Howard Marks' New Memo: Investing Without People

Oaktree Capital's Chairman Howard Marks has penned his latest memo.  It is entitled Investing Without People and talks about the evolution of the markets with the increasing presence of index/passive investing, quant strategies, and machine learning/AI.

Marks writes,

"When people invest more in certain stocks than others, the prices of those stocks rise in relative terms. And when everyone decides to refrain from performing the functions of analysis, price discovery and capital allocation, the appropriateness of market prices can go out the window (as a result of passive investing, just as it does in a mindless boom or bust). The bottom line is that the wisdom of investing passively depends, ironically, on some people investing actively. When active investing is dismissed totally and all active efforts cease, passive investing will become imprudent and opportunities for superior returns from active investing will reemerge. At least that’s the way I see it."

He then concedes that computers can do many things better than investors. But at the same time he notes that, "Computers can do an unmatched job dealing with the things that can be counted: things that are quantitative and objective. But many other things – qualitative, subjective things – count for a great deal, and I doubt computers can do what the very best investors do."

Marks' Upcoming New Book

Also, it was recently revealed that Marks has a new book coming out in a few months entitled Mastering The Market Cycle: Getting The Odds On Your Side.

Marks' Latest Memo

Embedded below is Howard Marks' new memo, Investing Without People



You can download a .pdf copy here.

Julian Robertson Interview: FANG Stocks Not Frothy At All

Tiger Management founder Julian Robertson was recently interviewed by CNBC.  Here's a summary and the full video below:

- When asked about Paul Tudor Jones' recent comments about stocks heading higher into year-end, Robertson said that, "I think there's a very good chance of that happening (in the next year) and I'm positioned accordingly."

-  He thinks it's possible that interest rates go up so high so fast that the Fed would have to ease up a bit.  But doesn't think rates will go 'wildly' up

- Says the President has done a reasonably good job, but could do with a dose of humility

- Tax cuts have helped corporate earnings but also the earnings of the middle class tremendously

- Feels a slowdown is at least 6 months and 'hopefully' 2 years away

- Tech stocks: he doesn't think FANG stocks are frothy at all, especially relative to the rest of the market. This is one area where he feels he differs in opinion from a lot of market participants.  Adds Microsoft (MSFT) to that bunch as these stocks have growth rates similar to their multiples

-  He likes the management at many of these companies, Facebook etc

-  Air Canada at 3x next year's cashflow is not an expensive stock and is 'beautifully run'.  Also likes Ryanair in Europe.  Doesn't really have any airline favorites in the US right now

-  Loves the banks, thinks they're very reasonably priced in relation to earnings.  Huge cashflow yields next year and thereafter.  Thinks they're in terrific shape, likes JPMorgan (JPM) and Bank of America (BAC)

-  Would tell grandchildren to own FB, BAC, JPM, probably Citigroup (C), which is 'reasonably priced'

Embedded below is the video of Julian Robertson's CNBC interview:

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What We're Reading ~ 6/13/18

Big Mistakes: The Best Investors and Their Worst Investments [Michael Batnick]

Assessing the debt picture [Fat Pitch]

Mary Meeker's 2018 internet trends report [KPCB]

Netflix: inside the binge factory [Vulture]

Proprietary product distribution is better than sliced bread [25iq]

The cult of Peloton: reinventing the fitness industry [Adweek]

How millennials became the world's most powerful consumers [FT]

What's driving the billion-dollar natural beauty movement? [Fast Company]

Gucci strikes gold in China, thanks to youth who spend it all [Bloomberg]

How the game Fortnite captured teens' hearts and minds [New Yorker]

Spotify vs Pandora: which is winning the ad-supported game? [Billboard]

A worrying turn ahead for auto loans [WSJ]

NASCAR tries to keep pace in today's ridesharing world [Washington Post]

On watches: an investment on your wrist [NYTimes]

A framework for analyzing factor returns [OSAM]

Paul Tudor Jones Interview: Sees Rate Jumps & Stock Market Higher Later This Year

Paul Tudor Jones of macro hedge fund Tudor Investment Corp recently sat down with CNBC for an interview.


