Hedge Fund Best Ideas: Kyle Bass, Dan Loeb, Leon Cooperman, Phil Falcone

All today we've been covering the Delivering Alpha conference and we conclude with the Best Ideas & Alpha panel featuring Kyle Bass (Hayman Capital), Leon Cooperman (Omega Advisors), Philip Falcone (Harbinger Capital), Dan Loeb (Third Point), J. Tomilson Hill (Blackstone Alternative), and Anne Popkin (Symphony Asset Management). Each presented their best current idea:

Kyle Bass (Hayman Advisors)

Bass is well known for his subprime short and prediction of sovereign defaults. At the conference, he said that the sovereign debt crisis is unlike anything seen in history.

Bass believes Japan is in the worst position, saying "Japan spends almost half of their revenue on debt service. So, a minute move can put them literally into check-mate ... We see a structural anomaly creating the cheapest option in the world."

Simply put, Bass says to buy price put options on government bonds in Japan. He believes it's the best opportunity in the world. In the past, we've outlined how Bass was betting against Japanese Government Bonds (JGBs).


Leon Cooperman (Omega Advisors)

Earlier this summer, the legendary hedge fund manager presented at the Leaders in Investing Summit where he was concerned about employment and thought that bonds were screaming to be shorted. At today's conference, Cooperman says that the economic and financial crisis from 2008 would not repeat in 2011 or 2012.

The manager continues to avoid government bonds and again says that stocks are the "best house in the asset management neighborhood." He likes stocks assuming that Obama softens his 'anti-wealth' stance and that the Middle East remains stable. He mentioned liking Apple (AAPL), Sallie Mae (SLM), and Boston Scientific (BSX). To see what other stocks Cooperman is invested in, head to our Hedge Fund Wisdom newsletter.

Cooperman will also be presenting his latest investment ideas at the Value Investing Congress next month.


Philip Falcone (Harbinger Capital)

Falcone has seen somewhat of a transformation lately as his hedge fund looks more like a private equity fund with his large private investment in a 4G wireless network: LightSquared. At the conference, he pitched Spectrum Brands (SPB), noting the company's solid balance sheet and high free cashflow (11-12% free cashflow yield).

The company sells batteries, personal care products, home and garden items, and more. Falcone points to their strong management team and collection of strong global brands. The company is currently focused on debt paydown and reducing leverage from 3.5x to 3x.

Harbinger owns 28 million shares via his publicly-traded Harbinger Capital. We detailed Falcone's original acquisition of SPB shares back in August 2009 as well as his subsequent purchase in April of 2010. While SPB isn't a "high octane" stock, he likes it.


Dan Loeb (Third Point)

We've covered Loeb's recent activist investment in Yahoo! (YHOO) and that's exactly what he talked about at the conference. Just today he sent another letter to Yahoo as his first conversation didn't seem to go too well. Ahh, the trials and tribulations of activist investing.

He feels YHOO has an intrinsic value of around $20 per share and you can see Loeb's investment thesis in his original letter to Yahoo. But in summary, he feels that the company has great assets but has been horribly mismanaged. Calling the board of directors "clowns," Loeb points out that the company hasn't changed since 2004, has kept a "crappy interface" and the "same stupid logo."

In particular, it seems that Loeb really likes their ownership stake in Alibaba Group. Interestingly enough, Loeb says that the company does not need to break up. He says they've hedged the position against the S&P 500 and they've also hedged exposure to Yahoo Japan.

We've also detailed how Third Point has reduced equity exposure for four consecutive months.


J. Tomilson Hill (Blackstone Alternative Asset Mgmt)

This manager believes that non-performing loans and mortgage-backed securities are the best play on a risk-adjusted basis. He also says that, "you have the ability to buy mortgage servicing rights at prices we've not seen before."


Anne Popkin (Symphony Asset Management)

She argued that levered credit is cheap and is focused on loans and high yield bonds. The manager cautioned not to put all your eggs into this one basket and not to buy an entire position right away. Popkin says, "risk management is absolutely crucial here, because volatility is very high." So it sounds as if she's used the volatility in the sector to slowly assemble a position.


Embedded below is video of the entire Best Ideas & Alpha hedge fund panel:




For more coverage of the Delivering Alpha conference, head to our posts:

- Bill Ackman's new investment: long Hong Kong Dollar

- China: Bubble or Bonanza? Dan Arbess versus Jim Chanos

- Paul Touradji & Jeff Scott on commodities

- Jim Chanos: long corruption, short property in China

Paul Touradji & Jeff Scott on Commodities: Delivering Alpha Conference

Continuing coverage from the Delivering Alpha conference today, we turn next to the commodities panel with Paul Touradji, founder of hedge fund Touradji Capital and Jeff Scott, CIO at Worts & Associates (both pictured left, image courtesy of CNBC).


Commodities Fueled by Emerging Markets

Paul Touradji was the 'commodities guru' at Julian Robertson's Tiger Management back in the day. Since then, he went on to found his own hedge fund, Touradji Capital. He kicked off the panel by saying that "the story of commodities going forward is in the emerging markets."

Jeff Scott added that, "in emerging markets, they're lowering interest rates because they're worried about growth. So weak growth now in emerging markets so in theory commodities prices should fall."

We've highlighted in the past how hedge fund Kleinheinz Capital thinks inflation is the biggest threat to emerging markets.


On Gold

It seems like a ton of hedge funds and investors in general own gold these days. Dan Loeb's Third Point has gold as its largest position. David Einhorn's Greenlight Capital has long owned physical gold. John Paulson even has a separate gold fund.

Jeff Scott pointed out the prevailing sentiment toward the precious metal. He presented the audience with a true story about a taxi cab driver in Alaska that was asking him about gold. He said this means that everyone is piling into gold and it makes him nervous. After all, when the mania around any particular investment trickles down to the random 'John Doe' on the street, many see that as one of the age-old contrarian indicators.

While Touradji is seemingly a long-term gold bull, he did agree by saying, "I'm heartened to hear Larry Fink's take on gold equities, $2,500 and a lot higher a year from now. But to put a price on it when it's in a phase like this, it's useless. I agree with (George) Soros that it will soon be in a bubble."

They polled the audience asking whether gold was going higher or lower: 34% thought it was going lower while 33% said higher.


Inflation Versus Deflation

Commodities are always affected whether there is an inflationary environment or a deflationary one. Jeff Scott said that, "at this point in time, you need to be thinking about deflationary and inflationary aspects in terms of angling your portfolio for the long-term." In the past we've posted up the best investments during inflation and the best investments during deflation.

Paul Touradji went on to add that "Ten year TIPS are at zero. The market's worried about recession. But there also aren't rational people, they're acting out of fear and a flight to safety."



For more coverage of the Delivering Alpha conference, head to our posts:

- Bill Ackman's new investment: long Hong Kong Dollar

- China: Bubble or Bonanza? Dan Arbess versus Jim Chanos

- Jim Chanos: long corruption, short property in China

China: Bubble or Bonanza? Xerion Fund's Dan Arbess Versus Kynikos' Jim Chanos

Continuing our coverage of the Delivering Alpha conference today, we turn to the panel on China: Bubble or Bonanza? In the bull corner sits Perella Weinberg Partners' Dan Arbess, who runs the highly successful Xerion Fund. Opposite him in the bear corner is renowned short-seller, Kynikos Associates' Jim Chanos.

