to head higher.  He pointed to 1987 as an example where the market traded at 27x earnings.

The gentlemen from Ruane Cunniff talked about their investment in Alphabet (GOOG) which they recently bought more or and it's now around 10% of their fund.  They also touched on their thesis on Credit Acceptance Corp (CACC).  (We recently posted Sequoia Fund's Q4 letter here.)

The issue also includes student investment pitches including long Staples 8.5 2025 unsecured notes, long FleetCor Technologies (FLT), and long First Data (FDC).

Embedded below is the Winter 2018 issue of CBS's Graham & Doddsville newsletter:



You can download a .pdf copy here.

Pershing Square Portfolio Update Presentation: Nike, S&P Global & More

Bill Ackman's activist firm Pershing Square recently made a presentation to investors about the current state of their portfolio and how they're re-tooling the organization after a few years of poor performance.  In 2017, Pershing was down 4%.

The presentation provides brief updates on all their holdings, including their new Nike (NKE) stake.


Pershing Square on New Nike Stake (NKE)

They bought Nike because it's "a high quality business that should compound long-term earnings at a high rate due to strong revenue growth and margin expansion."

They see it as an iconic brand with a dominant market position.  The company has assets via patents, a huge marketing budget, brand loyalty, manufacturing skill, and leverage with suppliers and customers.

Pershing thinks the company can continue to grow revenue in the high single digits.  They note positive secular trends of health/wellness and emerging market growth as key contributors, as well as pricing power.

The firm sees Nike expanding margins via new manufacturing processes and growth in distribution channels with "more favorable economics."


Ackman Bought & Sold S&P Global (SPGI)

The presentation also reveals that Pershing Square was buying shares of S&P Global (SPGI) during 2017 but sold the stake because they couldn't build a full position size as markets rose.

Their thesis was that "S&P is an annuity-like business with pricing power, strong secular growth and a margin opportunity."  It's a credit ratings and financial data services firm with the former comprising 55% of EBIT and the latter 45%.


Lastly, Pershing Square also bought an undisclosed position but sold that as well.  It's interesting that they aren't revealing the name.  Does this mean perhaps they might want to revisit it if the share price hits a level they're comfortable with? Who knows.

The presentation also includes updates on their stakes in: ADP, Chipotle, Howard Hughes, Mondelez,  Restaurant Brands, Fannie Mae/Freddie Mac, Platform Specialty Products, and their short of Herbalife (HLF).

Embedded below is Pershing Square's portfolio update presentation:



For more from this fund you can also read Pershing Square's Q3 letter.

Hedge Fund Links ~ 1/26/18

Steve Cohen is about to make his return [Business Insider]

Seth Klarman watching for stumbles among unicorns [WSJ]

Clash between founder and protege at Och-Ziff [WSJ]

This massive hedge fund is betting on AI [Bloomberg]

Sachem Head pushes Whitbread to consider breakup [Reuters]

David Tepper says market is as cheap as year ago [CNBC]

Jana Partners more invested today than ever [CNBC]

ValueAct launching fund with social goals [CNBC]

World's best female poker player joins Bridgewater [Bloomberg]

One of Paulson's funds is down 70% over four years [Bloomberg]

Pershing Square cuts staff, shuns limelight [Reuters]

Boone Pickens closes energy hedge fund [Reuters]

Pershing Square Takes Nike Stake

Bill Ackman's activist firm Pershing Square has taken a passive stake in Nike (NKE), according to a Reuters report.  Ackman apparently announced the position at an investor event but doesn't plan to go activist as the company is already heading down the right path.  The fund manager reportedly accumulated the stake since October.

We joked on Twitter that perhaps he read Shoe Dog recently?  Shoe Dog, of course, is the book about Nike's founder Phil Knight and has been recommended by the likes of Warren Buffett and numerous other investors.

For more on this fund we've also previously posted Pershing Square's Q3 letter.