Tudor said that, "Three things that are driving the world today... and they all start here in the United States. Fiscal policy, monetary policy, and of course a trade irritant, rather than a trade problem."  He says you have to monitor for signs of a further trade war escalating.

If Tudor was running the Fed, he said interest rates would be 150 basis points higher than they are now. 

Single best investment that's working for him right now: "Literally as light as I've been... I can't remember the last time I've been this light."  He doesn't have a lot of macro positions on right now, as the reward/risk is diminished at this particularly point in time.

"I like to have significant leveraged positions when I think there's an imminent price move directly ahead."

He thinks the third and fourth quarters are going to be phenomenal trading periods after a summer lull.  He thinks rates will move significantly higher and the stock market also has "the ability to go a lot higher at the end of the year."

Comparing this time period to past ones, he mentioned 1987 ( but "not necessarily saying we're going to have a crash").  He also listed 1999, or 1989 in Japan.  He thinks this will end with a lot higher prices and forcing the Fed to shut it off.  "It's an old story, we'll probably play it again."

"Rates have got to go up enough to either shut the economy down, and overwhelm from real money selling like we had in '07 those buybacks, or to make it economically less compelling for companies to issue debt and buyback stock, this is real simple."

On North Korea:  Unless it escalates into some military issue, it was a non-event and non-issue.  He thinks it will fade away.  The summit was anti-climactic.


Embedded below is the full half-hour video of Paul Tudor Jones' interview with CNBC:

PointState Capital Boosts Stake in The Medicines Company

Zach Schreiber's hedge fund firm PointState Capital has filed a 13G with the SEC regarding its position in The Medicines Co (MDCO).  Per the filing, PointState now owns 5.3% of the company with over 3.87 million shares.

This is up from the 3.7 million shares they owned at the end of the first quarter.  The filing was made due to portfolio activity on June 1st.

Per Yahoo Finance, The Medicines Company is "a biopharmaceutical company, provides medicines to treat acute and intensive care patients. The company markets Angiomax, an intravenous direct thrombin inhibitor used as an anticoagulant in combination with aspirin in patients with unstable angina undergoing percutaneous transluminal coronary angioplasty, and for patients undergoing percutaneous coronary intervention in the United States. It primarily focuses on developing Inclisiran, a lipid-lowering drug to reduce LDL-cholesterol (LDL-C) in patients with atherosclerotic cardiovascular disease or cardiovascular risk-equivalents. The company has collaboration agreements with Alnylam Pharmaceuticals, Inc.; SciClone Pharmaceuticals; and Symbio Pharmaceuticals Limited. The Medicines Company was founded in 1996 and is based in Parsippany, New Jersey."

Baupost Group Sells PBF Energy, FIles 13G on Colony NorthStar

Seth Klarman's hedge fund firm Baupost Group has filed a couple of 13G's with the SEC regarding shares of both PBF Energy (PBF) and Colony NorthStar (CLNS).


Baupost Sells PBF Energy

Per a 13G filing, Baupost Group no longer owns shares of PBF Energy (PBF).  The filing notes they sold the stake on May 31st.  They had previously owned a $268 million stake in the company as of the end of the first quarter.

Per Yahoo Finance, PBF Energy is "together with its subsidiaries, engages in the refining and supply of petroleum products. The company operates through two segments, Refining and Logistics. It produces gasoline, ultra-low-sulfur diesel, heating oil, diesel fuel, jet fuel, lubricants, petrochemicals, and asphalt, as well as unbranded transportation fuels, petrochemical feedstocks, blending components, and other petroleum products. The company sells its products in Northeast, Midwest, Gulf Coast, and West Coast of the United State, as well as in other regions of the United States and Canada. It also offers various rail, truck, and marine terminaling services, as well as pipeline transportation and storage services. PBF Energy Inc. was founded in 2008 and is based in Parsippany, New Jersey."


Baupost Files 13G on Colony NorthStar

Per a separate 13G, Baupost also now shows a 10.02% ownership stake in Colony NorthStar (CLNS) with over 49.68 million shares.  The number of shares they own is unchanged from the end of the first quarter, and so the percentage ownership of the company is likely what triggered the filing.

