Kyle Bass Discloses J.C. Penney Stake; Perry Buys Some of Ackman's Shares

If you aren't tired of hearing about J.C. Penney yet (JCP), here's even more hedge fund activity in the name:

Kyle Bass Starts J.C. Penney Stake

First, a 13G filed with the SEC has revealed that Kyle Bass' Hayman Capital owns a 5.2% stake in J.C. Penney (JCP) with over 11.4 million shares. This is a brand new position for the hedge fund as they did not own any JCP at the end of the second quarter.


Perry Buys Ackman JCP Shares 

Recently, we highlighted how Richard Perry's hedge fund Perry Capital had taken a position in JCP.  Well, they've since added to that position.  We also flagged how Bill Ackman was exiting his JCP stake and as it turns out, Perry was one of the buyers, purchasing 3 million shares at $12.90.  They now own around 8.62% of the company

This whole JCP saga will make for a very interesting investing/business school case study one day.

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

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


Performance of Last Year's Picks From Speakers

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

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

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

- Average performance of picks: +49%

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


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

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


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

Long Alexander & Baldwin (ALEX): +28.7%


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


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


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


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


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


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

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

Sequoia Fund's Investor Day Transcript: Valeant Pharmaceuticals, Google, Sirona Dental Systems & More

Ruane Cunniff Goldfarb's Sequoia Fund had its investor day earlier this summer and they finally released a transcript of the event. 

In it, they talk about their big position in Valeant Pharmaceuticals (VRX) numerous times.  Just keep in mind that since their investor day, Valeant has acquired Bausch & Lomb. 

Sequoia Fund managers also talked about their investment thesis on World Fuel Services (INT), Ritchie Brothers (RBA), Sirona Dental Systems (SIRO), Google (GOOG), Rolls-Royce, Advance Auto Parts (AAP), O'Reilly (ORLY) and many other stocks.

Additionally, the portfolio managers talked about their investment process and how they value companies.

Embedded below is Sequoia Fund's annual investor day transcript.  It's an in-depth read that we highly recommend:




You can download a .pdf copy here.

Mark Yusko & Morgan Creek Capital's Q2 Review and Outlook

Today we present Mark Yusko's second quarter review and outlook from Morgan Creek Capital Management.

Embedded below is the Q2 review:




For more on this manager, we've also previously highlighted Mark Yusko's presentation on Japan from The Grant's Conference.

Bill Ackman Dumps J.C. Penney Stake

If you missed it, Bill Ackman's hedge fund Pershing Square Capital Management has dumped its stake in retailer J.C. Penney (JCP) according to an amended 13D filed with the SEC. 

Ackman offloaded the shares to Citigroup, who in turn will sell them to other investors.  Dow Jones reported that Citi offered the shares between $12.50 and $12.90.

Pershing had previously owned 18% of the company and it looks like they'll lose ~$400 million on the trade.  To walk through Ackman's thinking on his JCP decision, you can check out Pershing Square's Q2 letter which gave hints that he was leaning toward selling.

Some investors have called Ackman's sale a 'capitulation' of sorts and a potential contrarian signal for the stock to head higher, but then you also have to consider that it would still be a bet on the company's fundamentals.

Ackman was also recently interviewed by Charlie Rose.

Lone Pine Capital Adds to B/E Aerospace, Dollar General & DSW

Steve Mandel's hedge fund firm Lone Pine Capital has filed 3 separate 13G's with the SEC.  Here's the breakdown:


B/E Aerospace (BEAV)

First, Lone Pine has disclosed a 5% ownership stake in B/E Aerospace (BEAV) with 5,285,850 shares.  The 13G filed with the SEC was required due to portfolio activity on August 16th and represents a 22% increase in their position size since the end of Q2.

BEAV was analyzed in our premium Hedge Fund Wisdom newsletter last November and is up over 58% since then. Lone Pine originally started their BEAV position back in the first quarter of 2012.

Per Google Finance, B/E Aerospace is "a manufacturer of cabin interior products for commercial aircraft and business jets and distributor of aerospace fasteners and consumables. The Company sells its products directly to the airlines and aerospace manufacturers. It also designs, engineers and manufactures customized fully integrated thermal and power management solutions for participants in the defense industry, aerospace original equipment manufacturers (OEMs) and the airlines. In addition, it provides aircraft cabin interior reconfiguration, program management and certification services. The Company operates in three segments: commercial aircraft, consumables management and business jet."