Per Yahoo Finance, Nike is "designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide. It offers NIKE brand products in nine categories: running, NIKE basketball, the Jordan brand, football, men's training, women's training, action sports, sportswear, and golf. The company also markets products designed for kids, as well as for other athletic and recreational uses, such as cricket, lacrosse, tennis, volleyball, wrestling, walking, and outdoor activities. In addition, it sells sports apparel; and markets apparel with licensed college and professional team and league logos. Further, the company sells a line of performance equipment, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, and other equipment under the NIKE brand for sports activities; various plastic products to other manufacturers; athletic and casual footwear, apparel, and accessories under the Jumpman trademark; action sports and youth lifestyle apparel and accessories under the Hurley trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. Additionally, it licenses agreements that permit unaffiliated parties to manufacture and sell apparel, digital devices, and applications and other equipment for sports activities under NIKE-owned trademarks. The company sells its products to footwear stores, sporting goods stores, athletic specialty stores, department stores, skate, tennis and golf shops, and other retail accounts through NIKE-owned retail stores and Internet Websites, mobile applications, independent distributors, and licensees. The company was formerly known as Blue Ribbon Sports, Inc. and changed its name to NIKE, Inc. in 1971. NIKE, Inc. was founded in 1964 and is headquartered in Beaverton, Oregon."

Lee Cooperman Acquires More Ocwen Financial

Lee Cooperman of Omega Advisors has filed a Form 4 with the SEC regarding shares of Ocwen Financial (OCN).  Per the filing, Cooperman's most recent activity was buying shares of OCN on January 22nd and 23rd at $3.1582.  In total across various vehicles, he purchased 494,459 shares. 

In an additional 13G filed with the SEC, Cooperman disclosed he now owns 10.5289% of the company with over 14.04 million shares.  Omega previously only owned 8.66 million OCN shares as of the end of the third quarter in 2017.

Per Yahoo Finance, Ocwen Financial is "a financial services holding company, engages in the servicing and origination of mortgage loans in the United States. Its Servicing segment provides residential and commercial mortgage loan servicing, special servicing, and asset management services to owners of mortgage loans and foreclosed real estate. This segment's residential servicing portfolio includes conventional, government insured, and non-agency loans. The company's Lending segment originates and purchases conventional and government-insured residential forward and reverse mortgage loans primarily through its correspondent lending arrangements, broker relationships, and directly with mortgage customers. The company also provides short-term inventory-secured loans to independent used car dealers to finance their inventory. Ocwen Financial Corporation was founded in 1988 and is headquartered in West Palm Beach, Florida."

Tiger Global Takes Barclays Stake: Report

Per the FT, Chase Coleman's hedge fund firm Tiger Global has reportedly taken a stake in Barclays (BCS) worth around $1 billion, but this position hasn't been publicly disclosed.  Reportedly, the fund acquired around a 2.5% stake in November when Barclays shares were in the doldrums. 

Based on Tiger's last 13F filing (as of Q3 2017), this would make it around their fourth, fifth, or sixth largest holding, depending on just how large the stake is and if they've adjusted position sizes in other holdings.

This would also be their second major investment in the financial space as of late, as they also built up a stake in private equity firm Apollo (APO) throughout 2017.

Barclays' CEO, Jes Staley, has been focusing on their US-focused investment bank and UK-focused consumer banking segment. 

Per Yahoo Finance, Barclays is "provides various financial products and services worldwide. It offers personal and business banking services, credit cards, transactional and other lending products, and investment products and services. The company also provides financial advice, primary capital raising and capital markets execution, risk and liquidity management, sales and trading, consumer payments, and wealth management services. It serves corporates, financial institutions, institutional investors, governments, consumers, high and ultra-high net worth individuals, and family offices. The company was formerly known as Barclays Bank Limited and changed its name to Barclays PLC in January 1985. Barclays PLC was founded in 1690 and is headquartered in London, the United Kingdom."

What We're Reading ~ 1/24/18

Thinking in Bets: Making smarter decisions when you don't have all the facts [Annie Duke]

The playing field: five levels of investor development [Graham Duncan]

Op-ed written by Warren Buffett [Time]

Breaking out of low growth 'new normal' is on horizon [Mohamed El-Erian]

The annual Barrons roundtable: outlook for economy & stocks [Barrons]

A look at Starbucks (SBUX) [Scuttlebutt Investor]

Inside the eccentric, relentless dealmaking of Softbank's Masa [Bloomberg]

How Charlie Munger became an 'expert generalist' [Quartz]

India has 600 million young people & they're set to change our world [The Guardian]

A slowdown is in store for the self-storage business [WSJ]

How automation will change work, purpose, meaning [HBR]

Beyond the Bitcoin bubble [NYTimes]

Howard Marks Latest Memo on Markets & Tax Cuts

Oaktree Capital's Chairman Howard Marks is out with his latest memo entitled "Latest Thinking."  In it, he details his take on the markets and tax cuts.