Per Yahoo Finance, Colony NorthStar, Inc. (NYSE:CLNS) "is a leading global real estate and investment management firm. The Company resulted from the January 2017 merger between Colony Capital, Inc., NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. The Company has significant property holdings in the healthcare, industrial and hospitality sectors, other equity and debt investments and an embedded institutional and retail investment management business. The Company currently has assets under management of $43 billion and manages capital on behalf of its stockholders, as well as institutional and retail investors in private funds, non-traded and traded real estate investment trusts and registered investment companies. In addition, the Company owns NorthStar Securities, LLC, a captive broker-dealer platform which raises capital in the retail market. The firm maintains principal offices in Los Angeles and New York, with more than 500 employees in offices located across 18 cities in ten countries. The Company will elect to be taxed as a REIT for U.S. federal income tax purposes. For additional information regarding the Company and its management and business, please refer to www.clns.com."

Tiger Global Boosts Sunrun Stake Again

In another slew of SEC filings, Chase Coleman's hedge fund firm Tiger Global has disclosed a further increased stake in Sunrun (RUN).  Per a 13G filing, Tiger now owns 12.8% of the company with over 13.93 million shares.

This is up from the 11.67 million shares we highlighted they owned just a few weeks ago.  A separate Form 4 filed indicates they were buying RUN shares on June 5th through 7th at weighted average prices of $12.3736 and $12.4824.

Per Yahoo Finance, Sunrun "engages in the design, development, installation, sale, ownership, and maintenance of residential solar energy systems in the United States. It also sells solar leads. The company markets and sells its products through direct channels, partner channels, mass media, digital media, canvassing, referral, retail, and field marketing. Sunrun Inc. was founded in 2007 and is headquartered in San Francisco, California."

ValueAct Capital Files Form 4 on Seagate Technology (STX)

Jeff Ubben's activist investment firm ValueAct Capital has filed a Form 4 with the SEC regarding its stake in Seagate Technology (STX).  Per the filing, ValueAct now owns over 22.4 million shares.

The filing notes they entered into forward purchase contracts with an exercise date of June 2nd, 2018 and expiration date of December 3rd, 2018.  In total, these contracts represented 946,100 shares and obligated ValueAct to purchase shares at varying prices with the bulk coming at $54.72.

This means ValueAct's total STX stake is up from the 21.45 million shares they owned at the end of the first quarter.

For more on this fund, we've also highlighted another stock they've been buying recently.

Per Yahoo Finance, Seagate Technology "provides data storage technology and solutions in Singapore, the United States, the Netherlands, and internationally. The company manufactures and distributes hard disk drives, solid state drives and their related controllers, solid state hybrid drives, and storage subsystems. Its products are used in enterprise servers and storage systems applications; client compute applications, primarily for desktop and mobile computing; and client non-compute applications, including various end user devices, such as portable external storage systems, surveillance systems, network-attached storage, digital video recorders, and gaming consoles. The company offers external backup storage solutions under the Backup Plus and Expansion product lines, as well as under the Maxtor and LaCie brand names available in capacities up to 120 terabytes. It sells its products primarily to original equipment manufacturers, distributors, and retailers. Seagate Technology plc was founded in 1979 and is headquartered in Dublin, Ireland."

Appaloosa Management & Senator Investment Group Send Letter to Allergan Board

David Tepper's hedge fund firm Appaloosa Management has sent a letter together with Alex Klabin and Doug Silverman's Senator Investment Group to the board of Allergan (AGN).  They previously sent letters to AGN's board on May 7th and April 23rd as well.

Here's the text of the latest letter:

"Letter dated June 5, 2018:Board of Directors
Allergan plc
Clonshaugh Business Technology Park
Coolock, Dublin, D17 E400, Ireland

Ladies and Gentlemen:

We write concerning the conclusions drawn from Allergan’s much-heralded strategic review, publicly outlined by Chairman and CEO Brent Saunders on May 30th. Like the rest of the investment community, we were underwhelmed by the Company’s half-hearted attempt to restore strategic momentum. The result of this process is all the more disappointing given our previous discussions and correspondence (attached hereto for reference). In view of this outcome, we are compelled to express our views publicly.

