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

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

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

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

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


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


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

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


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


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


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


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


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

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


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


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


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


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


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


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


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

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


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

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


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


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


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


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


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

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


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


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

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

- Distressed Investing Panel (Dan Loeb & Daniel Krueger)

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

- Long/Short Equity Investing Panel: Whitney Tilson

- Bill Miller on What Stocks He Likes Now

- Michael Karsch on Risk Management

- Bruce Greenwald's Market Comments

Bruce Greenwald on the Market: CIMA Conference

Continuing the series of notes from the CIMA conference (Columbia Investment Management Association), we present Bruce Greenwald's introductory comments. Greenwald is the Robert Heilbrunn Professor of Finance & Asset Management at Columbia Business School.

Bruce Greenwald's Introductory Comments

1. Apocalyptic viewpoint is almost never justified. At the absolute worst, it will be a decline of 1-2% in economic activity, much less than the 5-8% in 2009. (Not true of Greece & Portugal).

2. Through the crisis, corporate profits other than financial sector have been extraordinary. Even Deere & CAT had profit declines of 40-50%, but no losses.

3. Securities are not grossly mispriced if you look at growth expectations. 8-12% likely stock moves based on operating earnings. No bubble in stocks. 3% on 30-year government bonds, with no inflation protection, seems risky.


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

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

- David Einhorn Question & Answer Session

- Distressed Investing Panel (Dan Loeb & Daniel Krueger)

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

- Long/Short Equity Investing Panel (Whitney Tilson)

- Bill Miller on What Stocks He Likes Now

- Michael Karsch on Risk Management

PIMCO's Bill Gross: How To Generate Returns in Low Yield Environment

PIMCO's bond vigilante in chief, Bill Gross, is out with some pertinent commentary addressing how investors can generate returns in a low yield environment while still keeping risk reduced.

Given that the Federal Reserve has signaled they'll keep rates low until mid-2013, Gross lays out a playbook in his April investment outlook entitled, The Great Escape: Delivering in a Delevering World.

Bill Gross' Advice

"When interest rates cannot be dramatically lowered further or risk spreads significantly compressed, the momentum begins to shift, not necessarily suddenly, but gradually - yields moving mildly higher and spreads stabilizing or moving slightly wider..

In such a mildly reflating world, unless you want to earn an inflation-adjusted return of minus 2%-3% as offered by Treasury bills, then you must take risk in some form.

We favor high quality, shorter duration and inflation-protected bonds; dividend paying stocks with a preference for developing over developed markets; and inflation-sensitive, supply-constrained commodity products" (emphasis ours).


Gross then goes on to break down specific plays in each asset class, writing:

"For bond markets: favor higher quality, shorter duration and inflation protected assets

For stocks: favor developing vs. developed. Favor shorter durations here too, which means consistent dividend paying as opposed to growth stocks.

For commodities: favor inflation sensitive, supply constrained products.

And for all asset categories: be wary of levered hedge strategies that promise double-digit returns that are difficult in a delevering world."


Bill Gross' entire April market commentary is embedded below:




If you missed his last note, we've also posted up Bill Gross' investment outlook: defense.

For a somewhat related macro/econ post, head to Bridgewater's Ray Dalio on deleveragings.

What We're Reading ~ 3/28/12

Wisdom from Jason Zweig [Kirk Report]

35 years of Warren Buffett's greatest investing wisdom [Motley Fool]

Risk parity vs endowment model vs permanent portfolio [World Beta]

Mutual funds, track records & departing managers [Reformed Broker]

How FairholmeCap alums started GoodHaven Capital [Morningstar]

Also: The GoodHaven managers will be presenting at the Value Investing Congress

Hedge funds buying hand over fist [Business Insider]

Lowes Corp cheap on sum of the parts basis [Rational Walk]

Post-bankruptcy shares face headwinds [Gemfinder]

5 things learned about a career on Wall Street [Big Picture]

Warren Buffett's $50 billion decision [Forbes]

Charlie Munger on the perfect turnaround [Variant Perceptions]

The case for remaining long risk [Economic Musings]

On the equity risk premium [Aswath Damodaran]

On equities versus bonds [FT]

Why stocks are riskier than you think [WSJ]

On Mitt Romney's hedge fund backers [Fortune]

Psychology of Intelligence Analysis [Central Intelligence Agency]

2012 Hedge Fund Compensation Report

We've found a great resource if you're looking for data to help get a raise in the hedge fund industry, to switch funds, or to enter the industry as a new hire. Or if you run a hedge fund, you'll find it useful because it lets you see how much your competitors are paying their employees.

The new 2012 Hedge Fund Compensation Report is out and definitely worth a look.


Here's some key takeaways from 2012:

- Annual average cash compensation for hedge fund professionals is $311,000

- Average hedge fund employee said base pay was up 8% & bonus down 4%

- Parity: Senior associates saw 28% increase in pay, COO's saw steep drop

- Funds that focused on event-driven strategy had the best paid employees

- One in four funds say they're hiring for research positions


The full report is 44 pages long and also includes looks at base package versus bonus, year over year comparisons, average earnings by title, breakdowns of fund size, and more.

If you're wondering their sources, in the past they've pulled data from the likes of Citadel, Lansdowne, Carlson, Peak 6, Morgan Stanley, UBS, Barclays, and tons of smaller funds as well. The report is definitely a comprehensive benchmark for hedge fund compensation practices in the industry.

If you're an analyst, trader, IR professional or COO, the 2012 Hedge Fund Compensation Report is a great tool for comparison and salary negotiation. Click here to check out the report.

SAC Capital Starts Hyatt Hotels Position, Boosts Amarin Stake

Steve Cohen's hedge fund firm SAC Capital just filed two separate 13G's with the SEC:

Hyatt Hotels (H)

First, the hedge fund disclosed it has initiated a brand new position in Hyatt Hotels (H) with 2,804,400 shares, which is a 6.2% ownership stake in the company. They did not own any shares at the end of 2011. They filed the disclosure today due to portfolio activity on March 14th when they crossed the regulatory threshold.