While the respective fund managers disagree on whether to be bullish or bearish on China, they do agree that there are 3 key issues in Chinese investing:

1. Real estate
2. Financial system
3. Dependency on fixed assets

Dan Arbess has long said to play the 'shake hands with China' trade by buying multinationals that are seeing high revenue growth from China. This is something we've touched on in a past Xerion Fund letter and you can also read up on Xerion's 2011 investment strategy.

Arbess says that, "to short China in general is to short the march of history. The single most important development of our lives is the devolution of communism and the entry into the global consumer economy of the 3.5 billion people." He clearly feels there's a monumental shift taking place in the global economy.

Chanos, on the other hand, says that GDP in China has declined over the last few years and net exports have fallen too. He feels that the country is structurally imbalanced.

In the past, Jim Chanos has fixated on China's 'ghost towns' as reasons to short China property. Chanos today said that, "these buildings may not be standing in five or 10 years. You're talking about an economic system where profits are not maximized for the largest economic actors. You're talking about a history of horrible lending. You're talking about a system in which the export-driven model hasn't been changed by Western demand."

Arbess counters that Chinese ghost cities are a red herring. He argues that everyday people are moving to the cities and plugging the supply of developments. While he admits that there is speculation in the property market, policy makers are dealing with it by clamping down credit and curtailing the ownership of multiple homes.

The Xerion Fund manager went on to say that, "I think there are misallocations of capital. But those misallocations of capital can be managed by various levers of policy that Chinese policy makers have to keep the urbanization, industrialization of their economy on track."

Earlier today, we highlighted how Chanos is long corruption and short property in China. He likes being long the Macau casinos but short property developers and short some banks (he noted he is not short US banks).

On Ackman's Long Hong Kong Dollar Trade

Both men came on after the speech from Pershing Square's Bill Ackman where he unveiled his new long Hong Kong dollar trade. Given the China bull/bear debate that Arbess and Chanos had, it was also interesting to get their takes on Ackman's latest investment.

Arbess said Ackman's play was plausible while Chanos said he would prefer to be long the Singapore dollar if he was choosing an Asian currency. Earlier we detailed how Tiger Management's Julian Robertson likes the Singapore dollar as well.

Bill Ackman's Latest Investment: Long the Hong Kong Dollar

At the Delivering Alpha conference today, the keynote speech was given by hedge fund manager Bill Ackman of Pershing Square Capital Management. He revealed his latest investment idea: long the Hong Kong Dollar (HKD).

He thinks the trade has the potential to return 100x and has purchased the currency as well as options on the currency. (Pictured left speaking at the conference, image courtesy CNBC)


Currency Re-peg

Ackman's presentation began with a history of Hong Kong's currency. He said that very low interest rates in Hong Kong were driven by US monetary policy, which in turn will cause a Hong Kong housing bubble and high inflation. Ackman seems to believe that Hong Kong will end its US dollar peg by 2015. He says that US rates at zero provides a signal Hong Kong to re-peg.

In terms of position sizing, Ackman says the trade is one of the smaller ones he's put on, but it has the potential to be the most profitable. He feels inflation will force the country to see its currency inflate by 30%. He argues that in 3-6 years, HKD could easily be convertible into the yuan.

The Pershing Square manager also noted that if China implodes/has a hard landing, that's obviously bad for the trade. However, he feels that there's minimal downside mainly due to the fact that the HKD has been pegged to the US dollar since 1983.

Ackman says there's 3 ways to play the trade: buy Hong Kong dollars outright, buy with leverage because the carry cost is low, or buy options on the currency.


Bought in August

Ackman was buying in August and we detailed his investor letter where he bought $600 million worth of investments in various equities and apparently currencies as well. In late August, he revealed that he had bought shares of Family Dollar (FDO), Kraft (KFT), Fortune Brands (FO), and Citigroup (C).

However, he also mentioned that Pershing had bought two new investments that he declined to name. Well, now we know one of them was the Hong Kong Dollar.

In his recent letter to investors, Ackman compared one of the at-the-time-unnamed investments to that of his past play in General Growth Properties (GGP) where there was a chance of exponential return. This Hong Kong Dollar play seems to be the one he was referring to.


Ackman a Macro Trader?

The most intriguing thing here is the notion that Ackman has stepped into the global macro ring of investments. Typically, he has focused on equity and real estate-centric investments in the past. We'll have to see how his first major foray into macro bets plays out.

You could join Ackman on this macro trade as Bergen Capital tweeted that you can mimic this trade by buying "$100mm notional exposure of 1Y HKD calls at 7.50 strike (~4% OTM) for roughly $700k." Though while that's a 1 year trade, Ackman thought the peg wouldn't end until 2015.

This leaves one more unnamed investment from Pershing Square. Perhaps Ackman will reveal it at the upcoming Value Investing Congress?


Embedded below is the video of Ackman's talk from the conference:



We've also posted Ackman's slideshow presentation on the Hong Kong Dollar.



For more from this prominent hedge fund manager:

- Pershing Square bought $600 million worth of investments during August volatility

- Why Bill Ackman bought more Citigroup

- Pershing's hedging strategy

Jim Chanos: "Long Corruption and Short Property in China"

Hedge fund manager and renowned short seller Jim Chanos of Kynikos Associates was interviewed on CNBC today from the Delivering Alpha conference. Chanos is known for his short of Enron before it collapsed.

Recent Portfolio Activity

Chanos says that "we're long corruption and short property in China." As such, he's long the Macau casinos. He didn't name names but obviously Wynn (WYNN) has a large presence there via Wynn Macau (1128.HK), as does MGM (MGM) and SJM Holdings (0880.HK), controlled by the family of Stanley Ho.

Conversely, we originally detailed how he was also shorting the property developers in the country.

In the past month, Chanos has pressed his shorts in the renewables sector (green energy) and in particular, solar. We covered Chanos' presentation at the Ira Sohn Conference where he said he was short First Solar (FSLR) as well as wind power play Vestas (CPH: VWS).

Chanos also noted that his fund is not short US banks.

Email readers come to the site to watch Chanos' interview embedded below:



Chanos will be presenting his newest investment ideas at the Value Investing Congress in New York on October 17th & 18th and Market Folly readers can register here.

Julian Robertson Bullish on Apple, Google, Mastercard & Visa

Legendary hedge fund manager Julian Robertson of Tiger Management recently sat down with CNBC's Maria Bartiromo to give his latest thoughts on the market. Tiger saw nearly 32% annual returns between 1980 and 1998.

Equities

He likes the tech sector and thinks the technology boom is far from over and he thinks these stocks can rally further. In particular, he likes Apple (AAPL), even without Steve Jobs, noting that the company would be trading "at 3 or 4 times" what it is now if this were 1980. He calls the multiple it's trading at now "ridiculous." Also, he likes Google (GOOG).

Robertson is also fond of the payment processors such as Visa (V) and Mastercard (MA). He likes these names as they don't bear credit risk (the banks do). We've long detailed Robertson's bullishness on these names in our Hedge Fund Wisdom newsletter as he's owned all the above stocks for some time now.

Currencies

In currencies, Robertson says he's finding opportunities in Europe by going long the Norwegian Krone. Around the rest of the world, he also fancies the Singapore dollar and Canadian dollar. Conversely, he likes shorting the Hungarian forint.

Interest Rates

Robertson also goes on to highlight that while interest rates continue to slide down, it wouldn't be hard for them to skyrocket higher. He points out that if a large seller were to sell US bonds quickly, rates could fly higher. A few years ago, we detailed Robertson's constant maturity swap (CMS) trade as he got hammered with his "short bonds" bet.