He begins by highlighting the positives: fundamentals are solid, worldwide growth is in full effect, deregulation and pro-business policies are in place, etc. 

He then turns to the negatives, writing.

"Most valuation parameters are either the richest ever (Buffett ratio of stock market capitalization to GDP, price-to-sales ratio, the VIX, bond yields, private equity transaction multiples, real estate capitalization ratios) or among the highest in history (p/e ratios, Shiller cycle-adusted p/e ratio).  In the past, levels like these were followed by downturns.  Thus a decision to invest today has to rely on the belief that 'it's different this time.' Prospective returns in the vast majority of asset classes are some of the lowest in history."

Marks says that he would be on the "defensive or cautious part of the spectrum" in regards to portfolio construction at the moment.   You can read his full thoughts:

Embedded below is Howard Marks' new memo, "Latest Thinking":



You can download a .pdf copy here.

For more from this investor, be sure to also read his well-known book, The Most Important Thing.

Sequoia Fund Q4 Letter: Added to Alphabet, Exited Fastenal & Danaher

Ruane, Cunniff & Goldfarb is out with Sequoia Fund's fourth quarter letter.  They returned 20.07% for the year.

At the end of 2017, their top 10 holdings were:

1. Berkshire Hathaway (BRK)
2. Alphabet (GOOG)
3. Mastercard (MA)
4. Constellation Software (CSU)
5. Dentsply Sirona (XRAY)
6. TJX Companies (TJX)
7. Rolls Royce (RR.LN)
8. Charles Schwab (SCHW)
9. CarMax (KMX)
10. Liberty Media

They exited positions in Fastenal (FAST), Danaher (DHR), Emcor, Croda, Tiffany (TIF), and Costco (COST).  They've also trimmed stakes in BRK, MA, O'Reilly (ORLY), Waters, and TJX.

They've added to positions in GOOG, Hiscox, Jacobs, Omnicom, and Wells Fargo.  They've also started new investments in Credit Acceptance (CACC) and Royal Vopak, Priceline (PCLN).

They've been concentrating their portfolio a bit more, and their cash levels have gone down some.

Embedded below is Sequoia Fund's Q4 letter:



You can download a .pdf copy here.

For other recent fund letters, we've also posted Greenlight Capital's Q4 letter.

Ray Dalio Interview From Davos: Market Melting Up, Keep Eye on Interest Rates

Bridgewater Associates founder Ray Dalio appeared on CNBC today from the World Economic Forum in Davos to give his thoughts on the economy and markets.  Here's some of the highlights and videos.

- Said the markets are in a 'Goldilocks' period after a beautiful deleveraging as everything is 'pretty good' with a big jolt of stimulation coming from tax laws.  He says we're at the 'later part of the cycle' and there's a lot of cash on the sidelines (banks, corporations, etc).  "We're going to be inundated with cash." 

-  Thinks it might eventually lead to a market blow-off.  Thinks markets will continue to melt up: "If you're holding cash, you're going to feel pretty stupid."  Says last part of the cycle could perhaps last a year.

- Focused on interest rate policy as even a little change there can lead to a bear market.  Dalio says you can't have a significant rise in interest rates without knocking over asset prices. It seems he's saying anything above 4% could potentially get dicey.  Says there's much more interest rate sensitivity than before.

- Also notes that the various bonuses companies are paying out from the tax cuts won't move the needle much on the wealth gap as the middle class has been most impacted by soft income growth.  He's not worried about an immediate downturn, but if there's a good chance there's a downturn in 2-3 years, he's worried about how the difference between rich and poor will affect things.

- On bitcoin, he doesn't know how to value it but thinks it's been a bubble.  Thinks the blockchain technology is useful but doesn't have any other comment.


Embedded below are the videos of Ray Dalio's interview on CNBC:



And if you haven't already, be sure to check out Dalio's new book, Principles.

TCI Fund Trims Altaba Stake (AABA)

Sir Christopher Hohn's TCI Fund Management (The Childrens Investment Fund) has filed an amended 13G and a Form 4 with the SEC regarding its stake in Altaba (AABA).  Per the filing, TCI now owns 9.99% of AABA with 84,709,952 shares.

The Form 4 indicates they sold 750,000 shares at a weighted average price of $74.2795 on January 18th, and another 464,000 shares at weighted price of $74.0791 on January 19th.  Perhaps this transaction was possibly made to keep them below the 10% ownership threshold, though that's purely speculation on our part.