This is the second hotel/hospitality-related transaction for the hedge fund as SAC bought more Marriott Vacations (VAC) recently as well.

Per Google Finance, Hyatt is "a global hospitality company. The Company manages, franchises, owns and develops Hyatt-branded hotels, resorts and residential and vacation ownership properties globally."


Amarin Corp (AMRN)

Second, Cohen's firm has revealed it now owns a 4% ownership stake in AMRN with 5,415,392 shares. This is an increase of 57% in their position size since the end of 2011. The disclosure was filed today due to trading activity on March 14th.

Shares of AMRN jumped days after SAC boosted its position as the company received a new patent.

Google Finance, Amarin is "a clinical-stage biopharmaceutical company focused on developing improved treatments for cardiovascular disease. The Company’s development programs capitalize in the field of lipid science and the therapeutic benefits of essential fatty acids in cardiovascular disease. It is focusing its efforts on its candidate, AMR101, a prescription grade Omega-3 fatty acid, comprising not less than 96% ultra pure ethyl ester of eicosapentaenoic acid (ethyl-EPA)."

Trian Fund Management on Kraft, Family Dollar, & Wendy's (Investor Letter)

Nelson Peltz's Trian Fund Management finished 2011 up 3.9% in their Offshore Fund and up 5.6% in their Onshore Fund. Their year-end letter to investors touched on some of their largest investments:

On Kraft (KFT)

They established a new position in KFT during 2011 and their thesis was that scale "had become a vice, not a virtue" and they also thought it "offered a compelling risk-reward (one of the lowest forward earnings multiples in the packaged food space and an almost 4% dividend yield)."

The company announced it would split itself in two via a tax-free spinoff: a growth company (their global snacks business) and a cash company (a slower growth, North American grocery business). Trian believes this will lead to "reduced complexity; better resource allocation; margin expansion; and improved organic growth."

Bill Ackman's Pershing Square Capital also bought KFT in August.


On Family Dollar (FDO)

Peltz's firm first invested in mid-2010 and the thesis was that if operating metrics caught up to their closest competitor (Dollar General), the stock would trade higher. Trian offered to buy the company, but the board rejected the offer. Many investors thought this was a maneuver to invoke other takeover offers, but nothing materialized in that regard.

Since then, Family Dollar has implemented a new President, increased store openings, and renovated more stores. Bill Ackman also owns shares and has in the past laid out his FDO thesis.


On Wendy's (WEN)

Trian notes that the company divested its stake in fellow fast food chain Arby's in 2011 and it is now a pure play on the single Wendy's brand. The firm likes that the company's new menu items led to higher sales and that store level margins have improved.

In early December, Trian filed a 13D with the SEC that it was allowed to boost its ownership position in WEN to 32.5%, up from their 26.2% stake per an agreement with the company.


On Potential New Buys

In terms of other positions, the investment firm says that they expect to make 2-3 new core investments in 2012 as they've built a solid list of potential buys. Regarding what they're looking at, Trian writes:

"We like the large-capitalization profiles as these companies tend to be higher quality companies (companies with significant market shares, investment grade balance sheets, strong dividend paying capacity and attractive trading liquidity) where we attempt to minimize risk and maximize reward by making our investment at what we believe are attractive valuations and having a plan to make them more profitable."

Trian also believes the M&A landscape will pick up in the future.

For more from them, we've posted up Trian's bullish case for Tiffany & Co (TIF). And in recent portfolio activity from Nelson Peltz' firm, we've highlighted they've sold some H.J. Heinz (HNZ). They've done so largely because the company has traded at a premium to its competitors.

Jeff Saut Says Wait For a Fatter Pitch

Market strategist Jeff Saut is advocating patience in his latest investment strategy comments. He writes,

"Indeed, many investors suffer from an 'action bias,' aka a desire to do something, when in reality there are times in the markets when there isn't much to do. When that occurs the best plan is to do nothing and wait for a 'fatter pitch.'

Obviously, that is what I have been doing since the buying stampede ended in late January. Well that's not entirely true, because I have actually raised some cash in anticipation of either a pause in the stock market or a correction."

Last week Jeff Saut said the easy money's been made in this market and he's been cautious but not bearish.

It's obvious he's simply looking for an opportunity to buy the dip. But then again, so are many other investors. So what does the market do? Grind slowly higher, of course.

Embedded below is Jeff Saut's full weekly commentary:



You can download a .pdf copy.

To see what Saut is waiting to buy, check out his portfolio positioning here and this list of stocks.

Why Phil Falcone Likes Spectrum Brands: Stock of the Week

This week's focus stock is Spectrum Brands (SPB) and the article takes a look potentially at why Phil Falcone's hedge fund Harbinger Capital Partners has established such a large position. Previous write-ups include: why Maverick Capital owns Amdocs and why George Soros owns Comverse Technology.


The following is written by Tsachy Mishal, portfolio manager at TAM Capital Management.

The subject of billionaire hedge fund manager Philip Falcone elicits strong feelings. He is best known for his big bet on Lightsquared but lesser known for his other big bet: Spectrum Brands (SPB). Phil Falcone controls over 50% of the $1.65 billion company.

Spectrum Brands is a roll-up of many consumer brands such as Rayovac batteries, Remington shavers, Hot Shot bug killer, Tetra fish food and many more. The largest chunk of the profits comes from the batteries division. Spectrum Brands has had good momentum versus its peers as their discount brands tend to gain market share during difficult economic times.

SPB has a $3.35 billion enterprise value and a $1.65 billion market cap. On an enterprise value to EBIDTA basis, Spectrum Brands trades at an 11% discount to peers based on 2013 expectations. This does not even take into consideration the $1.2 billion net operating loss carry forwards (NOLs) they hold.