Lastly, Robertson expects Greece to default.

Julian's interview is embedded below (email readers come to the site to watch Robertson's interview):



To see the rest of Tiger's equity investments, head to our newsletter. For more on this legendary manager, head to our profile on Julian Robertson.

Dan Loeb Gets Hung Up On, Sends Another Letter to Yahoo! (YHOO)

We recently detailed that Dan Loeb's hedge fund Third Point went activist on Yahoo! (YHOO). In their activist 13D filing with the SEC, Loeb also attached a scathing letter to Yahoo, something he has become known for.

But, it didn't stop there. In an amended 13D filed with the SEC today, Loeb attaches a new letter (copied below) where it's apparent that he wasn't too pleased that he was hung up on:

“Dear Mr. Yang:

Thank you for taking the time to speak with us by telephone on Monday. We are only sorry that we were not able to finish our conversation as a result of Mr. Bostock’s abrupt unilateral termination of the call.

Mr. Bostock’s failure on the call to acknowledge his pivotal role in, and accept responsibility for, the decline of Yahoo! makes clear that he does not intend to voluntarily follow his recently terminated hand-picked executive, Ms. Bartz, out the door. It is our strongly held belief that not only has Mr. Bostock been a destroyer of value, but also so long as he serves as Chairman of the Board, the Company will not be able to attract the talent it needs and deserves, particularly at the CEO level. This opinion is based not only on our prematurely truncated conversation, but on numerous discussions with Silicon Valley cognoscenti and other people familiar with both Mr. Bostock and the Company.

As a Founder and major shareholder of the Company, the abysmal record of the current leadership must be heart-rending to you personally, as well as damaging to your net worth. We urge you to do the right thing for all Yahoo shareholders and push for desperately-needed leadership change. We are prepared to support you and present you with suggestions on candidates who could help bring Yahoo back to its rightful place among the world’s top digital media and technology companies.

Sincerely,

Daniel S. Loeb”

Be sure to check out Loeb's original letter to Yahoo which outlines his investment thesis on the company. Also, head to Third Point's latest exposure levels.

Jeffrey Altman's Owl Creek Starts Forest Oil (FST) Stake

Jeffrey Altman's hedge fund firm Owl Creek Asset Management recently filed a 13G with the SEC disclosing a position in Forest Oil (FST). Per trading activity on September 6th, Owl Creek has revealed a 5.04% ownership stake in FST with 5,760,829 shares.

This is a brand new position for the hedge fund as they did not own a stake at the end of the second quarter. Forest Oil recently announced a special dividend to investors of 70 million shares of Lone Pine Resources (LPR) that are owned by Forest.

The distribution will be made on September 30th for shareholders on record as of September 16th. For every one share of FST owned, shareholders will receive 0.612 of a share of Lone Pine common stock.

Per Google Finance, Forest Oil is "an independent oil and gas company engaged in the acquisition, exploration, development, and production of oil, natural gas, and natural gas liquids in North America."

Back in 2010 we also detailed Altman's appearance on a hedge fund panel where he talked about how his firm had tail hedges via S&P puts and CDS because they were worried that the government wouldn't be able to do much in the event of another economic problem since rates were already at 0%. Though the recent volatility hasn't been as drastic as 2008, that was still prescient hedging.

Hedge Fund Valinor Management Buys More Accuride (ACW)

David Gallo's hedge fund Valinor Management recently filed a 13G with the SEC regarding shares of Accuride (ACW). Due to portfolio activity on August 25th, Valinor has disclosed a 5.6% ownership stake in Accuride with 2,647,414 shares.

This marks a 46% increase in their position size since the end of the second quarter, as they've purchased 836,130 additional shares. Gallo's hedge fund has been active lately as they also added to their Popular (BPOP) position.

Per Google Finance, Accuride is "engaged in manufacturers and suppliers of commercial vehicle components in North America. The Company’s products include commercial vehicle wheels, wheel-end components and assemblies, truck body and chassis parts, and other commercial vehicle components."

Valinor is invested in another economically sensitive name involved in the commercial vehicle sector as they also own Swift Transportation (SWFT).

Howard Marks & Oaktree Capital's Latest Commentary: What's Behind the Downturn?

Oaktree Capital's Chairman Howard Marks is out with his latest commentary. His letters are read regularly by the likes of legendary investors Warren Buffett and Seth Klarman. Marks also has a new book out entitled, The Most Important Thing.

Marks' prior letter addressed the debt ceiling and his latest missive tackles the question of what's caused the recent downturn in markets. He argues that all the signs for the downturn existed well before the actual decline took place.

When it comes to "double dips" in the economy, Marks doesn't know how people reach firm conclusions on such a scenario. Instead, he offers Oaktree's approach:

"For our purposes, it suffices that we have operated since the financial crisis under the assumption that the recovery would be sluggish, rather than V-shaped. We still feel that way. And that feeling is inconsistent with moving out on the risk curve or down in credit quality, investing more in cyclicals or taking on leverage."

Embedded below is Howard Marks' & Oaktree Capital's latest commentary: What's Behind the Downturn? (email readers come to the site to view it)



For more investing insight from this successful hedge fund manager, check out Marks' book.

For other recent hedge fund letters, head to our post on how Bill Ackman bought $600 million worth of investments recently as well as Perry Capital's thoughts on European markets.

Dan Loeb's Third Point Goes Activist on Yahoo! (YHOO)

Dan Loeb's hedge fund firm Third Point LLC has just filed a 13D with the SEC signaling their activist investment in Yahoo! (YHOO). This is a brand new position for the hedge fund.


Specifics of Third Point's Stake

Third Point started buying on August 8th and were buying as recently as September 7th. They now own 5.15% of the company with 65,000,000 shares. 45,000,000 of those shares are common stock where they have a cost basis of $12.7x.

He's already up on his position, as shares currently trade around $14. Last week we noted how Third Point is outperforming, but had reduced exposure for four consecutive months.

The other 20,000,000 shares Third Point owns are represented by call options. The majority of Loeb's call options are at the $12.50 strike price. He also bought $13 and $14 calls, though no expiration month was specified.


Loeb's Activist Plan

Earlier we posted up Loeb's letter to Yahoo! which we recommend you read in full, as his letters are always classic. But in summary, Loeb desires a "reconstituted board with new directors who will bring fresh eyes, relevant industry experience and increased investor alignment to the table."

Yahoo fired its CEO Carol Bartz two days ago, so a management shake-up is inevitable. Ironfire Capital's Eric Jackson suggests taking things a step further by breaking up the company into 3 segments. As to who could replace Bartz, he offers up Peter Chernin (former President of News Corp).

Jackson thinks YHOO is worth up to $31. Loeb thinks shares of YHOO have an intrinsic value "in excess of $20 per share."


Investment Thesis

The main thesis investors have bought shares of Yahoo! under is sum-of-the-parts based. Basically, YHOO has an ownership stake in a ton of unique Asian assets. Loeb thinks Yahoo's 40% stake in Alibaba Group and their stake in Yahoo Japan are key. He writes,

"Our analysis suggests that at a share price of $13.61, with $2.49 per share in tax adjusted net cash, $3.10 per share and $5.24 per share of after-tax values for the Yahoo! Japan and Alibaba Group stakes respectively, core Yahoo is left at an implied value of $2.78 per share or 2.2x 2012 EBITDA. With more effective and focused management, one could realistically envision a re-rating to at least 7.0x 2012 EBITDA, driving a target of over $19.00 per share."