Altaba is the former Yahoo stub that was left after the company was sold to Verizon (VZ).  Altaba is basically a collection of ownership stakes in the likes of Alibaba (BABA), Yahoo Japan, etc.  The thesis has been that the company was trading at a discount to its NAV and that management would look to close the gap or monetize the stakes in a tax efficient manner.

As of the end of the third quarter of 2017, AABA was TCI's largest US holding worth almost $6 billion.  Given the run-up in AABA shares since then, this stake is likely worth even more.  However, there's no way to know if TCI has hedged out this play in anyway, as some other funds involved in the trade have shorted BABA shares to offset the exposure.

Per Yahoo Finance, Altaba "operates as a non-diversified, closed-end management investment company in the United States. Its assets consist primarily of equity investments, short-term debt investments, and cash. The company was formerly known as Yahoo! Inc. and changed its name to Altaba Inc. in June 2017."

Greenlight Capital Q4 Letter: New Stakes in Brighthouse Financial, Twitter, Time Warner, Ensco

David Einhorn's Greenlight Capital has released its fourth quarter 2017 letter.  They finished the year up 1.6%.

Greenlight Takes New Stakes in Brighthouse Financial, Twitter, Ensco, Time Warner

The hedge fund firm initiated numerous new positions recently.

The hedge fund's new stake in Brighthouse Financial (BHF) is all about valuation.  The company was spun out of MetLife and they feel analysts have been too negative on BHF's prospects.  They feel shares are trading at a 40-50% discount to peers and note management is incentivized if shares appreciate.

Einhorn's firm also jumped back into Time Warner shares (TWX), a previous holding.  They utilized volatility in the name to re-establish a stake as the US government has opposed their sale to AT&T (T).  Greenlight feels the government has a weak anti-trust case but even if they somehow win, shares are still cheap and the company has strategic options.

Greenlight also entered Twitter (TWTR) shares with their thesis being that the user experience has improved yielding growth in new users and time spent on the platform.  They feel the company now has a better pitch to advertisers, yielding revenue growth.  The company has around a 25% margin gap to other social media peers and Greenlight feels they can close the gap.  (Note: David Einhorn is on Twitter, though he doesn't post about the market, usually just poker.)

Embedded below is Greenlight Capital's Q4 2017 letter:



For more from this manager, be sure to also check out David Einhorn's recent investment talk at  Oxford Union.

Warren Buffett Full Interview: On Succession, Stock Market, Bitcoin & More

Berkshire Hathaway's Warren Buffett was just interviewed by CNBC and here's a summary as well as the full video of the interview.

On succession:  He says Berkshire will eventually be in a period of transition and Ajit Jain and Greg Abel have been named vice chairmen.  While Buffett isn't ready to hang up his hat yet, eventually he will.  He says he's in good health and if that changes he'd let shareholders know.

On stocks right now: "They're not richly valued relative to interest rates."  He says that the tax act is also a huge factor in valuation.  He didn't think that a 21% corporate tax rate was baked into the markets and he highlighted how such a huge change (from the previous 35% rate) is a huge change.  On if he's buying stocks now:  "Net, we're buying ... we're basically buyers over time."  He has a unique position as the cash keeps rolling in for him to invest.

On the economy:  The tax cut will be interesting to see how it affects things as the mix is changing.  He said they've never tried to make money by predicting economic changes.  They've never bought a company or a stock based on macroeconomics.

On interest rates:  The low rates have buoyed the stock market significantly.  It's a strange situation to have the Fed say their goal is 2% inflation and then people buy Treasuries at 1.5% so the government has basically said it doesn't pay to save.

On bitcoin/cryptocurrency:  "In terms of cryptocurrencies generally I can say almost with certainty that they will come to a bad ending.  When it happens or how or anything else I don't know.  If I could buy long-term puts, a 5 year put on everyone one of the cryptocurrencies I'd be glad to do it."  Though it sounds like he wouldn't be outright short given the volatility and potential for uncapped losses (hence using puts would outline exact capital at risk).

On Apple (AAPL):  "The market is not yet saturated for iPhones."  When Buffett himself finally buys an iPhone he joked it will finally be the end of the run.

On Berkshire's cash level:  A little over $100 billion, almost all in Treasury bills.  He normally likes to hold $20 billion so he's got a lot of excess.  He said he wants to put it to work but obviously he hasn't yet.