The token measures outlined in Mr. Saunders’ presentation betray the Board and management’s desire to cling to a status quo that has produced three years of steadily declining stock performance and a fire-sale market valuation. It is now clear that fresh thinking is absent from the current regime, thus explaining the market’s complete loss of confidence in the stock. To that point, we reiterate our strong suggestion that at a minimum the Company (1) split the office of CEO and Chairman; (2) retain a new Chairman or CEO from outside the Company; (3) replace at least two additional directors on the current Board; and (4) upgrade management personnel in critical operating units.

Concurrent with these measures, we renew our calls for the Company to stop hiding behind an arbitrary debt reduction target as an excuse to preserve the means to pursue a transformative M&A transaction. Prioritizing such flexibility at this time makes no sense given Allergan’s undervalued equity currency, its mixed M&A record and the market’s loss of confidence in the Company’s ability to deploy capital for the benefit of shareholders. More importantly, it will not address the Company’s malaise. Instead, it is time for Allergan’s management to concentrate on running a world class pharmaceutical and aesthetics business and forego thoughts of, or the exhilaration from, an ambitious acquisition strategy.

In our conversations, Chairman and CEO Saunders has been fond of repeating a famous quotation that “the definition of insanity is doing the same thing over and over again, but expecting different results”. Until Mr. Saunders and the Board heed this advice, adopt new governance and renew the Company’s operational focus, it appears that shareholders can expect Allergan’s stock price to continue to languish."

Kase Learning Short Selling Conference Presentations 2018

Whitney Tilson recently launched a new investment conference focused on short selling called the Kase Learning Short Selling Conference.  They've released some videos of pitches from the presentations and we've aggregated them here along with notes from each talk if you just want a quick summary.

Click each link below to go to the presentation.


Kase Learning Short Selling Conference Presentations 2018

- Sahm Adrangi (Kerrisdale Capital): On ad fraud and Quinstreet (QNST)

- Mark Spiegel (Stanphyl Capital): Short Tesla (TSLA)

- Gabriel Grego (Quintessential Capital): Short Folli Follie

- Jillian McIntyre (221B Capital): Short Intelsat (I)

- Berna Barshay (Viola Capital): Short Ralph Lauren (RL)

- Enrique Abeyta: Short Anheuser Busch InBev (BUD)

- Chris Brown (Aristides Capital): Short Energous (WATT)

- Asher Jacobs & Jade Hu (Columbia MBAs): Short Stericycle (SRCL)

Mark Spiegel Short Tesla Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Mark Spiegel who pitched short Tesla (TSLA).  He thinks the company is a zero.


Mark Spiegel's Presentation: Short Tesla (TSLA)

- Telsa's financials are horrible and has no moat of any kind, and this is all before a ton of competition comes online

- Management can't be trusted after Elon Musk made misleading statements

- Lost over $25,000 per car sold based on recent earnings.  Sales of two top models were down double digits year-over-year, again this is before top competition comes online from Porsche, Jaguar and others

- $2.3 billion in negative net working capital, And - $1bn in negative net working capital.  Bulls point to the story being about 'the future' but Tesla's tax credits will expire later this year while competitors will just be starting to use their credits.

- Competition coming:  Jaguar I-Pace coming out is $10,000 less and much nicer.  Jaguar XJ Sedan also going electric.  Audi electric SUV coming 2018 winter and priced $5000 cheaper once Tesla's tax credit runs out.  Porsche's Mission E sedan coming.  Mercedes' ECQ coming out and electric version of the S Class.  Hyundai coming out with a crossover for the mass market.  Chevrolet Bolt out now.  Nissan Leaf next year increases electric range.  First electric Volvo comes out next year.  BMW iX3 comes out in 2 years, and i4 flagship electric car.  The list goes on and on.