Investors feel these assets are not being valued appropriately and that they've been mismanaged. We've detailed the full investment thesis on YHOO in a past issue of our Hedge Fund Wisdom newsletter.


Yahoo an Event Driven Investor Graveyard?

Earlier in the year, David Einhorn's Greenlight Capital bought YHOO, only to abandon it weeks later out of frustration with developments surrounding the company's stake in Alipay. Corporate raider Carl Icahn had also owned YHOO in the past, only to exit his position.

Curtis Macnguyen's Ivory Capital, on the other hand, continues to hold a large YHOO position. And at the end of the second quarter, other large YHOO shareholders included hedge funds Perry Capital and Maverick Capital.

Numerous other investors have put capital to work in YHOO, only to see shares slide or trade sideways. While Einhorn exited with a small loss on his position, Loeb currently has a small gain. It will be interesting to see if other hedgies follow Loeb's new activist charge.

To see what else Loeb has been up to, head to Third Point's investor letter.

Dan Loeb's Letter to Yahoo! (YHOO)

Today Dan Loeb's hedge fund Third Point went activist on Yahoo! (YHOO). The hedge fund manager is well known for his eloquently penned letters that often attack his targets with brutal honesty.

Below is Dan Loeb's letter to Yahoo! (YHOO):

"September 8, 2011

Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Attention: Mr. Roy Bostock, Chairman

Dear Ladies and Gentlemen:

Third Point LLC (“Third Point”) is a registered investment adviser with approximately $8 billion under management. We are writing to inform you that certain investment funds we manage have acquired a 5.1% interest in Yahoo! Inc. (the “Company” or “Yahoo”), bringing our holdings of common stock and currently-exercisable equity options to 65,000,000 of the outstanding shares, and positioning us as the Company’s third largest outside shareholder.

This letter details our principled demands for sweeping changes in both the Board of Directors (the “Board”) and Company leadership, and outlines the hidden value of Yahoo, which has been severely damaged – but not irreparably – by poor management and governance.

The Failures of Yahoo’s Board of Directors Necessitate a Significant Infusion of Fresh Board Talent

Yahoo’s current Board of Directors has made a number of decisions that have directly harmed the Company and resulted in a stock price far below the Company’s intrinsic value. While we are focused on the future for Yahoo under new management, it is instructive to understand how this Board’s many mistakes have created the current conditions at an asset and talent rich company. Among others:

1) It is now widely accepted that the Board made a serious misjudgment in approving the hiring of Carol Bartz as Yahoo’s Chief Executive Officer, given her inexperience in the consumer-oriented internet space. Although we are pleased that the Board has terminated Ms. Bartz’s employment, we fail to understand why this decision was so long in coming given her abysmal performance over the last two and a half years. During this period, Ms. Bartz’s poor decision-making and communication skills publicly alienated the Company’s highly respected Asian partners, as well as its shareholders, sell-side analysts, bloggers, customers and employees.

While the decision to hire her alone is grounds for questioning the Board’s competence, its willingness to turn a blind eye to these serious problems and inexplicably remain supportive of Ms. Bartz notwithstanding the negative impact she was having on the Company is even more troubling. As recently as June 23, 2011, at the Company’s annual meeting, Chairman Bostock reportedly stated that the Board remained “very supportive of Carol and this management team” and that they were “confident that Yahoo [was] headed in the right direction." These comments demonstrate that this Board lacks the courage to urgently make the difficult decisions required by the situation today.

2) It is also now widely recognized that the Board made a gross error in turning down the $31 per share Microsoft bid in 2008, which would have generated significant returns for Yahoo’s shareholders. This mistake is all the more frustrating given Yahoo’s current depressed stock price of $13.61 per share — far below the Company’s intrinsic value, which we currently place in excess of $20 per share, as detailed below.

From the failed Microsoft sale negotiations, to a subsequent bungled and disappointing search deal with Microsoft, through a series of misguided CEO selections, and most recently the Alipay debacle, this Board’s failures have destroyed value for all Yahoo stakeholders. Ms. Bartz’s exit and Mr. Morse’s elevation to interim CEO makes him Yahoo’s fourth CEO in four years and further demonstrates the poor corporate governance Yahoo investors have been saddled with for too long. Even before Ms. Bartz’s hire, Yahoo’s shares materially underperformed the market and their peer group, as graphically evidenced in the Company’s most recent 10-K. Against this background, it is evident that merely replacing the Company’s CEO – yet again – will not be enough to alter the direction of the Company. Instead, a reconstituted Board with new Directors who will bring fresh eyes, relevant industry expertise and increased investor alignment to the table is immediately necessary.

Yahoo’s website states the Company’s values, among them: “We foster collaboration while maintaining individual accountability.” It is time that certain members of this Board were held accountable for its past failures and their individual roles. Accordingly, we insist that Mr. Bostock, who championed Ms. Bartz’s hiring and led the charge against the Microsoft deal, promptly resign from the Board. We also demand that fellow Directors Arthur Kern and Vyomesh Joshi, who have stood by silently during these last five years of woeful performance, join Mr. Bostock in resignation. Finally, we can only assume that Director Susan James, the President of Tri-Valley Animal Rescue, will also resign, given her close relationship with Ms. Bartz. If she does not do so voluntarily, the Board should request her resignation as well.

As the Company sets out to recruit a new CEO and evaluate strategic alternatives, we are adamant that reconstituting the Board is crucial to provide any serious CEO candidate or strategic counterparty with a stable and responsive governance structure. There is much work to be done and time is of the essence. Even after the Company announced Ms. Bartz’s dismissal and the pursuit of strategic alternatives, Yahoo shares rose only 5%. We believe the muted market reaction to Ms. Bartz’s dismissal represents a recognition that this management change is a necessary, but not sufficient, step towards unlocking Yahoo’s actual value. Investors’ reluctance to embrace the stock and their lack of confidence in this Board’s ability to lead the franchise is understandable given the current Board’s track record.

Third Point has held discussions with many highly respected entrepreneurial executives active in technology, internet, media and consumer-related businesses. From these discussions we have distilled an All-Star team of potential Director candidates, who would be indispensable in working with the reconstituted Board to pursue the three paths outlined in the recent company announcement: CEO search, business review and strategic options. We look forward to sharing our candidates with you shortly.

The Obscured Value in an Iconic American Technology Asset

We firmly believe that there is much to be gained from a successful and rapid transition in management, as we are convinced that Yahoo is grossly undervalued. We have followed Yahoo for many years, and our analysis suggests that at a share price of $13.61, with $2.49 per share in tax adjusted net cash, $3.10 per share and $5.24 per share of after-tax values for the Yahoo! Japan and Alibaba Group stakes respectively, core Yahoo is left at an implied value of $2.78 per share or 2.2x 2012 EBITDA. With more effective and focused management, one could realistically envision a re-rating to at least 7.0x 2012 EBITDA, driving a target of over $19.00 per share. When coupled with tax efficient outcomes for its Asian assets, an additional $3.00-4.00 per share stands to be realized. Continued share count reduction via buybacks and other potential capital structure optimization alternatives would further bolster the Company’s stock price. In addition, based on our discussions with industry experts and entrepreneurs, we believe that with new management, there is significant further value in leveraging Yahoo’s globally trusted franchise and platform for a range of new products and innovations.