What I Like:

- Spectrum's stock has 23% upside before trading at the valuation of its peers, even ignoring the NOL's.
- The businesses have positive momentum and are gaining share. Consumers are likely to continue shifting towards lower price brands.
- Spectrum Brands has a greater than 12% free cash flow yield based on 2012 expectations.
- The controlling shareholder seems to have his incentives aligned with the best interests of other shareholders.


What I Don't Like:

- The company is carrying a lot of debt.
- The business is cyclical both from an economic perspective and a market share perspective.
- The stock is illiquid as a few owner's control 70% of the company. Fewer than 200k shares trade a day on average.
- Phil Falcone does not seem to have the highest ethical standards as he borrowed money from his hedge fund while locking up other investors.


The valuation of Spectrum Brands is attractive compared to its peers and is the most tempting aspect of the stock. I suspect that it will outperform but in the end I decided not take a position due to the negative factors I listed.

---

Thanks to Tsachy for the write-up. We've also highlighted how Harbinger has been buying SPB shares recently. The hedge fund originally acquired shares back in August 2009 when the company emerged from reorganization (Chapter 11).

At a past investment conference, Falcone has previously stated that he likes Spectrum Brands' solid balance sheet, high 11-12% free cashflow yield, and the fact that the company had been focused on debt paydown by reducing leverage from 3.5x to 3x.


You can scroll through all of the previous stock of the week articles via this link.

Glenview Capital Starts Tenet Healthcare (THC) Position

Larry Robbins' hedge fund firm Glenview Capital has just revealed a new stake in Tenet Healthcare (THC) via a 13G filed with the SEC.

Per the filing, they now own 22,405,900 shares of THC, or a 5.46% ownership stake in the company. The filing was just made due to portfolio activity on March 13th. Glenview did not own a stake at the end of 2011. Shares are up around 2% for the year thus far.

Some of the largest institutional holders of THC shares as of 2011 year-end include Harris Associates, Charter Bridge Capital, Samlyn Capital, and Highland Capital Management,.

Per Google Finance, Tenet Healthcare is "an investor-owned company that operates in one line of business: the provision of health care services through the operation of acute care hospitals and related health care facilities. All of Tenet’s operations are conducted through its subsidiaries and affiliates. Its business includes inpatient care, intensive care, cardiac care, radiology services and emergency medical treatment."

RenTec's Jim Simons on Mathematics, Common Sense, Good Luck & His Career

Jim Simons is the legendary founder of quantitative hedge fund Renaissance Technologies, commonly referred to as RenTec. The mathematician graduated from the Massachusetts Institute of Technology (MIT), and took what he learned and applied it to financial markets.

At age 38 he founded RenTec and he's been wildly successful (just see his Medallion Fund returns here). Simons retired from RenTec in 2009, but the firm full of scientists lives on.

Simons gave a lecture at MIT in 2010 about mathematics, common sense, good luck, and his various careers. Given that he rarely gives interviews, this lecture is well worth a view.

Embedded below is the full video of Jim Simons' lecture (email readers click to come read). He begins at the 10-minute mark and talks investment management at the 28-minute mark:

You can also view another rare interview with Jim Simons here.

Bridgewater's Ray Dalio on Deleveragings

Bridgewater Associates founder Ray Dalio recently put out a research paper entitled, "An In-Depth Look at Deleveragings." Given that Bridgewater is the top hedge fund by net gains since inception and that Dalio doesn't give his views in public that often, this 30+ page paper is surely a must-read.

In summary, the piece basically says that deleveraging in the purest sense of the word equals debt reduction and debt monetization. Dalio writes that "good" deleveraging stimulates economies via monetary stimulation and that "bad" deleveragings cause recessions and in turn, usually deflation.

To compare and contrast the two, he walks through six periods as examples of each: The Great Depression, Japan's lost decade, the UK from 1947-69, the US financial crisis, as well as Weimar Republic's hyperinflation.

Put your macro hat on via the full article below: Ray Dalio on Deleveragings




Those who have followed Dalio's scarce appearances also know that he has a dim view of the economy this year. For more from the legendary manager, head to Dalio's interview with Charlie Rose.

Be sure to also check out Ray Dalio on his principles.

What We're Reading ~ MBA Edition

Continuing an experiment with our linkfests, we turn to a set of reads targeted for the MBA students in our audience (though everyone should enjoy them). Rest assured, the normal hedge fund & stock market links will continue every Wednesday.


Billion dollar lessons: learn from business failures of last 25 years [Amazon]

How to land an internship at a hedge fund [Tradestreaming]

Letters to a young analyst [Research Puzzle]

4-step entrepreneur screening test [Inc]

What Ray Dalio taught me about authentic leadership [Raleigh Coaching]

A conversation with tech visionary Peter Thiel [American Interest]

Aswath Damodaran's public course on corporate finance [Coursekit]

Also: his public course on valuation [Coursekit]

Starting a fund 101 [Columbia Business School]

Being wrong and staying wrong [Abnormal Returns]

The limits of multi-tasking [Simoleon Sense]

Learn from mistakes: 7 habits of unsuccessful executives [Forbes]

MIT open course on computer science [MIT]

Khan Academy: the future of education? [CBS News]

The truth about sleep & productivity [Inc]

Self-publishing your own book is the new business card [James Altucher]

Life is a gamble, are you all-in? [IHeartWallSt]

Epic pump up music for the next exam [YouTube]

Oaktree Capital's Howard Marks on Contrarian Signals & Common Sense

Howard Marks of Oaktree Capital is out with a new memo entitled, "Deja Vu All Over Again." In it, he talks about how history often repeats itself and how investors can learn and take advantage of such situations. Additionally, he focuses on "the herd" and how they're often wrong at extremes.