-  China is a big market and very important; bulls think TSLA will gain share there but the reality is that so much competition is coming especially in that country that they've already lost

-  Other car companies using larger battery cells and Tesla is committed to smaller, inferior ones

-  Stunning number of executive departures.  Jim Chanos said the only two companies that had similar numbers are Enron and Valeant

Embedded below is the video of Mark Spiegel's presentation:




Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Sahm Adrangi's Presentation on Ad Fraud & Short QuinStreet: Kase Learning Short Selling Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Sahm Adrangi of Kerrisdale Capital who presented about ad fraud and talked about Quinstreet (QNST) which he published a short report on last month.


Sahm Adrangi's Presentation on Ad Fraud & Short QuinStreet (QNST)

- Recently gave a presentation on being short St. Joe (JOE) and short QuinStreet (presentation here), the latter of which plays into the theme of ad fraud

- Ad fraud is basically when online ad impressions or clicks are artificially higher due to bots, not actual users viewing the material.  Pay-per-click ads see 'fake' clicks and then there's sites with tons of fake traffic that are just full of ads to inflate the numbers.  Ad stuffing is when a video has other videos behind the main video someone is watching, giving impressions to something that's not actually being viewed

- Ad fraud is so prevalent and the intermediaries are beneficiaries of it (ad agencies etc), making them slow to adopt preventive measures.  The ultimate loser is the buyer of the ad but it's difficult to detect who is viewing your ad (human vs bot)

-  Technology is rapidly evolving and the bad actors are using more sophisticated measures to generate more fraud

- QuinStreet: if you look at investor presentations or management comments, it's hard to discern where exactly the revenue is coming from (lead generation, or ad-matching placements, etc).   Another report by a separate firm attacked Criteo late last year for suspect traffic as well.

- Walked through examples where some of Quinstreet's sites were receiving traffic from other sites that isn't what it seems: a car insurance site was receiving a lot of traffic, but not from people looking for quotes on car insurance, but rather people earning 'swag bucks' for filling out online surveys and things like that.  Thus car insurers buying ads / paying for leads, weren't really getting what they thought they were (the video below walks through the whole scenario as it's too long to type out)

- Thinks the opacity in the online ad space and lack of disclosures is a good place for short activists to hunt

Embedded below is the video of Sahm Adrangi's presentation:



mbedded below is the slideshow pdf of Sahm Adrangi & Kerrisale Capital's presentation on short QuinStreet (QNST):



Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Jillian McIntyre's Short Intelsat Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Jillian McIntyre of 221B Capital who pitched a short of Intelsat (I).  She runs a fundamental long/short equity fund, typically running 20% net short, typically focuses companies with poor corporate governance (Germany, UK, South Africa, Australia).  Previously worked with Sir Chris Hohn's TCI Fund.


Jillian McIntyre's Presentation: Short Intelsat

- 50% downside in her opinion, only 7% short interest.  $14bn of debt, $1bn run-rate of interest every year, negative cashflow

- Believes company is ripe for technology disruption and has a bad business model; needs capital ASAP

- Company is in satellite communications, provides signal broadcast to major networks, media companies etc.  Mainly exposure to Latin America and Africa.  Thinks there's some similarities to SunEdison (which they pitched back in 2015 which went bankrupt): levels of indebtedness & bad business model

- The recent hype surrounding 5G and the big spectrum auction in November has led to irrational exuberance as Intelsat is up almost 300% this year.  Lot of hype around the potential for C band spectrum.  Even if it's allowed by FCC, could take over a year to start to monetize it.  She thinks the company will see disruption in its ancient satellite model.  Lower-orbit satellites will be launched and are better and cheaper than Intelsat's much higher satellites.  Lots of hype also around potential with 'OneWeb'

-  Co has very complex debt structure and is a serial re-structurer: they think it breached covenants and will need to raise $400-500 million and worst case $1.5-2 bn. Don't think they have access to new revolving credit facilities.  Thinks they have aggressive accounting regarding bad debt provision and amortization rates and reliance on future revenue


Embedded below is the video of Jillian McIntyre's presentation:





Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Berna Barshay Short Ralph Lauren Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Berna Barshay of Viola Capital Management who pitched a short of Ralph Lauren (RL). 