"If you're buying something because it went up yesterday or last week, that's not a good reason for buying anything."


Charlie Munger then joined the conversation towards the end.  He called both bitcoin and venture capital bubbles.  On the latter, he said there's simply too much capital chasing too many deals.  On the tax cuts, he thinks there's a chance they may work quite well.  He also notes that stocks aren't as cheap as they were (20x vs 15x) but they're probably better than bonds.



Embedded below is the video of Warren Buffett's full hour-long interview with CNBC as well as Munger at the end:

.

For more from the Oracle of Omaha, be sure to also check out a rare 1985 interview with Warren Buffett.   And for more from Munger, check out last year's Q&A session he did.

David Einhorn's Investing Talk at Oxford Union

Greenlight Capital's David Einhorn recently was interviewed and completed a question and answer session at Oxford Union.  He's been quite busy in recent months as he also spoke at the Capitalize For Kids conference.

Einhorn noted he likes debate and did it in high school, as you had to be able to argue both sides of the argument.  That trait is useful in investing as you look at the contra viewpoint to your position.

"We're wrong all the time.  I shouldn't say all the time.  We're wrong often.  We have to constantly question whether we're wrong."

On launching Greenlight: There's very low barriers to entry in the hedge fund industry and he thought if they could do a good job with a small amount of money they could live a good life.  He never dreamed that it would grow as much as it did.

He attributes his success to critical thinking skill.  If you can have a distinct viewpoint from everybody else and be right, you can be successful. 

About Greenlight's culture:  He thinks Greenlight has a lot of humility and respect with smart and nice people working together.  They want to respect each other's time.  Critical thinkers that reason and think before they speak and can adjust to new facts and feedback.

Einhorn is an avid poker player and he says it's a very similar skillset as you have certain facts you know (info about the company) and then things you can surmise (CEO's motivation, etc), and then unknown things that could come in the future.  "So you combine what you know, with what you think you can surmise, combined with understanding the range of outcomes relating to the uncertain things and saying is this a good place to commit a fraction of my capital?"

In poker, you know how many chips everyone has, what your cards are, what the card on the table are.  But you have to surmise what the other players might have or might do.  And then the uncertainty is the range of future cards that aren't yet displayed.

In investing, Einhorn likes to focus locally or in developed markets.  He says the further you get away (geographically or developmentally) there's a lot of local customs, local knowledge you have to acquire and it's hard to compete when you're sitting in New York, even if you go visit every once in a while.


Q&A Session:

On the environment for launching funds: If you're launching today, you're basically hiring 14-40 people from analysts to traders to CFO to backoffice, etc.  So you basically need to have enough assets under management right out of the gate to justify all that hiring and to fund the business.  His launch wasn't really like that: it was him and another guy in a tiny office doing all the various duties.  With a small AUM, there wasn't a lot of expense so you could do that.  He thinks you could still do that today if you had a differentiated strategy and articulated it well and had a client base.  He relied on word of mouth once he had a good start performance-wise.   He notes that the whole 'capital introduction' industry has spawned since then and so that's been a big difference.

On shorting companies/bubble basket:  He doesn't short companies on overvaluation.  He always looks for some sort of deterioration.  There's been a lot of companies that aren't really profitable (his bubble basket of 40-50 companies) and while 4 or 5 really worked against him, the vast majority of the basket worked in their favor.  That is, until this year.  They've all gone up and rallied against him but until they start showing profit, he won't take a different view.

On being contrarian:  He has to re-assess constantly, especially if the position moves against him.  So you have to constantly evaluate and understand the other side.  If something's changed, you've got to reduce/increase/exit based on that information.  Generally his choice is to reduce or eliminate a position.  But if he thinks he's right, patience is the way to go.

On if he'll change his strategy as value hasn't worked as well recently:  "Our goal is to achieve attractive risk-adjusted returns over time while taking demonstrably less risk than the market as a whole.  Which means fundamentally we're not comparing ourselves to the S&P 500 or an index, so we don't evaluate ourselves that way."

"The way you deal with unknown unknowns is through portfolio construction.  We like to run a concentrated portfolio, but even our best idea we're not going to put all our money in.  You have to have some level of diversification ... a certain amount of market risk."

"We tend to think of risk as how much can we lose in the worst case?"