At the heart of the matter, Marks' latest memo centers on contrarian signals. He references "The Death of Equities," a BusinessWeek magazine article from August, 1979. At the time, the article was supposed to signal a 'tectonic shift' in investing.

The irony, of course, is that the negative article actually signaled the beginning of the greatest bull market in history. Investors who utilize contrarian signals will of course point to that as a prime example of the media highlighting extreme negative sentiment that in actuality represents an opportunity.

Marks writes,

"Likewise, in this case, according to the writer, it will take a bull market to attract investor interest and confidence. That sounds reasonable. But isn't investor interest and confidence a prerequisite for a bull market? Without it, how can a bull market get started?

The answer is that when prices are low enough, stocks can begin to rise without help from a full-fledged bull market, just as when they're high enough, stock prices can collapse under their own weight.

The bottom line here is simple, and I'm thoroughly convinced of it: Common sense isn't common. The crowd is invariably wrong at the extremes. In the investing world, everything that's intuitively obvious is questionable and everything that's important is counter-intuitive."

This kind of timeless education is exactly why we highlight Marks' memos. For more insight from the manager, be sure to read his book: The Most Important Thing.

Embedded below is the full letter from the Chairman of Oaktree Capital:



We've also posted up a bevy of hedge fund letters if you missed them: Maverick Capital's letter, Third Point's letter, and Passport Capital's letter.

Tour of Warren Buffett's Office

Value investors love to follow everything that is Warren Buffett. This is the first time we've really seen an in-depth tour of Warren Buffett's office in Omaha, Nebraska at Berkshire Hathaway.

Some notable takeaways from the tour: Above a door, a sign that reads "Invest like a champion today." Also, Warren Buffett's office doesn't have a computer in it. Instead, he utilizes the phone and reads physical copies of annual reports. Old school.

Here's the video interview with Charlie Rose featuring a tour of Warren Buffett's office:



For more resources on the Oracle from Omaha, head to Warren Buffett's recommended reading list, as well as his 2011 annual letter.

What We're Reading ~ 3/21/2012

13F filings: does the 45-day delay matter? [World Beta]

And then the bulls went berzerk [Reformed Broker]

Best hedge fund performers will race ahead in 2012 [Institutional Investor]

Viking portfolio manager Jim Parsons to depart [AR+Alpha]

Hedge fund herding: the apologists' evidence [Alea]

What are the alpha characteristics of hedge funds? [AI-CIO]

Is this the end of the hedge fund manager? [Mindful Money]

Fund manager survey: conviction in growth [EON]

Value or growth, fund managers love Apple [Forbes]

Cheyne hedge fund eyes golden period for merger arb [Reuters]

Is it worth buying Buffett's picks after they're public? [Tracking WallSt]

The villain: in-depth piece on Ben Bernanke [The Atlantic]

A survey of the online money management space [World Beta]

Funny fake hedge fund letter [Economist]

Lee Ainslie & Maverick Capital's 2011 Letter On Lessons Learned & The Investment Environment

Lee Ainslie's hedge fund firm Maverick Capital finished 2011 with their flagship Maverick Fund down 14.7% for the year. Their Levered Fund was down 30.7% for the year while their Long Fund was down 17.5%.

Today we present excerpts from Maverick's year-end letter where they outline how they've learned from their mistakes and how increased volatility and high correlations have affected them.


On Risk Management

Ainslie said that it was the firm's darkest year. The reason for the underperformance? He writes,

"While the environment for fundamental investing was certainly unfavorable last year, such factors do not fully account for our results. Maverick's poor performance was primarily driven by a handful of individual mistakes and insufficient risk constraints."

In order to address risk management, they've implemented MavRank, a quantitative system driven by fundamental inputs that helps make recommendations for position sizing. While Ainslie stressed that all decisions will still be made by humans, the full implementation of quant tools is interesting.


Lessons Learned

Ainslie turned then turned his focus to volatility, highlighting some interesting datapoints:

"In late October last year the trailing 60 day volatility of the S&P 500 index exceeded 37% for only the fourth time since 1938. The alarming aspect to me is the increasing frequency with which the equity markets have displayed this level of volatility since 1938:

Years that Volatility Exceeded 37%: 1988, 2002, 2008, 2011
Years Since Prior Occurrence: 50, 14, 6, 3

The fact that recent volatility surpassed anything seen in a fifty year period is staggering - especially when one considers that during that time the world suffered through World War II, the Cuban missile crisis, a Presidential assassination, the dollar going off the gold standard, New York City on the verge of bankruptcy, the OPEC oil embargo, US 10 year treasuries yielding over 15%, and the S&L crisis - just to name a few of the events that today's markets might find a tad unsettling.

So why do the markets appear less resilient to such developments today? There are many factors, but I believe globalization, high levels of debt, uncertain regulatory environments, extreme monetary policies, unsustainable fiscal policies and the resulting currency uncertainties all play major roles. The more important question, in my mind, is 'will it continue?' Given that the aforementioned factors are all likely to persist, and in some cases further deteriorate, it is hard to believe the answer is 'no.'

This leads to our conclusion that volatility spikes are likely to continue to occur more frequently, and, therefore, future levels of equity volatility are likely to be higher than those seen in the past. As a result, going forward we will seek to continue to maintain volatility in the 10-12% range in our core funds, even though we expect this level of volatility is likely to be less than half of the equity market's volatility. To help achieve this objective, we have lowered our long-held gross exposure target to 225% from 250%(our long-term average gross exposure has been 248%), among other steps. (We have also decided to maintain our 1.5:1 long/short ratio, which translates to a slight reduction in our target net exposure from 50% to 45%.)"


On the Investment Environment

Ainslie also touched on a subject that many investors have been fixated on: correlation. He writes,

"Last year intra-stock correlations reached all-time highs, surpassing even the levels seen in 1929 and 2008. In other words, stocks moved in tandem with one another to a degree never before seen and were less responsive to idiosyncratic risks, such as fundamental factors, than ever before.