Berna Barshay's Presentation: Short Ralph Lauren (RL)

-  Consumer specialist.  Industry ripe with disruption.

-  80% of household purchase decisions made by women, 80% of investment choices made by men

-  Ralph Lauren in the middle of attempted turnaround:  Co has lost 19% of sales last three years.  Why?  Historically positioned as an upscale brand, they over distributed (discounting, margin pressure).  Longtime COO departure led to disruption.  Trying to now pullback on promotions and try to reach a new, younger customer.  Stock up 70% in last 9 months, she's more skeptical on turnaround attempt and speed at which it would happen.

-  In the age of Instagram, brands can't control their story as much.  RL is too focused on North America.  Department stores in secular decline.  Trying to replicate Coach merely by reducing points of distribution

-  Ratio of outlets to full price stores is out of whack and is a challenge to elevating the brand back up.  Co is also omnipresent in the 'off price' channel.  TJMaxx and Marshall has a lot of inventory and continued to grow.  The difference between the $89 polo shirt at their flagship store wasn't that much different from the $35 polo shirt at TJMaxx.  RL has devalued their signature item and devalued their brand in the process.  This will be a headwind in the brand elevation efforts.

-  Co wants to update the product and modernize the brand: does this alienate the core customer they have?  Tough to straddle.  It's a preppy, country club look that's been around since the 70s.  Millennials and younger have much different street style

-  She talked to 200 Millennials about favorite clothing brands and received a wide array of responses: RL hardly on the radar, lots of newer brands, niche brands, etc.  Barriers to entry in clothing have come way down.  RL did much better with men than women in survey.

-  Near-term return to topline growth is nearly impossible due to off-price channel and department stores in secular decline.  Trading at 18x like a luxury goods stock but needs to show tangible results

-  Brand turnaround takes years and thinks that while expectations are low, still thinks estimates are too high.  Upcoming investor day could be a catalyst.  Thinks earnings will be flattish for next 2 years.  N. America growth will be down 4%, 11% earnings miss.  Thinks it should trade around 13x, for 30% downside though it's not a valuation short 

Embedded below is the video of Berna Barshay's presentation:




Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Gabriel Grego's Short Folli Follie Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Gabriel Grego of Quintessential Capital who pitched a short of Folli Follie.  (Please note that since presenting earlier this month, the stock traded down 70% and was subsequently halted.)


Gabriel Grego's Presentation: Short Folli Follie

-  Co has 1.3bn euros of sales, trades on the Greek exchange, products are watches, purses, mainly jewelry etc.  70% of revenue and all profit originates in Asia, mainly China.  Now investing into the United States

- Actual sales and profitability are less than accounting suggests. Business is shrinking rapidly, they are worried about potential insolvency

-  Called 630 stores, they only found 289 open... nobody answered or store was closed.  Out of 248 supposed stores in Asia, they only found 64.  Hired Chinese and Japanese teams to do due diligence in the countries.  Went to visit stores, found many were tiny, non-existent or liquidating

-  Claims solid online sales, but traffic is tiny compared to big competitors who supposedly generate similar revenues.  Social media has a tiny presence as well compared to others

-  Thinks the company will have to issue shares or bonds to makeup for a shortfall soon

-  Company claims $1 billion of sales in Asia, but actual China subsidiaries are only showing millions of dollars.  Company has always used the same auditor then suddenly switched to another auditor that's not really as well known

Embedded below is the video of Gabriel Grego's presentation:




Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Enrique Abeyta Short Anheuser Busch Inbev Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Enrique Abeyta who pitched a short of Anheuser Busch Inbev (BUD).  

Enrique Abeyta's Presentation: Short Anheuser Busch Inbev (BUD)

-  Thinks there will be negative earnings revisions.  Craft brewers are a threat, but contract brewing and the lower hurdle to entry in the market is the bigger story: it costs very little to start up a tiny beer somewhere and start producing.

-While most legacy beer companies built their advantage via scale and advertising via expensive mediums (TV, print) today advertising costs have come way down via online advertising and you can target the exact type of customer you're looking for.