Focusing specifically on the Alibaba Group, the mid-term value potential for this stake alone could represent another $5.00 per share of upside. The e-commerce interests housed under the Alibaba Group umbrella hold the dominant positions in the “B2B” (63% of 2010 market share according to Marbridge Consulting), “C2C” (85% share) and “B2C” (51% share) Chinese e-commerce markets. Alibaba Group’s Taobao business is essentially Ebay and Amazon on steroids in terms of market share and revenue growth. According to Goldman Sachs, the Chinese e-commerce market was $75 billion in 2010, with a 3 year forward compound annual growth rate of 43% compared to the $193 billion U.S. market with compound annual growth of 14% over the same period. We currently estimate a pre-tax value for Alibaba Group of $25 billion. Given Alibaba Group’s growth potential and market share, it is entirely conceivable that Yahoo’s 40% fully diluted stake in Alibaba Group could double in value over the next 2-3 years, highlighting its tremendous value.

Looking deeper into core Yahoo, it is clear that the Company possesses unique scale and scope as the Internet’s premier digital media company. The near completion of significant platform transitions and increasing ad format creativity and client engagement translate to exciting prospects for 2012. These compelling Yahoo initiatives were sadly lost in the chaos surrounding Ms. Bartz’s tenure as CEO. Hidden by Yahoo’s senior management drama is a franchise benefitting daily from tremendous investment in resources and new platforms successfully built by Yahoo’s corps of talented, committed engineers, product development team and salespeople.

Finally, the Company’s leadership needs to rebuild relationships with its valued Asian partners in Yahoo Japan, Softbank and the Alibaba Group. These are important sources of value for Yahoo, and the Company needs to enter a new, constructive era with these critical allies and friends of the Company.

In conclusion, we are eager to present to the Board our candidates and thoughts on the Company’s future. We hope that the Board will take our proposals seriously and move towards the leadership overhaul that we are championing. While the decision to undertake Board turnover initially rests with individual directors, ultimately, shareholders like Third Point have other means to effect changes necessary to protect their investment. We are prepared to propose a slate of directors at the Company’s annual meeting next year should it become necessary. Such proxy disputes are burdensome, and we sincerely hope that one will not be necessary here. Shareholders have already suffered enough.

It is time for new leadership at Yahoo. Yahoo’s investors, employees, clients and users deserve it. We look forward to having what is great about Yahoo make headlines, encouraged and communicated by new CEO and Board leaders.

Sincerely,

/s/ Daniel S. Loeb

Daniel S. Loeb
Chief Executive Officer
Third Point LLC

CC: Ms. Patti Hart
Ms. Sue James
Mr. Vyomesh Joshi
Mr. David Kenny
Mr. Arthur Kern
Mr. Brad Smith
Mr. Gary Wilson
Mr. Jerry Yang
"

Be sure to read more about Third Point's activist bet on YHOO.

Find Out What Hedge Funds Are Buying in This Volatile Market

Warren Buffett is famous for saying, "look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it." In fact, this quote is where MarketFolly.com got its name.

It's no secret that market volatility creates opportunity. So here's your chance to find out what top hedge funds have been buying (or shorting) during the recent market turmoil. Market Folly readers receive the early bird discount that expires in 7 days, so register for the Value Investing Congress.

Top managers will share their latest investments October 17th & 18th in New York City. A bunch of additional speakers were just announced, so here's the full list:

- Bill Ackman, Pershing Square
- Leon Cooperman, Omega Advisors
- Jim Chanos, Kynikos Associates
- Adam Weiss & James Crichton, Scout Capital
- Joel Greenblatt, Gotham Capital
- Alexander Roepers, Atlantic Investment Management
- Guy Gottfried, Rational Investment Group
- Bernard Horn, Polaris Capital Management
- Timothy E. Hartch, Brown Brothers Harriman
- Whitney Tilson & Glenn Tongue, T2 Partners

This is your last chance to save $1,500 off the regular price before the early bird rate expires. Click here for the discount.

Dan Loeb's Third Point Outperforming, Reduces Exposure Yet Again

In early August, we noted how Dan Loeb's Third Point reduced equity exposure for the third consecutive month. That decision has certainly paid off as Loeb's fund was only down 2.8% in August compared to the S&P 500 which was down 5.4%. Year-to-date as of the end of August, Third Point is up 3.9% while the S&P is down 1.8%.


Reduced Exposure for Fourth Straight Month

At the end of August, Third Point was only 17.7% net long equities, down even further from their 23.3% net long exposure back in July. Their largest net long exposure comes in technology at 6.5% and basic materials at 3.5%. Third Point is net short industrials (-1.5%) and utilities (-0.6%).

In credit, Loeb's Offshore Fund is 18.5% net long, a slight decrease from last month. They continue to be net short government securities (-10.3%) and have their largest net long exposure in asset backed securities (+17.3%).

Geographically, Third Point is net long the Americas at 50%, net short EMEA at -4% and net short Asia at -2%.


Third Point's Outperformance

So while decreased exposure to risk certainly has helped Loeb outperform in this volatile market, his winners the past month include gold, short A, CVR Energy (CVI), Barrick Gold (ABX), and short B.

It should come as no surprise that their gold related investments have helped them outperform as the precious metal rocketed higher as market volatility increased. Not to mention, gold has been one of Third Point's largest positions for some time now.


Top Positions

- gold
- Delphi
- CIT Group (multiple securities held)
- Technicolor (multiple securities held)
- El Paso (EP)

The most notable change in Third Point's top positions since last month is the absence of Mosaic (MOS). There's no way to know exactly why because they could have reduced their position size, other positions could have appreciated more, or they could have bought more of some of their top holdings.

Third Point originally bought MOS on the secondary when the Cargill family unloaded shares at $65 per share. The hedge fund subsequently 'bought the dip' in MOS when it traded down to around $60. During August, MOS traded as low as $55.70, and currently trades around $69.50.

Either way, Third Point's top holdings have largely been what you see above as they wait for Delphi to go public and El Paso to split up.

Chasing Madoff Trailer: Documentary About Harry Markopolos Exposing Bernie Madoff's Ponzi Scheme

Below is the trailer for the new documentary Chasing Madoff which was released on August 26th, 2011. It details the story of Bernie Madoff's $18 billion ponzi scheme and how Harry Markopolos spent ten years trying to expose the fraud.

Directed by Jeff Prosserman, it seems that the documentary is based on Harry Markopolos' book, No One Would Listen: A True Financial Thriller. You can also read our review of the book here.

The trailer for Chasing Madoff is embedded below (email readers come to the site to watch):



For more financial film trailers, check out the Margin Call movie trailer.

John Thaler's JAT Capital Buys More IMAX Corp (IMAX)

John Thaler's hedge fund JAT Capital just filed a 13G with the SEC regarding shares of IMAX Corp (IMAX). Per portfolio activity on August 22nd, JAT has disclosed a 4.6% ownership stake in IMAX with 2,979,280 shares.

Since the end of the second quarter in June, this marks a 349% increase in their position size as they've gobbled up shares. Since the end of June, shares of IMAX are down 48%.

Some managers have had somewhat of a '3D' pairs trade on by going long IMAX and short RealD (RLD), but we obviously can't see JAT's shorts.