On machine learning/competing with robots:  "We view these investments as puzzles.  There are the few things you know, but they're not the most important things because everybody knows them.  The most important things are what is that you can infer and how good are you assessing the possible range of outcomes, either the known unknowns or unknown unknowns and how do you construct that into a portfolio.  I'm sure the machines have views on these and the shorter-term the decision, the more likely the machine is going to figure it out better and faster than the human.  But our goal here is just to find things that are widely misunderstood by a large margin such that we're not competing with that kind of technology, because I don't think we would beat them."

On short-termism vs long-term focus:  "I think that one of the inefficiencies in the market is investors are generically too short-term oriented and time arbitrage is one of the best inefficiencies in the market."

Embedded below is the video of David Einhorn's talk at Oxford Union:



You can view Greenlight Capital's portfolio in the latest issue of our newsletter.

Bill Miller Has 50% of Hedge Fund in Bitcoin: Wealthtrack Interview

Bill Miller of Miller Value Partners recently appeared on Consuelo Mack's Wealthtrack.  His hedge fund, MVP1, invested in bitcoin in 2014 and 2015 and he said it now comprises 50% of his fund.  Here's a summary of the conversation:

His average cost is around $350 and he was buying between $200 and $500.  Bitcoin recently traded around $20,000.  He likened his purchase of bitcoin early to his purchase of Amazon (AMZN) way back in the day.

"One of the things we try to do is to have an open mind, especially about new technologies.  Most of them don't work, so you have to believe you have a high probability of being wrong, and if you have confidence in it, it's likely not going to work.  So it's really a question of assessing risk and reward on a case by case basis."

He says he was aware of it before he bought it but didn't take it too seriously... likened it to an experiment.  He read a book called Digital Gold and he also found it interesting that people he had a high regard for in the venture capital world took an extreme interest in it (Marc Andreessen, etc).

He was convinced bitcoin had a future because it had already passed its biggest stage of risk in the early days.  "There really hasn't been any technological innovation in money... ever.  There's been stages... rocks, to jewels, to gold and silver ... by and large money was a tangible thing.  Governments began issuing fiat currency that was also backed by something tangible."

Miller says bitcoin is uncorrelated as a potential asset to anything else.  It doesn't matter what's going on in central banks or geopolitics.  Another book Miller mentioned was The Construction of Social Reality.  Miller said that the founder of Bitcoin likened the cryptocurrency to 'digital gold.'

Given the risk/reward, he mentioned advice he heard that you could put 1% of your net worth in it and that way if it goes to zero, your downside is limited but if it skyrockets, you've got exposure.

Miller says the problem with bitcoin is you have to store it, and if you store it on an exchange and that exchange gets hacked, then you lose it forever (there was a hack of a major exchange a few years ago).  He says the emergence of futures contracts for bitcoin is a big move and the next step will be exchange traded funds (ETFs).

He pointed out that right now there's about $7.5 trillion worth of gold while bitcoin's market cap is around $290 billion dollars.

If you consider it a currency, he says bitcoin would be the 17th largest in the world right now.  While it won't supplant the major currencies, there's a chance other volatile currencies could see people seek a store of value elsewhere.  The problem, however, is of course bitcoin itself has had wild fluctuations in value.  So it can't really be viewed as a major currency replacement at the moment.

While he has 50% of his hedge fund in bitcoin, he's never run that concentrated before... citing previous top holdings at around 20%.  That said, he's looking at hedging the exposure but isn't ready to disclose how he's going to do that, but he's not selling the long.  He started it as a 5% position and it's grown so much.

He also has some bitcoin cash, which is an offshoot, but he doesn't own any other crypto currencies.  He likened bitcoin to VHS tapes or Bluray, etc were one format became the defacto choice, so the others won't be as relevant.

When asked about risk, Miller quoted someone saying "I wouldn't have anymore money in bitcoin than I was willing to lose 100% of." He thinks the chance of it becoming worthless are far, far less than they were in the early days though.

Embedded below is the video of Bill Miller's appearance on Wealthtrack talking bitcoin:



For more on cryptocurrency, we've highlighted Bart Stephens' presentation on bitcoin from the Invest For Kids Chicago conference a few months back.  Back in 2013 we also posted the Winklevoss twins' presentation on bitcoin from the Value Investing Congress.

Starboard Value Takes Stake in Cars.com

Jeff Smith's activist firm Starboard Value has filed a 13D with the SEC regarding shares of Cars.com (CARS).  Per the filing, Starboard now owns 9.9% of the company with 7.1 million shares.