-  Also thinks Kraft Heinz (KHC) and Disney (DIS) will face similar threats and would be short those as well (KHC: lots of micro brands starting ot popup, DIS: cost of producing content is coming down and others can do so much more cheaply)

Below is the video of Enrique Abeyta's pitch on shorting Budweiser:





Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Chris Brown Short Energous (WATT): Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Chris Brown of Aristides Capital who pitched short Energous (WATT).


Chris Brown's Presentation: Short Energous (WATT)

- Company's stock skyrocketed late last year on FCC approval news.  Says CEO pretty much always lies. 

- Energous has an agreement with Apple

- Company seeking to do RF or wireless charging at a distance: claims to create pockets of energy around your device to charge it. The physics behind it isn't new and technology isn't new.  The science behind it is explained in the video below but basically what they're trying to do isn't practical and is extremely exagerrated

- Lots of insider sales recently

-  Marketing is touting 'vaporware' and doing a good job of hyping things.  He thinks the company is a zero and a fraud.


Embedded below is the video of Chris Brown's presentation:





Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Asher Jacobs & Jade Hu Short Stericycle (SRCL) Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Asher Jacbos and Jade Hu, Columbia MBA students who pitched a short of Stericycle (SRCL).


Asher Jacbos & Jade Hu's Presentation: Short Stericycle (SRCL)

-  See 36% downside over the next 18 months.  Fallout over recent lawsuit settlement is only in the early innings as it highlighted the company's price gouging.  Company won't be able to continue its rollup strategy with 4 turns of leverage.  Numerous accounting redflags highlight the company's deteriorating fundamentals

-  Company focuses on the medical waste market with around 80% market share.  Has expanded to other industries like shredding, environmental waste, and other areas

-  They expect the company's pricing power increases to be capped at around 5%, compared to historic increases of 18% biannually.  Competition will increase in the space as they're heavily spending on marketing to take share

-  Think one segment's revenue will drop 7% based on lack of ability to drive pricing.  Sees volume decreasing 7% (but not as severe as it was previously) as they're making price concessions to drive business.  7% revenue decline leads to a 14% EBITDA decrease

-  Company is seeing a mix shift to lower margin businesses.  Credit rating was recently downgraded, lots of debt due in 2020

-  Thinks management is focused on empire building, as incentive compensation is built on absolute adjusted EBITDA

- Expect continued earnings misses, large asset impairment.  Base case assumes 9x EV/EBITDA.  If margins stabilize and the stock gets a higher multiple, there's only 20% upside, capping risk on the short


Embedded below is the video of their presentation:



And here's a link to their presentation from the Columbia Business School's Graham & Doddsville newsletter.

Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Notes From Sohn Hong Kong Investment Conference 2018

The 2018 Sohn Hong Kong Investment Conference recently took place benefiting the Karen Leung Foundation for gynecological cancer education, prevention, and support.  Fund managers presented investment ideas in a gathering that benefited charity.  Here's a quick summary with notes from the event.


Notes From Sohn Hong Kong Conference 2018

Eashwar Krishnan (Tybourne Capital):  Long: Line (LN).  Dominant messaging platform in Japan and several other countries.  Based on enterprise value (EV) to monthly active users (MAU), Line is the cheapest and most undervalued messaging app in the world.  On this metric, LN trades at $39 while Tencent trades at $207, Naver at $199, Facebook at $180, and Yahoo Japan at $101.  Median number (including others like Kakao, Weibo, Twitter etc) is $67. Sees potential to double your money in three years.  Company can try to take more 'time spent' from other apps and rollout revenue from more advertising, games, financial services and food delivery. Prior to founding Tybourne, he worked at Lone Pine Capital.


Rajesh Sachdeva (Flowering Tree Investment Management): Long: VP Bank (Vietnam Prosperity JSC Bank).  The country has a solid base for an economy and VP Bank is the cheapest bank in Asia yet has the highest returns on equity (ROE).  Largest consumer bank in Vietnam.  5 million customers, around 10% of the labor force of the country.  Has strong underwriting standards.  Thinks the stock can go up 4-5x over the next 3 years as long as there aren't huge economic hiccups.