Such an environment is clearly challenging for long/short investors who rely upon stock prices being responsive to fundamental differences among companies. These challenges were evidenced in the small number of positions that generated significant returns for us last year."

Ainslie goes on to point out that January 2012 marked a break in high correlations. However, he still points out that, "equities have maintained correlation above the long-term average for almost six years now, creating a sustained, unfavorable headwind for fundamental investors."

For more from this hedge fund, we've also posted up Ainslie on the impact of fund size on returns.


To read more hedge fund letters, be sure to check out Dan Loeb & Third Point's year end letter, as well as excerpts from Passport Capital's letter.

Strategist Jeff Saut: The Easy Money's Been Made

Strategist Jeff Saut's latest market commentary is entitled 'Lose Cash.' In it, he talks about how the market is off to its eighth best start of the year as managers have put cash to work. However, he's still not ready to shed his cautious stance. Why?

Well, he highlights the divergence between stock prices and US Economic data trends in April 2011 and thinks a similar situation is occurring now. Saut feels that "all the good news is on the table" and points out other signs of concern such as massive insider selling, as well as falling 10 year Treasury prices (rising rates).

Saut reiterates that he is not getting "too bearish" because he expects stocks to be higher at the end of the year. But it does sound as though he expects a pullback in the intermediate term. Last week we detailed how Saut says to position your portfolio this year.

He also recommended two stocks that have declined recently for "one-off" reasons: Acme Packet (APKT), Nuance (NUAN), and Vocus (VOCS).

Embedded below is Jeff Saut's market commentary:



You can download a .pdf copy here.

For more investment strategy from Saut, also check out dividend stocks he likes.

Steve Cohen's SAC Capital Buys More Marriott Vacations (VAC)

Steve Cohen's hedge fund firm SAC Capital filed a 13G with the SEC regarding their position in Marriott Vacations Worldwide (VAC). In it, they reveal a 5.6% ownership stake in the company with 1,887,284 shares.

This marks over an 11,000% increase in their position size since the end of 2011 as they only owned 16,779 shares back then. The disclosure was required due to portfolio activity on March 9th.

Other notable institutional owners of VAC as of 2011 year-end include Highside Capital, Corsair Capital, JANA Partners, and Catapult Capital.

Shares of VAC came into existence via a spin-off from Marriott International (MAR) on November 21st, 2011.

Per Google Finance, Marriott Vacations Worldwide "along with its subsidiaries, is the worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club and Grand Residences by Marriott brands. The Company is also the global developer, marketer and seller of vacation ownership and related products under the Ritz-Carlton Destination Club brand, and it has the right to develop, market and sell whole ownership residential products under the Ritz-Carlton Residences brand."

Coatue Management Starts New Position in Equinix (EQIX)

Philippe Laffont's hedge fund Coatue Management has initiated a brand new position in Equinix (EQIX). The fund filed a 13G with the SEC revealing that they now own 6.7% of the company.

Coatue owns 3,127,341 shares and filed the disclosure due to portfolio activity on March 8th. Shares of Equinix have rocketed higher in 2012, starting the year at around $100 per share and now trading around $140 per share.

Other large institutional owners of EQIX as of year-end 2011 include Lone Pine Capital, Eminence Capital, Highland Capital Management, and Millennium Management.

Per Google Finance, Equinix is "connects businesses with partners and customers globally through a global platform of data centers, containing dynamic ecosystems and a range of networks."

To see more of Coatue's investments, head to the new issue of our Hedge Fund Wisdom newsletter.

Why Maverick Capital Owns Amdocs (DOX): Stock of the Week

Continuing the stock of the week series, this time around the focus is on why Lee Ainslie's hedge fund Maverick Capital owns Amdocs (DOX). If you missed last week's, be sure to also check out why George Soros owns Comverse Technology.

The following is written by Tsachy Mishal, portfolio manager of TAM Capital Management:

It often happens that when owning a company, I stumble across one of their competitors or another company in their industry and end up owning them as well. I came across Amdocs (DOX) when researching last week's stock of the week, Comverse Technology (CMVT) as they are competitors. Amdocs is a large position for tiger cub Lee Ainslie's Maverick Capital.

Amdocs makes billing and customer relationship software for telecom companies. They are the leader in their industry with 28% market share, three times the share of their closest competitor. Amdocs generally signs 5 to 8 year contracts with their customers so revenue visibility is high. These long term contracts account for 75%-80% of their business.

DOX trades at less than 10 times this year's expected free cash flow and less than nine times next year's (EV/FCF). Profit growth is expected to be in the mid single digits but with share repurchases EPS growth is expected in the mid teens.

What I Like:

- The valuation is very attractive for a company with such high earnings visibility.
- Amdocs repurchased approximately 10% of their shares outstanding last year and is set to do the same again this year.
- No major contracts are set to renew until 2014, making visibility especially good for the next 2 years.
- There are high switching costs to move to a competitor.
- Amdocs is by far the leader in the industry.


What I Don't Like:

- A single customer, AT&T, accounts for 29% of revenue.
- The business is tied to a single industry, albeit a good one.

I originally looked at Amdocs in order to get a comp for Comverse Technology (previous analysis here) but after studying the company I had little choice but to buy a position in it. A market leading company, with high visibility, that is returning cash to shareholders should not be trading at a single digit multiple (EV/FCF).

For past stock of the week entries, check out why Carl Icahn owns WebMD and why George Soros owns Comverse Technology.

Third Point's 2011 Letter: Rationale for Owning UniCredit, Skyworks, Abercrombie & More

Dan Loeb's $8.9 billion hedge fund firm Third Point is out with its year-end 2011 letter. They see the bullish ramp up of 2012 continuing but are obviously still doing work on the short side as well. Third Point writes,

"The start of this year has created one especially welcome dynamic: a fall in correlations. For the first time in nearly a year, single name stock picking is being rewarded. We have steadily increased capital invested in event-driven situations in equities, corporate credit and mortgages."