Thaler's Background

Before he founded JAT, Thaler worked at Shumway Capital Partners (which returned capital this year). Chris Shumway himself invested in JAT's launch. Thaler covered technology, media and telecom and managed the internal Omni fund while at Shumway. Before that, he worked at Spectrum Equity Investors in private equity.

Due to his background, you'll see an emphasis on the TMT sectors in his portfolio. Thaler earned his BA in Economics from the University of Chicago. In 2008, JAT returned -5.9% and in 2009 returned 23.2% gross. This isn't the first time we've covered Thaler's fund as we've also detailed JAT's bet on social media via SINA.

Per Google Finance, IMAX is "is an entertainment technology companies, specializing in motion picture technologies and presentations. The Company’s principal business is the design and manufacture of digital theater systems (IMAX theater systems) and the sale or lease of IMAX theater systems."

Bill Ackman's Pershing Square Buys $600 Million of Investments During August Volatility

Bill Ackman's hedge fund Pershing Square Capital utilized the market volatility in early August as an opportunity to buy stocks, according to their recent letter to investors. So what did they buy?

Ackman writes,

"We have often described stock market volatility as an opportunity for Pershing Square. Since the beginning of the month, the market, and to an even greater extent, most of our holdings went on sale. We took advantage of this favorable pricing to invest more than $600 million in existing investments including Fortune Brands, Kraft, Family Dollar, Citigroup, and two new commitments. In each case, the businesses continue to make progress that meets or exceeds our expectations making our additional investments that much more compelling. Unfortunately, for most of our remaining holdings we were restricted in purchasing more by virtue of our insider status, or other regulatory or corporate charter provisions that limit our ability to increase our ownership percentage."

After writing the letter (dated August 17th), Pershing Square received permission to increase its ownership stake in J.C. Penney (JCP) to 26.1% of the company, up from the 18.2% they currently own as well.

Pershing's New Investments

Ackman did not disclose the names of his two new investments, most likely because they were/are still acquiring their position. His letter states that they should be able to share more details about one of the positions in the upcoming months.

It would make sense that he could reveal one of them at the upcoming Value Investing Congress where he will be presenting investment ideas along with many other hedge fund managers (Market Folly readers: today is the LAST day for substantial savings to the event, click here for the discount).

Ackman's investor letter drops a hint that they bought an investment that broadly falls into the category of their old General Growth Properties (GGP) investment: i.e. a situation where they were able to buy GGP for less than a dollar per share and enhanced the probability of recovery for shareholders with their active intervention. Let the guessing games begin.

In early August we detailed how Pershing Square bought more Fortune Brands (FO), but now we know they were buying more than one stock.

For more excerpts from Pershing Square's recent letter to investors, we've outlined why Ackman bought more Citigroup, as well as Pershing's hedging strategy in this crazy market.

Why Bill Ackman Bought More Citigroup (C)

In his recent letter to investors, Pershing Square founder Bill Ackman revealed he bought $600 million worth of investments during the recent market volatility. One stock that garnered such capital was Citigroup (C).

Ackman outlines why the stock has been selling off:

"In the second quarter, the share price of Citi and its peers declined primarily due to three concerns: (1) the requirement that systemically important financial institutions will need to hold additional capital (commonly referred to as the SIFI buffer), (2) concerns about exposure to potential losses resulting from the issues surrounding the troubled Eurozone sovereigns, and (3) worries about weakness in the U.S. economy."

In the brand new issue of our Hedge Fund Wisdom newsletter, we pointed out an interesting dichotomy between shares of two financial giants. While many funds like Paulson & Co and Appaloosa Management were selling shares of Bank of America (BAC) in the second quarter, numerous contrarians stepped up to buy Citigroup as shares tumbled.

Ackman was one of those contrarians, along with Lee Ainslie's Maverick Capital. We've also detailed how Curtis Macnguyen's Ivory Capital owns a sizable C stake. The Pershing Square manager goes on to outline his rationale for why C is a good investment:

"Citi recently provided disclosure about its exposure to the troubled Eurozone sovereigns and the corporations and consumers that are domiciled within those countries. Based on this disclosure, we believe that Citi is adequately capitalized to withstand the losses that may result from adverse outcomes from the Greek and other Eurozone debt crises. On July 15 th , Citi reported its second quarter results which highlighted the growth in its emerging markets franchise, the continued improvement in credit costs, and further strengthening of its capital ratios. At current share price levels, Citi trades at less than five times our estimate of normalized EPS before including any benefit for the present value of excess capital and tax assets, and less than three times normalized EPS after including these benefits."

We originally covered why Ackman bought Citigroup back in April 2010. At the time, they purchased shares at nearly 1.1x tangible book value. Ackman notes that now, "tangible book value has grown by nearly 20%, yet the Company's tangible book value multiple has declined to 0.6 times."

Overall, the hedge fund thinks the bank has enough liquidity to weather the current economic environment. Ackman believes that C will command a higher multiple once market uncertainty declines.

For more from Pershing Square, check out Ackman's purchase of $600 million worth of investments during August's volatility, as well as Ackman's hedging strategy.

Bill Ackman & Pershing Square's Hedging Strategy

While many of the hedge funds we track on Market Folly employ a long/short equity strategy, Bill Ackman's Pershing Square Capital takes a slightly different approach, typically preferring credit default swaps (CDS) to shorting equities.

In fact, Ackman's approach is more akin to Seth Klarman's approach at Baupost Group. Klarman typically hedges against outlier events such as hyperinflation. These hedges typically cost very little and often expire worthless, but if the outlier event does occur, they can payout over 50x.

In fact, we've detailed Ackman's strategy briefly before in our profile of Ackman & Pershing Square. Given the recent market volatility, Ackman took this opportunity to outline his hedging strategy in his recent letter to investors to remind them that they don't attempt to manage short-term volatility.

Ackman purchased $600 million worth of investments recently and so let's take a look at the other side of the coin: hedging. Ackman writes,

"Unlike as we did in the past, we don’t own investment grade CDS because we believe these credits are mispriced. Rather, we continue to own approximately $7 billion of index CDS which serves as a form of disaster protection, but one that is unlikely to pay off in a material way unless and until there is another major systemic crisis.

We own almost no single-name CDS other than to hedge a modest amount of uncollateralized exposure we have to financial institution counterparties. We have been unable to identify large single-name, standalone CDS investments since 2009. This is largely due to the rapid improvement in corporate creditworthiness over the last two years."

And then turning back to Ackman's tail-risk protection, he goes on to note that the hedge fund has committed capital to asymmetric payoffs that won't protect the fund unless there is a very large market decline. He writes,

"Since the inception of the funds, we also have purchased options which offer asymmetric payoffs in the event of the occurrence of low-probability catastrophic or otherwise unanticipated negative events. These events could include large movements in interest rates, currencies, or other asset prices that we believe may occur during periods of market stress."

As such, it sounds like Pershing will underperform in times of mild market stress (like recently) but is more-so hedged against extreme outlier events. According to their investor letter, Pershing was up 1.7% for the year at the end of the second quarter. However, HSBC Private Bank data says that Pershing is now -10.5% through mid-August.

For more from the hedge fund, head to our post on why Ackman bought more Citigroup.

Lone Pine Capital Nearly Doubles SolarWinds (SWI) Stake

Stephen Mandel's hedge fund Lone Pine Capital filed a 13G with the SEC regarding shares of SolarWinds (SWI). Due to portfolio activity on August 19th, Lone Pine now shows a 5.2% ownership stake in the company with 3,766,081 shares.