Avinash Abraham (Torq Capital Management):  Long: Pacific Basin (2343.HK).  Dry shipping company in Hong Kong.  Minor bulks shipping and is "very undervalued."  Company recently became profitable again last year.  Thinks the 10 year bear market in dry bulk shipping is coming to a close.  Company has diversified exposure to products.


Kok Hoi Wong (APS Asset Management):  Short: JD.com (JD).  This has been a consensus long among many managers but argues that it's already priced for perfection.  Thinks impairment losses coming.  Company made bad investments (PaiPai and QQ Wanggou, Bitauto, Tuniu, Yihaodian).  Thinks a big impairment is possible from Yihaodian.  Management is "investing recklessly."  Says to be weary as company can't make a profit in highly competitive Chinese e-commerce market.  Business model is misunderstood. 


Benjamin Fuchs (BFAM Partners):  Long Tencent (700.HK) & Tencent Put Options.  Hedged trade that bets on one of the dominant companies in Asia but allows you to profit from a swing in the stock either direction.  Buy Spring 2019 puts to complement the long equity position. Profitable if shares go more than 15% in either direction


Soren Aandahl (Blue Orca Capital):  Short: Samsonite (1910.HK).  Has previously attacked the company with a recent short report and did so again at the event.  Shares have been halted.  CEO Ramesh Tainwala has been lying about resume & misrepresenting himself as a doctor, calls for his firing.  Company has audit red flags: third auditor in three years.  Pointed out accounting practices and corporate governance.  If you recognize the investor's name he was previously running Glaucus Research which put out a lot of short reports and recently launched an activist fund.


Seth Fischer (Oasis Management): Long Don Quijote Holdings Subsidiary Japan Asset Marketing (8922.JP).  Don Quijote is a retail chain based in Japan that's open 24 hours and sells all kinds of various goods from food to personal care to you name it.  Subsidiary JAM is its real estate segment.  Thinks the company is able to survive "Amazonification of the world" but has been mismanaged.  They've launched an activist campaign, have owned stock since 2017.  Proposed corporate restructuring   Sees 50% upside. Details on their proposal here.


Wesley Wong (Oxbow Capital Management): Long Guangzhou Baiyun Airport (SHA:600004).  Third largest airport in China and 14th largest in the world.  Sees 50% upside in the next year to year-and-a-half.  New terminal coming online will lead to increased number of passenger and rent from retail tenants.  Sees EBTIDA coming in around 20% higher than consensus.


Carl Huttenlocher (Myriad Asset Management): Long MSCI China 2025 Index.  Simple trade, thinks China will be the best global equity market for the next few years.  Chinese A-Shares being included in indexes now will be a catalyst.


Hermes Li (Aspex Management):  Long SJM Holdings (0880.HK).  Likes the casino company as it's poised to benefit from opening the new Lisboa Palace in the back-end of 2019.


Ben Melkman (Light Sky Macro): Thinks inflation in Japan is coming faster than people realize and will yield higher rates.  To bet on this there's two plays: spread trade for bearish exposure on 10-year Japan Commodity Clear House rate or buy banks that will benefit from increased interest rates.


For more investment conference coverage, we've previously posted notes from the Sohn New York Conference and also this week we just posted up notes from the London Value Investor Conference.

ValueAct Capital Takes Olympus Stake

Jeff Ubben's activist investment firm ValueAct Capital has disclosed a 5% ownership stake in Japanese camera and medical device company Olympus (TYO:7733).  Their stake is valued at around $600 million and is a brand new position.  Their core position size seems to be around $1 billion these days, so this is a bit below that.

As far as we're aware, this is firm's first activist bet in Asia.  ValueAct issued a statement, saying, "Olympus has an exceptional business model, market share, technology leadership and emerging markets presence in the global medical device industry.  We think it's an ideal company for our first investment in Japan."

Activism in Japan seems to slowly becoming more acceptable.  Changes in corporate governance in the country have helped that progress.  A few years ago we highlighted Third Point's activist position in Sony and they had also previously invested in Seven & i.

You can view more ValueAct portfolio activity here.