We've detailed how the hedge fund has increased exposure over the past few months.


Where Third Point is Putting Money to Work

Loeb's firm has focused on two areas recently: forced selling and hidden growth. Positions they've acquired when others have been forced sellers are Unicredit, Skyworks Solutions (SWKS), and EksportFinans.

Under the hidden growth thesis, they've invested in a long credit position in Ally Financial, as well as long equity stakes in Volkswagen and Abercrombie & Fitch (ANF). They acquired their position in Abercombie in January after shares had been cut almost in half, writing,

"A&F was attractive because we believe we paid roughly 10x cy12 EPS (ex $7 net cash) for a business that should grow earnings at a double digit rate for at least the next few years. That growth will come from recovering US profitability and from continued growth of the company's high margin online (2009-11 CAGR +38%) and international businesses (2009-11 CAGR +70%)."

The hedge fund also writes about their activist stake in Yahoo in Third Point's full 2011 letter which is embedded below (email readers click to come read it):



For more on Loeb's fund, we also recently wrote about Third Point's Technicolor stake.

What Hugh Hendry of Eclectica Asset Management Has Been Buying

Barron's has a great interview with Hugh Hendry of Eclectica Asset Management. His flagship fund returned 12% last year mainly by investing in the short end of interest rate curves and he now manages $700 million.

On what Hendry owns currently:

"In the next 12 months, we'll see further pathological swings in investor sentiment. Despite my reservations, I'm modestly long equity-market futures, some nonindustrial commodities, and some bullish fixed-income positions. We are very bullish agricultural commodities and agricultural equities, and hold a global basket of businesses—with interests ranging from fertilizer to farm equipment."

His hedge fund has established a bearish Japanese bet by buying protection on steel names and businesses sensitive to the yen. He's also bought credit protection on the shipping industry in Japan such as Mitsui OSK (TYO:9104).

Additionally, Hendry mentioned he's got protection on companies levered to the global economy such as Sumitomo (TYO:8053) and Marubeni (TYO:8002).

To see what else he's been up to, be sure to check out the rest of Hendry's interview at Barron's.

And for more on this hedgie, be sure to read Hendry's past views on hyperdeflation; something he's still talking about these days.

What We're Reading ~ 3/14/2012

Amazon.com (AMZN) is the secular short of 2012 [First Adopter]

A value investor's take on shorting [Distressed Debt Investing]

The most hated bull market in history [Abnormal Returns]

The bear case for Golar LNG (GLNG) [Pandora's Box Research]

Buy and hold no more? [Ultimi Barbarorum]

2012 annual compliance obligations: what you need to know [Lexology]

Where Asia's richest man is putting his money to work [Forbes]

How hedge funds have changed in a decade [Financial News]

Why women are better investors than men [Economic Times]

Why Green Mountain's momentum is over [Herb Greenberg]

On the new diamond ETF [Kid Dynamite]

Hedge fund firm RenTec: only scientists need apply [Reuters]

Institutional asset allocation for retail investors [Advisor One]

Schwab gets green light on alternative assets distribution [RIABiz]

Pension funds hot for long/short strategies [PI Online]

Why I'm leaving Goldman Sachs [NYTimes]

28% Discount to the Value Investing Congress Expires in 2 Days!

If you haven't heard, the Value Investing Congress taking place in May this year is in Omaha after Warren Buffett's Berkshire Hathaway annual meeting. Now you can knock out two investing stops in one trip.

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Glenn Greenberg's Brave Warrior Capital Starts New Position in Higher One (ONE)

Glenn Greenberg's hedge fund firm Brave Warrior Capital just filed a 13G with the SEC regarding shares of Higher One Inc (ONE). Per the filing, the hedge fund has revealed a brand new stake in ONE with 5,786,263 shares.

Brave Warrior now owns a 10.18% ownership stake in the company due to trading activity on February 29th, which required the disclosure to be filed.

Per Google Finance, Higher One is "a provider of technology and payment services to the higher education industry. The Company provides a comprehensive suite of disbursement and payment solutions specifically designed for higher education institutions and their students. It also provides campus communities with student-oriented banking services."

You can read a brief excerpt about Glenn Greenberg's approach to investing here.

David Einhorn Starts Cairn Energy Stake

David Einhorn's hedge fund Greenlight Capital have disclosed a position in Cairn Energy PLC (LON:CNE) traded in the UK. They now own 3.06% stake in the company with 19,966,666 voting rights.

It looks like this is what happened: Cairn Energy recently returned $3.5b to shareholders on the register on February 3rd, 2012 via an issue of 'B' shares following the disposal of a 40% shareholding in Cairn India to Vendanta.

Greenlight appear to have purchased after the return of capital to shareholders and after the share price fell in reaction to it. The one thing we can be sure of is that Greenlight bought some shares on March 7th that took them over the 3% ownership threshold that requires a regulatory disclosure.

Per Google Finance: "Cairn Energy PLC (Cairn) is an independent oil and gas exploration and production company. It is organized into two business units: Capricorn Group, being Capricorn Oil Limited and its subsidiary undertakings, and the Cairn India Group. There are two operating segments. Cairn India Limited Group’s operations are primarily within India.

Capricorn Group’s operations focus on exploration activities in Greenland and Mediterranean. The Capricorn Group also includes its interests in Nepal, and a share in North Indian assets operated by Cairn India Limited. Cairn Energy PLC exists to accumulate activities and results of Cairn UK Holdings Limited, an intermediate holding company and direct parent of Cairn India Limited, and Cairn Energy PLC company results."

For other portfolio takeaways from this hedge fund, be sure to read Greenlight's letter to investors.