This is a new position for the firm and the filing was made due to activity in late November and early December.  They acquired shares primarily between $24 and $27 from November 22nd through December 18th.

The filing notes that Starboard feels that shares are undervalued and represent an attractive investment.

Per Yahoo Finance, Cars.com "operates as an online research destination for car shoppers. It sells online subscription advertising products to car dealerships by its own direct sales force, as well as through its affiliate sales channel. The company also sells display advertising to national advertisers. In addition, it offers online automotive marketplace service that connects buyers and sellers in Cars.com, Auto.com, DealerRater.com, NewCars.com, and PickupTrucks.com Websites. The company’s Website hosts approximately 4.7 million vehicle listings at any given time and serves approximately 20,000 franchise and independent car dealers in 50 states. The company was founded in 1998 and is headquartered in Chicago, Illinois. Cars.com Inc. is a subsidiary of TEGNA Inc."

Jim Chanos Bearish on Quick Service Industry, Pharmacy Benefit Management, Tesla

Short seller Jim Chanos of Kynikos Associates recently sat down with CNBC for an interview.  Here's a summary along with video and the transcript.

On healthcare:  He thinks the new tax bill will cause the healthcare industry to see deflation.  "We've been looking at the rent-seeking companies, companies that we think have existed on the periphery of the healthcare economy that basically have went after these pricing sort of gamesmanship models.  And we think that's over. We think as the pie shrinks, it's going to be tougher and tougher to justify the ability of companies to hike drug prices 1,000% or charge commercial insurers five times what you charge medicare and medicaid in the case of dialysis ... We're still very negative on the PBM (pharmacy benefit management) space, Express Scripts (ESRX) came out and reaffirmed guidance, raise it this morning.  There's not reason for independent PBMs to exist, for example."


On Tesla (TSLA):  He's still short.  He thinks the company's equity is worth zero and other competitors are ahead of them in terms of autonomy for self-driving cars (citing Waymo, Audi, and others).  Says the problem is that the company can just keep raising capital and if that train keeps going then it's an issue.  But he's still very bearish on the company and sees the CEO Elon Musk as a bit of a showman constantly using hype, press releases and product launches. 


On fast food:  "I'd be short pretty much anybody in the quick service industry besides McDonalds.  MCD still calls the tune.  They're the 6 billion pound gorilla, so to speak.  They just went to a new value menu a few weeks ago, which always impacts the industry.  It's a dog fight."

He points to the companies' transition to the asset light model in the space.  He singled out Restaurant Brands (QSR), the owner of Burger King and Tim Hortons, which has been a hedge fund favorite.  He says while these companies are getting higher multiples for running an asset light model, look at how the franchisee is doing because the restaurants themselves still have to perform.  These restaurants are being hit with higher royalty rates and rising costs, so they're starting to struggle. 


On retail:  Chanos said they had a lot of exposure to the "well known shorts" in the retail industry but has covered them so they only have small exposure in that sector right now.  They think it will be a decent Christmas holiday shopping season so he'll probably re-examine them as they bounce into 2018.

Embedded below is Jim Chanos' interview with CNBC:

Video 1:


Video 2:


Video 3:


You can also read the full transcript here.

Holiday Gift Ideas For Investors 2017

Each year we highlight some gifts for investors and financial professionals.  Besides the typical money and booze, here's some other ideas for clients, partners, employees or even yourself.


Recommended Books

Margin of Safety - A physical copy of Seth Klarman's book is sure to impress.  They're rare since the book hasn't been in print for years

Principles - The new book from Bridgewater's Ray Dalio

Black Edge: Inside Information, Dirty Money and the Quest to Bring Down the Most Wanted Man on Wall Street: Financial thriller about Steve Cohen / SAC Capital

Against the Gods: A book about understanding risk and probability by Peter Bernstein

Algorithms To Live By: The Computer Science of Human Decisions - Book by Brian Christian and Tom Griffiths

The Industries of the Future - Book by Alec Ross on artificial intelligence, robotics, cybersecurity, commercialization of genomics and much more

Tribe of Mentors - Tim Ferriss' collection of advice from hundreds of experts in their fields

Kindle Unlimited - Get unlimited ebooks and audiobooks at Amazon


Publications

33% discount on Hedge Fund Wisdom - Save on our newsletter that summarizes 13F filings