This is an increase in their position size of 97.5% as they've almost doubled their stake since the end of the second quarter on June 30th.

Mandel's hedge fund has been busy buying lately and we've detailed how Lone Pine likes information technology plays and their SWI purchase falls right under that theme.

Per Google Finance, SolarWinds "designs, develops, markets, sells and supports enterprise information technology (IT) infrastructure management software to IT professionals in organizations of all sizes. The Company’s offerings ranges from individual software tools to software products, which solve problems faced every day by IT professionals and help to enable management of networks and IT environments."

New Issue of Our Hedge Fund Wisdom Newsletter Now Available!

The brand new Q2 2011 issue of Market Folly's premium newsletter is now available. Current subscribers please login at hedgefundwisdom.com to download it.

Free Sample: If you haven't had a chance to check out our newsletter, you can download a full past issue by clicking here (.pdf)


Included in our brand new 83-page issue:

- Equity analysis: Written by hedge fund analysts, this issue details the investment thesis summaries on American International Group (AIG), Sensata Technologies (ST) and First Solar (FSLR) ~ all stocks that saw intriguing buying during the quarter

- Consensus List of the top buys and sells from hedge funds

- Updated Portfolios of 25 prominent hedge fund managers
(see the full list of managers here)

- Expert Commentary and analysis of each fund's moves


Subscribe (Published Four Times a Year):

1-Year Subscription (Save 20% with this option): $299.99 / year

Quarterly Subscription: $89.99 / quarter

If you would like to pay via check, please email us: info@hedgefundwisdom.com

What We're Reading ~ 8/26/11

Our guest post: takeaways from recent hedge fund activity [BigPicture]

Paulson, Tepper, Loeb & other hedgies all bought this stock [Forbes]

Icahn makes $120 million on falling S&P [FINalternatives]

Jeff Ubben buys big during the chaos [Institutional Investor]

Bernanke's speech from today [The Big Picture]

Gold at $1800 is a fool's bet [AR + Alpha]

On getting long Bank of America (BAC) [Bronte Capital]

Interview with George Soros [Der Spiegel]

BlackRock's Fink says buy dividend stocks instead of treasuries [Barron's]

Interview with 105 year old banker Irving Kahn [Daily Beast]

Hedge funds most bearish since 2009 [Bloomberg]

Tudor's new fee structures [WSJ]

Buffett has been buying during downturn [LATimes]

Michael Lewis' latest article [Vanity Fair]

Morning with Charlie Munger transcript [My Investing Notebook]

JANA Partners' Presentation on McGraw-Hill (MHP): Reasons to Split Up the Company

Earlier today we posted up about hedge fund JANA Partners' activist push against McGraw-Hill (MHP). Barry Rosenstein's hedge fund (along with the Ontario Teachers' Pension Plan) owns 5.6% of the company and is pushing for MHP to split up into four separate entities.

JANA just met with the company on Monday (August 22nd) to present their case. Here's the hedge fund's rationale for splitting up MHP:

"
- MHP's conglomerate structure acts as a significant constraint on each of its businesses, hampering operational performance, strategic flexibility in allocating capital and share price valuation

- MHP has much more meaningful and beneficial opportunities to improve operating performance and clarify the underlying value of its assets than the actions taken to date (such as seeking to sell broadcasting, which accounts for only ~2% of total EBIT)

- A wide ranging, transformative and comprehensive resolution of the corporate structure and cost structure is essential for MHP to improve operating performance and shareholder return

- Separating MH Education, Information & Media and the S&P Index business would position these businesses to improve performance and participate in consolidation, thus unlocking value

- Collapsing MHP's corporate cost structure and eliminating duplicative overhead costs would enhance this value creation

- Accelerated share buybacks would multiply the value creation impact of these changes

- Bolstering S&P Ratings with an independent oversight figure would help the business navigate an increasingly complex global regulatory environment and heightened public focus

- The real question is why would MHP not promptly take these steps to improve operating performance and unlock shareholder value?
"

JANA's recent slideshow presentation to the company is embedded below (email readers need to come to the site to view it):



In response to JANA's presentation, McGraw-Hill issued a statement that their review of the company's options for splitting up is "well advanced and expected to result in significant actions in the next few months to accelerate global growth, align appropriate cost structures and build shareholder value."

The question is whether McGraw-Hill opts for the more aggressive four-pronged break-up or if they are eyeing the smaller split up as they are said to be considering.

Roberto Mignone's Bridger Management Buys More United Rentals (URI)

In a 13G filed with the SEC, Roberto Mignone's hedge fund Bridger Management has disclosed a 5.2% ownership stake in United Rentals (URI) with 3,241,704 shares.

This marks a 60% increase in their position size since the end of the second quarter. Bridger Management now owns just over 3.2 million shares of URI due to portfolio activity on August 8th.

Per Google Finance, United Rentals "is an equipment rental company and its network consists of 531 rental locations in the United States and Canada. United Rentals offers approximately 2,900 classes of equipment for rent to customers that include construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities."

To see the rest of this hedge fund's investments, head to the brand new issue of our premium newsletter.

JANA Partners Pushes For McGraw-Hill (MHP) Split Up

Ah, the smell of activist investors in the morning. Barry Rosenstein's hedge fund JANA Partners recently filed an amended 13D with the SEC in conjunction with the Ontario Teachers' Pension Plan regarding shares of McGraw-Hill (MHP). The activist investment disclosure revealed that they now own 5.6% of the company.

They originally disclosed the stake earlier this month and have since bought over 1 million more shares. While JANA also focuses on event-driven investments, they're well known for making activist pushes to generate change in companies they invest in.

JANA's Split Up Plan

The hedge fund wants McGraw-Hill to split up into four entities: Standard & Poor's ratings agency, the indexing business of S&P, the information & media business, and the education unit.

It seems that this is a much more detailed and ambitious plan compared to what MHP was considering. The company was looking into divesting its educational publishing business and its broadcasting unit.

So why is JANA interested in MHP in the first place? In their filing, they write, "(MHP) has consistently underperformed its potential and traded at a sizable discount." So as always, the hedge fund wants to make money on their investment and think a split-up/spin-off is the ideal way to generate shareholder value.

The only potential 'hurdle' going forward (if you want to call it that), is that McGraw-Hill is largely a family business, though Mr. McGraw owns only around 4% of the company. It will be interesting to follow the activist saga unfold.

In recent portfolio disclosures, JANA has 24% of its reported US equity long investments allocated to one stock. Find out which one it is and see the rest of 25 hedge fund portfolios in the brand new issue of our premium newsletter.

Update: We've also posted JANA's presentation on McGraw-Hill.

Stephen Mandel's Lone Pine Capital Buys the Dip in VanceInfo Technologies (VIT)

Stephen Mandel's hedge fund firm Lone Pine Capital has been busy buying lately. In an amended 13G just now filed with the SEC, Lone PIne has disclosed a whopping 17.6% ownership stake in VanceInfo Technologies (VIT) with 7,862,536 shares.

Per portfolio activity on August 19th, Mandel's hedge fund has ramped up its position size by buying an additional 7.5% of the company. We recently covered how Lone Pine bought VIT in late July and back in late 2010 as well.

Lone Pine Likes Information Technology

Since Lone Pine's additional buy just three trading days ago, shares of VIT are down a little lower around $11.84. VIT operates in the information technology sector and some investors seem to think that the company's underlying business could be slowing down at a rapid rate, given that more than half their business is in China.