Join Market Folly's Third Annual FREE March Madness Bracket Contest

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Senator Investment Group Starts MedAssets (MDAS) Stake

Alex Klabin and Douglas Silverman's hedge fund firm Senator Investment Group just now filed a 13G with the SEC disclosing a brand new stake in MedAssets (MDAS).

Due to trading activity on March 2nd, Senator has revealed a 5.44% ownership stake in MedAssets with 3,147,200 shares.

The largest owner of MDAS shares at 2011 year-end was Brett Barakett's Tremblant Capital. Other notable large holders include D.E. Shaw, Renaissance Technologies, Highbridge Capital, and Milennium Management.


About Senator Investment Group

Alex Klabin and Doug Silverman founded the hedge fund firm in February 2008 with a focus on global long/short investing in distressed assets and equities. They were originally seeded by Blackstone Strategic Alliance Fund with $150 million. A year ago, they managed $3 billion, though we haven't seen up to date AUM numbers. Prior to founding the firm, both worked at Jamie Dinan's York Capital.


About MedAssets

Per Google Finance, MDAS "provides technology-enabled products and services. The Company’s technology-enabled solutions are delivered primarily through company-hosted software, or software as a service (SaaS) or Web-based applications, supported by implementation, consulting and outsourced services and consulting, as well as enterprise-wide sales and customer management and support."

For more institutional movement, be sure to scroll through our posts of recent hedge fund activity.

Strategist Jeff Saut on How to Position Your Portfolio This Year

Market strategist Jeff Saut's weekly investment strategy highlighted what dividend stocks he likes last week. This week, he provides some answers to some interesting portfolio positioning questions:


Q: Cyclical or defensive stocks?
A: "I would buy cyclicals because barring some major event I don't embrace the view that we are going to see another recession in the U.S. for the near/intermediate future."


Q: 2011 was a risk on/risk off year, so is it a top down or bottom up strategy for 2012?
A: "Last year you only had to get two things right. You had to raise cash in March/April and put it back to work during the bottoming sequence of August – October. I did that and think a similar strategy will work this year as well. That said, one always needs to employ a 'bottom up' strategy combined with a 'top down' view."


Q: Should we buy gold or gold stocks?
A: "Both; but if I am forced to pick just one, I would buy gold stocks because they are well behind gold’s performance. Therefore, after the yellow metal’s consolidation is finished, gold stocks are likely to play catch up."

We've posted up articles on this very subject in the past: gold versus gold miners. Last week we also highlighted how John Paulson has been buying NovaGold.


You can read the rest of Saut's answers to questions about Treasury yields, GDP, and QE3 in his full investment strategy embedded below:



You can download a free .pdf copy here.


To read other recent commentary, head to Jeremy Grantham's 10 investment lessons as well as PIMCO's Bill Gross on his defensive outlook.

Why George Soros Owns Comverse Technology (CMVT): Stock of the Week

Continuing our new feature at Market Folly, today's stock of the week focuses on why George Soros' family office owns Comverse Technology (CMVT). If you missed the inaugural stock of the week, be sure to check out why Carl Icahn bought WebMD (WBMD) as well.



The following is written by Tsachy Mishal, Portfolio Manager at TAM Capital Management. He provides background on the situation, as well as what he likes and dislikes about the company:

Comverse Technology (CMVT) was involved in an accounting saga that dragged on for years and cost well over a billion dollars to untangle. During that period, a who's who of hedge funds tried to catch the CMVT falling knife unsuccessfully. Currently, Soros Fund Management and Barry Rosenstein's Jana Partners own major stakes in Comverse.

There has recently been progress as Comverse's financials are up to date and Comverse announced plans to separate their businesses with a spinoff of their Comverse unit. After the spin-off, shareholders will own the Comverse operating business and eventually shares in Verint (VRNT). The full details are not yet available as they are trying to structure this in a tax efficient manner and are still in discussions with the IRS on exactly how to do this.

Comverse trades with a market cap of $1.356 billion. They own $755 million worth of shares in Verint, a publicly traded company. They have $393 million in cash on hand at the Comverse operating unit. They own a 65% interest in Starholme, which at a conservative valuation is worth $45 million. Once one removes these items, the Comverse business is being valued at $162 million:

Comverse market cap @ 6.22 a share: $1,356 million
less value of Verint shares @ $27.98 a share: -$755 million
less cash on hand at Comverse operating unit: -$393 million
less 65% stake in Starholme: -$45 million

equals implied value of Comverse operating unit = $162 million


Comverse creates billing software for telecom companies. The most comparable company is Amdocs (DOX), which trades at a very conservative valuation of 1.5 times revenue. Comverse has revenue of $700 million, which means that at Amdocs valuation Comverse would be worth $1.05 billion. That is a far cry from the current $162 million the market is currently valuing Comverse.

Comverse management is guiding to 10% operating margins, which means net margins will likely be 10%, as Comverse has billions of dollars worth of NOLs. Amdocs has net margins of 13%. On this basis Comverse should be worth about $800 million, still a far cry from from the $162 million the market is currently assigning it.


What I Like

- Owning a software company that is cash flow positive with revenue of $700 million and 10% margins for $162 million seems like a no-brainer.

- There are high switching costs, so Comverse is likely to retain its customers. This predictable revenue stream might make it attractive to private equity or a competitor that could squeeze out better margins.

- Given all the distractions, it's very likely that Comverse is being under-managed and there is room for operational improvement.

- The bad actors have been removed from the board and the new board seems to be acting in the best interest of shareholders.

- I believe that Verint shares are undervalued as they trade at 11 times current fiscal year free cash flow estimates and nine times next year's estimate. This is for a fast growing small cap software company. Part of this discount likely has to do with their association with Comverse. A clean split could be a catalyst for a better valuation.


What I Don't Like

- Comverse does not have separate financials for its Comverse unit as a standalone company. One has to trust management on the 10% margin number.

- For years Comverse has seemed one step away from putting the fiasco behind them, yet the end has always been elusive. The spin-off is supposed to happen in the second half of the year, but this is not over until it actually occurs.