50% off The Wall Street Journal - Sale ends soon so take advantage

The Economist - Always a good option


Tech

Bose QuietComfort Wireless Headphones - Great for flights or in the office.  Listen to earnings calls, audio books, or the latest Katy Perry album, whatever floats your boat

Amazon Kindle Paperwhite - On sale.  Great for reading SEC filings and books on the go, even in bright sunlight

Amazon Echo - Also on sale.  New version of the famous Alexa assistant


TV

Billions (Season 2) - The first major television show about a hedge fund manager, starring Paul Giamatti and Damian Lewis.  Catch up before Season 3 starts or get someone else hooked on the series


Miscellaneous

Patagonia Fleece Vest - To fully blend in with hedge fund bros

Wagyu Beef - Or really any type of high quality meat from Snake River Farms

Hedge Funds For Dummies - Give it to someone underperforming this year



Happy Holidays!

Stan Druckenmiller Interview: Likes Amazon & Tencent, Short Retail

CNBC's Kelly Evans recently interviewed legendary investor Stan Druckenmiller, who previously worked with George Soros and then started his own firm Duquesne (which he now runs as a family office).

Regarding interest rates, he says he wants to see normalization, not so much just rates rising, as he noted there's a difference between the two.  The former, he says, is about re-establishing a hurdle rate for investment.

"Bitcoin, art, wine, equities, credit... you name it.  Everything is one way up.  And there's huge distortions taking place and it's all in the name of this 2% inflation target. And when you get a misallocation of resources, it really hinders growth over the longer term."

He notes there's companies out there borrowing tons of money that shouldn't be and gave Steinhoff as an example (which he mentioned he had been short).

He doesn't own any bitcoin as he says he trades only what he knows.  "It's worth what people are willing to pay for it."

This year, Druckenmiller says he's done well in stocks but he's really mistraded macro.  "I'm not up double digits.  I'm having, relative to the opportunity set, a terrible year."  He's had a bad time in currency trading apparently but his excellent equities returns have bailed him out, so to speak.

Turning to equities for 2018, he doesn't buy the narrative that this is all about earnings.  He says it's all about central bank radicalism.

But for specific stocks, he really likes the stocks he owns long-term.  There's a lot of disruption going on in tech.  He's also been short retail throughout the year and he expects that theme to continue.

On the long side: "I love Amazon (AMZN).  This company, which everyone keeps quoting the multiple... is selling for less than 3x sales.  They're dramatically underearning.  You have to look at the long-term earnings power of the company.  I think (CEO Jeff) Bezos is incredible."

In China, Druckenmiller really likes Tencent (700.HK) as they're in payments, videos, cloud, gaming, and a huge platform (WeChat).  Like AMZN, they're also underearning and trading at 40x with a 40% growth rate, he says you're getting it at 1x growth rate.

Regarding Tesla (TSLA), he said he doesn't like to short great products (he gave himself one for his birthday a while back).  He questions the long-term financial model of the company, though.

On Apple (AAPL), he doesn't find it as exciting as AMZN, Facebook (FB), or Alphabet (GOOG).  He thinks AAPL might be overearning and doesn't own it but isn't short either.  He likes Workday (WDAY) as it fits into the new economy.

He doesn't think tax reform will impact the stock market as it's already priced in and anyways he feels the market is driven by central bank policy anyways.

Embedded below is the video of CNBC's full interview with Stan Druckenmiller:

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You can also read the full transcript of the interview here.

What We're Reading ~ 12/13/17

10 questions with Berkshire Hathaway's Todd Combs [FSU Alumni]

Profile of RenTec's Jim Simons, the numbers king [New Yorker]

The 12 signs a cheap stock is a 'value trap' [Bloomberg]

How AI will invade every corner of Wall Street [Bloomberg]

More moats, more profits [Morningstar]

The resulting fallacy is ruining your decisions [Nautilus]

A pitch on Pershing Square Holdings [WertArt Capital]

A look at Europe's Amadeus IT Group SA [Bloomberg]

Synchrony Financial: a spinoff better than its parent? [Value and Opportunity]

Profile of Snapchat's founder Evan Spiegel [The Guardian]

The force behind Bitcoin's meteoric rise: millions of Asian investors [WSJ]

The battle in AI [Economist]

You will no longer lease a car, you will subscribe to it [Slate]

European business school rankings 2017 [FT]

On 'sneakerhead' culture, Nike, and sneakers as an investment [TED]