Dollar General (DG)

Second, Mandel's hedge fund also revealed a 5.4% ownership stake in Dollar General (DG) with 17,684,604 shares.  The 13G was filed with the SEC due to trading activity on August 14th.  Their position size has increased almost 30% since the end of Q2.

Per Google Finance, Dollar General is "a discount retailer in the United States primarily in the southern, southwestern, midwestern and eastern United States. The Company offers a selection of merchandise, including consumables, seasonal, home products and apparel. The Company's merchandise includes national brands from manufacturers, as well as private brand selections with prices at substantial discounts to national brands. It offers its merchandise at everyday low prices through its convenient small-box (approximately 7,200 square feet) locations"


DSW (DSW)

Lastly, Lone Pine has disclosed a 5.6% ownership stake in DSW (DSW) with 2,045,064 shares.  This means they've over doubled their exposure to this name since the end of the second quarter.

The 13G Lone Pine filed with the SEC signifies portfolio activity on August 16th.

Per Google Finance, DSW is "a United States branded footwear and accessories specialty retailer.  DSW has two segments: the DSW segment, which includes the DSW stores and dsw.com sales channels, and the leased business division segment"

For more on this hedge fund, we've also highlighted some of Lone Pine's other activity here.

Dan Loeb's Third Point Boosts Sotheby's Stake: 13D Filing

Dan Loeb's hedge fund firm Third Point has filed a 13D with the SEC regarding shares of Sotheby's (BID).  In it, they reveal a 5.7% ownership stake in BID with 3,925,000 shares.

This marks a 57% increase in their position size since the end of the second quarter.  Third Point initially started their BID stake in Q1 of this year, ramped it up in Q2, and have now added to it further.  The 13D filing was required due to portfolio activity on August 15th.


Other Activist Investors Involved

Third Point's 13D contains the standard boilerplate saying that they intend to engage the board of management.  It's also worth highlighting that another activist investor is involved in shares as well: Mick McGuire's Marcato Capital Management.  They disclosed a stake in BID at the end of July.  Additionally, Nelson Peltz's Trian Fund Management just started a new position in Sotheby's in Q2 as well.

Per Google Finance, Sotheby's is "a global auctioneer of authenticated fine art, decorative art, and jewelry. The Company operates in three segments: Auction, Finance, and Dealer. The Company's Auction segment functions as an agent by offering works of art for sale at auction and by brokering private sales of artwork. Sotheby’s also purchases and resells works of art through its Dealer segment, conducts art-related financing activities through its Finance segment and is engaged, to a lesser extent, in brand licensing activities. The Sotheby’s name is also licensed for use in connection with the art auction business in Australia, art education services in the United States and the United Kingdom and print management services."

Bill Ackman's Interview With Charlie Rose

Bill Ackman of hedge fund Pershing Square Capital Management recently appeared on Charlie Rose for an interview. 

While Ackman has been in the media a lot regarding his short position in Herbalife (HLF) and long position in J.C. Penney (JCP), this is the first appearance Ackman himself has made in quite some time.  As such, we wanted to highlight his latest thoughts on the various situations he's involved in.

Embedded below is the video of Ackman's interview:



If you missed it earlier, you can also check out Ackman's Q2 letter.

David Einhorn & Jim Chanos on Similarities Between Poker & Investing

Bloomberg recently highlighted a poker tournament featuring hedge fund managers David Einhorn and Jim Chanos.  In it, they asked the hedgies to compare poker to investing. 

Einhorn said that, "Over time, as you invest in lots and lots of stocks over a long period of time, skill I think dominates.  And the same is true in poker.  If you play lots and lots of hands and lots and lots of tournaments, eventually the better players are going to come out on top." 

Chanos added that, "Like in investing, poker you deal with incomplete information."

This comparison is by no means new.  A few years ago, we highlighted the link between hedge fund managers and poker as many hedgies have played the game and commented on the similarities.

Embedded below is the Bloomberg video:



H/T Santangel's Review

Bill Ackman's Q2 Letter: Updates on Pershing's Positions

The New York Post has shared Bill Ackman's Q2 letter and it's quite in-depth and worth highlighting.  The Pershing Square manager provides updates on many of his positions, including his new position in Air Products & Chemicals (APD), his controversial Herbalife (HLF) short, as well as their troubled stake in J.C. Penney (JCP) and more.

Embedded below is Ackman's Q2 letter:




For more from this manager, you can check out Ackman's presentation on Procter & Gamble.