- There is a level of complexity to the investment as there are quite a few parts. One cannot simply buy the Comverse operating business.

I recently purchased shares in Comverse, albeit a smaller position than I normally purchase. It is difficult for me to see how one loses at the current valuation, although I'm certain that's what the hedge funds that have fallen before me in this stock thought. The difference is that the financials are now up to date and an end is in sight. The complexity of the situation and the history have me cautious and are the reason I have taken a smaller than usual position.

The above was a contribution by Tsachy Mishal, Portfolio Manager at TAM Capital Management.


Stay tuned for a new stock of the week in seven days. If you missed it, be sure to also check out why Carl Icahn owns WebMD (WBMD).

John Paulson Adds to Activist NovaGold Position

John Paulson's hedge fund firm Paulson & Co has been active in numerous stocks lately, including NovaGold Resources (NG)


Activist on NovaGold Resources (NG)

John Paulson filed an amended 13D with the SEC regarding his activist position in the gold miner. They've disclosed almost a 30 million position in the name and have increased their position size by 30% since the beginning of the year. They now have a 10.8% ownership stake in the company.

While the hedge fund originally bought the miner as part of Paulson's gold fund in a wager against the US dollar, shares now have an added catalyst as well.

NovaGold's Spin Off

NovaGold plans to spin off its Northern Alaska Ambler copper deposits which will now be known as NovaCopper.

Shareholders of NG will receive 1 share of NovaCopper for every 6 shares of NG owned. The shareholder meeting takes place on March 28th and the spin off is largely expected to be complete by April 30th.

The new company will be headed by former NG CEO Rick Van Nieuwenhuyse. While he's obviously biased, he thinks it's a great opportunity and highlighted the company's prospects:

"NovaCopper holds highly valuable assets ... Our ultimate objective is that the twin attributes of high grades from multiple deposits, when combined with jurisdictional safety, will result in NovaCopper being rated as the premier vehicle in its class."

In an attempt to focus solely on gold, NovaGold is also looking to sell its Galore Creek copper project as well.


For more recent activity from this hedge fund, you can read Paulson's presentation on Hartford Financial Services Group (HIG) as well as how Paulson sold some Delphi (DLPH).

Paulson & Co Sells Some Delphi (DLPH)

John Paulson's investment firm Paulson & Co recently filed a Form 4 with the SEC disclosing that they had sold over 1.1 million shares of Delphi (DLPH) at a price of $31.96 on March 5th.

Despite these sales, Paulson still owns a lot of DLPH. Their Credit Master fund owns 19.2 million shares as the company emerged from bankruptcy and became publicly traded again.

Their Recovery Fund also owns over 3.3 million shares while their Advantage Master fund owns 877k shares and their Advantage Plus Master fund owns 1.4 million shares.

Prior to its IPO, Delphi was owned by many hedge funds we track. During the IPO process, it was reported that Paulson would be selling about 20 million shares of its stake. Delphi continues to be one of Dan Loeb's biggest holdings.

Per Google Finance, Delphi is "is a global vehicle components manufacturer and provides electrical and electronic, powertrain, safety and thermal technology solutions to the global automotive and commercial vehicle markets. It is a vehicle component manufacturer, and its customers include the 25 automotive original equipment manufacturers (OEMs) in the world."


Paulson on Their Delphi Stake

In a letter to investors, Paulson & Co talked about their Delphi stake:

"Delphi, the largest U.S.-based automotive parts supplier, emerged from bankruptcy in late 2009. We believe bankruptcy reorganization transformed this previously troubled manufacturer into one of the auto parts industry's most efficient companies. In bankruptcy, many of the firm's liabilities were eliminated and its cost structure was drastically reduced, which we believe will likely lead to higher profits and a higher valuation.

Upon emergence from bankruptcy, Delphi's defaulted secured debt was exchanged for privately traded partnership units. The partnership units initially traded at $5000 per unit, had minimal analyst coverage, and required signing a confidentiality agreement to receive financial information. As the security was unlisted, illiquid, and complicated, it was little understood by the market and traded at a wide discount to Delphi's public equity comparables.

Delphi completed its IPO on November 17th, 2011. Paulson sold ~20M shares across our funds for $22 per share, yielding total proceeds of $453 million. We remain the largest shareholder in the company and believe that Delphi is taking the correct steps to remove its valuation discount to peers, including participation at the Detroit Auto Show, and initiating discussions with sell-side research."


Check out more activity from the hedgie: Paulson's presentation on Hartford Financial Services Group (HIG) as well as the catalyst for NovaGold (NG) shares.

John Paulson's Presentation on Why Hartford Financial Should Spin Off Its P&C Business

John Paulson's hedge fund Paulson & Co has an activist position in shares of Hartford Financial Services Group (HIG) and owns 8.5% of the company with over 37.5 million shares.

On the company's recent earnings conference call, Paulson blasted management as shares had fallen 38% last year. Paulson pointed out that, "Hartford needs to do something because the stock is the lowest valuation relative to book value of any major insurance company."

He's pushing for them to spin off the Property & Casual division. In an amended 13D filed with the SEC today, Paulson & Co outlined a presentation as to the benefits of completing such a spin off.

Hartford's CFO Christopher Swift said that there are many challenges to such a proposal, the main hurdle being the company's $6.8 billion in debt. Swift is concerned that a separate life insurance company could only keep its financial ratings strength if it assumed around one-third of that debt.


Paulson's Presentation on a Potential Hartford Spin-Off

Basically, Paulson feels that a spin-off could of the Property & Casualty business could enhance shareholder value by 60%. Embedded below is Paulson's presentation on a potential Hartford spin off (email readers click the link to view):




Want more on Paulson? Head to these links:

- Paulson's NovaGold (NG) catalyst

- Paulson sells some Delphi (DLPH)