Lone Pine also has a large position in another information technology company. The hedge fund has long held a stake in Cognizant Technology Solutions (CTSH) and it's their second largest US equity long position as detailed in our brand new issue of Hedge Fund Wisdom.

A solid portion of Lone Pine's position in VIT is in its Lone Dragon Pine fund, which focuses on emerging markets. For other buys from this hedge fund, yesterday we posted up their position in Michael Page International.

Per Google Finance, VanceInfo "is an information technology (IT) service provider and an offshore software development company in China. The Company’s range of IT services includes research and development services, enterprise solutions, application development and maintenance (ADM), testing, as well as globalization and localization."

Last Chance For Substantial Discount to the Value Investing Congress

The Value Investing Congress is coming up quickly on October 17th & 18th in New York City. This is your last chance to benefit from substantial savings. Market Folly readers can save $1,700 with discount code: N11MF5. Register in the next seven days before the price increases by $400. Click here to receive the discount.

Alexander Roepers of Atlantic Investment Management just committed to speak at the event. He manages a $1.5 billion global equity hedge fund.

He joins an all-star hedge fund line-up of speakers including Pershing Square's Bill Ackman, Kynikos Associates' Jim Chanos, Scout Capital's Adam Weiss & James Crichton, Gotham Capital's Joel Greenblatt, and many more.

The price increases in seven days, so this is your last chance for substantial savings: receive your discount to the Value Investing Congress.

Why Strategist Jeff Saut Thinks There Isn't a Recession

Market strategist Jeff Saut recently said to buy select stocks even though that Dow Theory registered a sell signal. He's received lots of questions as to why he did so and addressed this in his recent market commentary.

Mainly, his bullish stance (at least in the short-term), stems from massively oversold levels in the markets. He also bases this on the backdrop that the economy is not headed to a recession. He writes,

"My controversial non-recession 'call' is driven by the fact that industry analysts are still bullish on earnings with the S&P 500's consensus estimate approaching $114 for 2012. Corporate insiders are clearly bullish as they have been buying their own company's shares at the highest rate since the bottom in March 2009. Layoffs have slowed and while the economy is certainly slowing, metrics like L.A. seaport traffic, railcar loadings, etc. are not falling off a click like they did prior to the 2008 recession."

We pointed out massive insider buying two weeks ago as well. More than anything, Saut is convinced that a confluence of indicators reinforce his belief that select stocks are cheap. You can view Saut's favorite stocks here.

Embedded below is Saut's recent investment strategy where he outlines how the current market action is somewhat parallel to that of October 1978 and 1979:



You can download a .pdf copy here.

Lone Pine Capital Discloses Michael Page International Position

Stephen Mandel's hedge fund Lone Pine Capital has just disclosed a potentially new (more on that below) position in Michael Page International (LON: MPI).

Due to trading on July 16th, Lone Pine breached the UK regulatory disclosure threshold with a 3.21% ownership stake. You can view Lone Pine's latest US equity holdings in the brand new issue of our Hedge Fund Wisdom newsletter.

Lone Pine has actually owned Michael Page stock before. Back during the tumultuous credit crisis, they increased their stake all the way up to 6.37% of outstanding shares.

However, when the panic was seemingly at its height during March 2009, Lone Pine reduced its stake below the 3% threshold ~ perhaps a reminder that even the best hedge funds were forced into uncharacteristic maneuvers during the crisis.

UK Disclosure Rules

The UK's disclosure rules only require funds to disclose when they go above or below a 3% ownership stake in a company (think of it as a line in the sand.) While we get to see more positions this way (compared to a 5% threshold in the US), the downside is we don't really ever know when a fund completely sells out of a position.

In Lone Pine's case in particular, they could have held a small stake in the company all this time only to recently start buying enough to trigger the filing. Or, they could have exited the name back in 2009 and are starting a new position now. There's no way to tell.

But what we do know is that Lone Pine now has a 3.21% ownership stake in the company.

Company Background

Per Google Finance, Michael Page International plc is a specialist recruitment consultancy. The Company operates in Continental Europe, Middle East and Africa (EMEA), and the United Kingdom. Clients ranging from global multi-nationals to small and medium enterprises (SMEs) source permanent, contract, temp and interim talent in accounting, tax and treasury; actuarial, consultancy, strategy and change; design, education, engineering and manufacturing, financial services and banking, health and social care, hospitality and leisure, human resources, information technology, legal, marketing, policy, procurement and supply chain, property and construction, retail, sales and secretarial."

View the rest of Lone Pine's portfolio.

Insider Buying: CEO's Buying Stock En Masse

There has been an increased amount of insider buying over the past few days. But what caught our eye in particular was the vast amount of CEO's that were buying.

To pull all this data, we used Insider Trade Reports who says that "over four decades of academic research has shown that by following in the footsteps of company insiders and buying the stocks that they are buying, you can outperform the market by 6% to 10.2% per year."

As CEO's bought into the recent market sell-off, it's clear they believe the market was undervaluing their companies.

List of Recent CEO Insider Buying

- Six Flags Entertainment (SIX) CEO buys $2,499,189 worth

- Morgan Stanley (MS) CEO buys $2,062,070 worth

- Fifth Street Finance (FSC) CEO buys $2,014,323 worth

- Huntsman (HUN) CEO buys $1,137,270 worth

- WMS Industries (WMS) CEO buys $1,000,224 worth

- General Growth Properties (GGP) CEO buys $856,489 worth

- Kinder Morgan (KMI) CEO buys $679,621 worth

- First Industrial Realty Trust (FR) CEO buys $642,000 worth

- Winthrop Realty Trust (FUR) CEO buys $589,550 worth

- Tupperware Brands (TUP) CEO buys $507,045 worth

- Life Technologies (LIFE) CEO buys $420,000 worth

- Greenbrier Companies (GBX) CEO buys $268,705 worth

- Kansas City Southern (KSU) CEO buys $253,050 worth

- AK Steel (AKS) CEO buys $199,030 worth


We're proud to announce that Market Folly readers receive a special 33% discount on Insider Trade Reports' annual subscriptions and a 25% discount on monthly & quarterly subscriptions.

You can choose how often you receive insider buying/selling alerts (daily, weekly, high conviction reports) which is a great feature. They also have a proprietary scale that measures the significance of each transaction with commentary to provide context.

We've been using Insider Trade Reports for months now and it's a very useful resource for investors so take advantage of the discount.

Bill Ackman's Pershing Square Buys More Fortune Brands (FO)

Bill Ackman's hedge fund firm Pershing Square Capital has taken advantage of the recent market sell-off to add to their position in Fortune Brands (FO).

Per a Form 4 filed with the SEC, Pershing acquired 3,648,512 additional shares at prices ranging from $52.67 to $54.47 on August 5th, 8th, and 9th.

After this series of buys, Pershing Square now owns 20,818,545 shares of Fortune Brands. The majority of their purchase came at $52.67 and $52.78 and FO now trades around $53.95. This is the second time Ackman has purchased FO in the past three months.

This is an activist investment for Pershing as they've pushed for Fortune to break-up its three distinct businesses: spirits/liquor, home finishes, and they've already sold their golf segment.

For more from Ackman, head to notes from the leaders in investing summit. Ackman will also be presenting his latest investment ideas at the upcoming Value Investing Congress in New York on October 17th & 18th along with many other hedge fund managers. Be sure to sign-up here.