What We're Reading ~ Hedge Fund Links 8/26/13

Christopher Hohn turns up heat on EADS [II Alpha]

Hedge funds lag on short problems [ValueWalk]

How the hedge fund pricing model of 2/20 is changing [247wallst]

Lansdowne's Paul Ruddock defends merits of short selling [ValueWalk]

Comparing 20-year hedge fund & S&P 500 performance [SoberLook]

Family offices are increasingly wary of hedge funds [Forbes]

Hedge funds and general solicitation - don't leap in just yet [Lexology]

The final frontier in hedge fund outsourcing [FierceFinanceIT]

Very few managers outsourcing COO role [COOConnect]

Jeff Ubben's biggest battle yet: Microsoft [II Alpha]

On Larry Summers' hedge fund stint [NYTimes]

Eric Sprott on gold [Globe & Mail]

Ackman blasts Herbalife [NYPost]

In praise of activist investment [Reuters]

JOBS act will create hedge fund jobs [HedgeCo]

As investors jump ship, SAC looks to cut back [Dealbook]

Phil Falcone/Harbinger agree to settlement [SEC]

What We're Reading ~ Analytical Links 8/22/13

Rising markets batter short sellers [WSJ]

What has QE actually accomplished? [Mauldin Economics]

Cash is a drug for investors, redux [Abnormal Returns]

The best value investing quotes [Old School Value]

ESPN holds talks for web-based TV [Bloomberg]

Chinese search for infant formula goes global [NYTimes]

Barnes & Noble (BKS) reverses strategy in train wreck of a call [GigaOm]

8 pivotal acquisitions made by Google (GOOG) [Hongkiat]

In-depth reports on for-profit educators [Senate.gov]

Is the new Gmail killing email marketing? [BusinessWeek]

Life after Siri: Nuance's (NUAN) climb to being your digital assistant [Forbes]

On gold losing its shine [Telegraph]

Overseas investors spend $50 billion on Florida real estate [BizJournals]

JPMorgan's latest guide to markets [JPMorgan]

Newly revealed 1975 letter from Warren Buffett [Fortune]

Phone companies are winning new TV watchers, cable & satellite not so much [GigaOm]

Lansdowne Starts Tower Resources Position

Paul Ruddock's hedge fund firm Lansdowne Partners has disclosed a new position in London listed Tower Resources (LON: TRP).  According to a disclosure made on August 2nd, Lansdowne hold the equivalent of 10.56% of Tower Resources voting rights.  We say ‘equivalent’ because the position is held completely via Contracts for Difference (CFDs) and these derivatives don’t actually confer the right to vote. 

It is uncharacteristic for Lansdowne to hold a large percentage of a company’s stock via CFDs.  They surely have a reason for doing so, but it is difficult to know why they have chosen this route in this particular case. 

Per Google finance – “Tower Resources Plc is an independent oil and gas exploration company. The   Company has targeted exploration licenses, focused on Africa. The Company holds a 30% working   interest in a license which consists of three blocks offshore Namibia through its operating subsidiary,   Neptune Petroleum (Namibia) Ltd., and a 50% interest in three contiguous licenses, onshore and   offshore, in the Sahawari Democratic Republic through its subsidiary Comet Petroleum Ltd. The  Company's primary focus is its 30% working interest in the 0010 License offshore Namibia. “

Cevian Capital Discloses G4S Stake

Anglo Swedish activist hedge fund, Cevian Capital, has disclosed a new stake in London listed G4S (LON:GFS).  According to the filing on August 12th, Cevian, own 5.11% of G4S's voting rights. 

G4S, one of the world's largest security firms, has been struggling since it failed to fulfill its staffing obligations at the London Olympics in 2012.  G4S lost its CEO in the storm that followed and is now facing an additional investigation into alleged over-billing of the government for the tagging of offenders.

Cevian joins some other notable names on the long side of G4S including: Invesco's Neil Woodford, Bill and Melinda Gates' Foundation / Cascade and Tweedy Brown.


Many Hedge Funds Short G4S As Well

However, G4S seems to have attracted a lot of hedge funds on the short side as well.  AKO Capital have a 0.54% short, Adelphi Capital -0.71%, BlackRock -0.59%, Egerton Capital -0.7%, Lansdowne partners -0.66%, and Odey Asset Management -0.66%.


About Cevian Capital

Cevian was founded in 2002 by Christer Gardell and Lars Forberg.  Cevian has 6 billion euros under management and specializes in running concentrated, activist positions.


About G4S

Per Google Finance - “G4S Plc, along with its subsidiaries, is engaged in provision of secure  solutions, including manned security services, care and justice services and security systems, and   cash solutions, including the management and transportation of cash and valuables, as well as   undertaking of other outsourced business processes in sectors where security and safety risks are   considered a threat. The Company operates in two segments: secure solutions and cash solutions.   Secure solutions are the integrated security solutions for commercial organizations in areas such as   risk consulting, manned security and security systems and a range of services including protection   of critical national infrastructure, care and justice services, integrated facilities services and border   protection for governments. Cash solutions are the outsourcing of cash cycle management for   central banks, financial institutions and retailers.”

Premium Newsletter: Q2 Issue Released Today (Consensus Buy/Sell Section, Equity Analysis & More)

The brand new Q2 2013 issue of our premium newsletter, Hedge Fund Wisdom, is now available!  Subscribers please login at www.hedgefundwisdom.com to access it.

Not a subscriber?  To see what you're missing, check out a free past issue here.


Included In The New Q2 Issue

- New consensus buy/sell section:  Top 5 new buys, top 5 sells, top 5 additions, top 5 reductions.  See what stocks hedge funds were trading the most and why.

- Equity analysis section:  Check out an in-depth look at 2 stocks hedgies have been buying.  If you missed it, we recently highlighted performance of stocks featured in past issues and the numbers speak for themselves.  Find out what stocks are analyzed in the new issue by subscribing below.

- Updated portfolios of 25 top hedge funds:  See the latest holdings of David Tepper, Seth Klarman, Warren Buffett, Steve Mandel, David Einhorn and many more big names (full list at the bottom of the page here).

- Expert commentary on each fund's moves:  We've been tracking these funds for 6+ years and add historical context.


Find Out What Stocks Hedge Funds Have Been Buying & Selling

All the latest hedge fund activity is aggregated into one convenient document, saving you a ton of time.  Easily find the latest picks from your favorite manager or search the .pdf by company name and immediately find out who was buying or selling the stocks you're interested in.  Subscribe below:

1 Year Subscription (4 issues): $299.99 per year

Quarterly Subscription: $89.99 per quarter

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Updated Performance of Stocks Analyzed In Our Newsletter: New Issue Out Next Week

MarketFolly's premium newsletter, Hedge Fund Wisdom, just released a brand new issue and you can subscribe below.  If you missed it, here's an update on the performance of the stocks analyzed in the past few issues.

Performance of Stocks Analyzed in Recent Issues

Here's the key stats (as of August 13th):  

- 7 out of the 8 stocks analyzed in the last 3 issues have widely outperformed the market
- The average return is +38.08%
- Average outperformance over the S&P 500: +27.35%


Q1 2013 Issue Performance

A few months ago on May 21st, we released the Q1 issue that analyzed 3 stocks.  Here's the performance of those stocks thus far (through August 13th):

Sealed Air (SEE): +26.44%
MGIC Investment (MTG): +17.69%
Oil States International (OIS): -10.08%
Compared to the S&P 500 over the same timeframe: +1.71%.


Q4 2012 Issue Performance

On February 21st, 2013, we released the Q4 issue and here's how those stocks have performed since then:

Herbalife (HLF): +72.23%
Spirit AeroSystems (SPR): +51.17%
CapitalOne (COF): +31.46%
S&P 500: +12.16%


Q3 2012 Issue Performance

Back on November 21st, 2012, these two stocks were analyzed and here's their performance since:

BE Aerospace (BEAV): +66.03%
Ocwen Financial (OCN): +49.77%
S&P 500: +22.17%


Free Sample of an Old Issue:  If you haven't seen the newsletter before, you can view a free sample here (.pdf)


Subscribe to See What Stocks Are Analyzed Next Week

The brand new Q2 2013 issue of the newsletter is available now! Subscribe below to see which new stocks are featured.

Additionally, the newsletter reveals the portfolios of 25 top hedge funds, provides historical context & commentary on their moves, and also includes a consensus buy/sell section listing the stocks hedge funds were trading the most.

1 Year Subscription (4 issues): $299.99 per year (save 20% with this option)

Quarterly Subscription: $89.99 per quarter

Want to pay by check?  Email us: info@hedgefundwisdom.com


Disclaimer (as noted at the bottom of this website and in the newsletters): This information is for educational and/or entertainment purposes only. Use this information at your own risk. Market Folly and Hedge Fund Wisdom are not investment advisors of any kind, so do not consider anything on this page to be legal, tax, or investment advice.

What We're Reading ~ Analytical Links 8/14/13

Stocks: cheap or expensive? ]The Big Picture]

Buffett still likes big deals, but settles for small prey [WSJ]

A look at Third Point Reinsurance [Brooklyn Investor]

A look at Amazon.com back in 1997 [JimRomenesko]

Blackberry puts up 'for sale' sign with Fairfax as potential bidder [Globe & Mail]

US Virgin Islands are in a catastrophic recession [Slate]

Smart leaders have proteges [Harvard Business Review]

In defense of the 30-year mortgage [WashingtonPost]

Is the baby bust over? [Sizemore]

In one bundle of mortgages, the subprime crisis reverberates [Dealbook]

Bubble trouble at Tesla [Barrons]

The death of beer has been greatly exaggerated [The Atlantic]

How a Brazilian oil billionaire lost 99% of his fortune [FinancialPost]

Carl Icahn Discloses Apple Stake, Wants Bigger Buyback

Carl Icahn of Icahn Enterprises announced yesterday that he has taken a stake in Apple (AAPL).  Additionally, he noted that he has talked with CEO Tim Cook about expanding the company's buyback now and that they plan to speak again in the future.  Icahn says AAPL shares are extremely undervalued. 

What's interesting about all this is that Icahn actually announced this via Twitter, becoming the first major investor to unveil a new stake via that medium.  If you don't already, you can follow @Carl_C_Icahn here.  And while you're at it, make sure to follow @marketfolly too.

After revealing the position, he talked to various media outlets where his numbers and expectations for the company varied a bit.  He told the Dow Jones that he sees AAPL trading around $625 with a boosted buyback.  Later, he told Reuters he sees a $700 price target with 10% earnings growth.

Icahn's not alone in his desire for a sizable buyback from Apple.  Greenlight Capital's David Einhorn also pushed the company to return cash to shareholders.  Apple announced a plan, but it's clear some investors still want more given AAPL's large cash pile.

Beacon Light Capital Sends Letter to Jos A. Bank (JOSB), Pushes For Change

Ed Bosek's hedge fund firm Beacon Light Capital yesterday sent a letter to Jos A. Bank (JOSB) asking for change at the company.  Beacon Light owns around 1% of the company, but it is a highly concentrated position for them now and they've owned shares for 3 years.


Beacon Light Looks For Buyback

Basically, Bosek is pushing for the company to do a buyback now as the JOSB has over 30% of their market cap in cash and has never done a buyback or paid a dividend.  Even more frustrating, they highlight management's lack of communication with shareholders and see a lot of trapped value at the company.  They see normalized earnings are close to 4 and should grow.

While Jos A Bank shares trade around $44 currently, he sees them heading as high as $70 after a buyback, earnings close to $6, and a multiple of 14-15x earnings. 

Prior to founding Beacon Light, Bosek worked at Atticus Capital.

Bosek also appeared on CNBC to talk about what needs to change at JOSB.  The video is embedded below:




Beacon Light's Letter to Jos A Bank

Here's the full text of their letter:

"August 13, 2013 
Board of Directors
Jos. A. Bank Clothiers, Inc.
500 Hanover Pike
Hampstead, MD 21074-2095 

Dear Board of Directors, 

We are writing to you on behalf of BeaconLight Capital LLC and its affiliates (together, "BeaconLight" or "we"), collectively the beneficial owners of more than 1% of the common stock of Jos. A. Bank Clothiers, Inc. ("Jos. A. Bank" or the "Company"), having been shareholders for three years. After extensive study and analysis, we are convinced that tremendous value is trapped inside the Company due to the absence of a credible capital allocation policy, an insular insider Board of Directors (the "Board"), poorly aligned management incentives, and the Company's refusal to communicate with shareholders. After several unsuccessful attempts to privately engage in constructive dialogue with the Company and the Board, we believe it is necessary to publicly voice our concerns about the Company's direction. We urge the Board to meet with shareholders with the goal of reconstituting the Board to add true shareholder representation, and strongly encourage other shareholders to reach out to the Company to demand change. With the simple changes outlined in this letter, we believe that the stock should be worth $70 per share even at a discounted multiple to its peers.

Jos. A. Bank Has Underperformed Its Peers and Is the Cheapest US-Listed Retailer  

While we appreciate the role that current leadership played in building the Company from a sleepy 100-store regional retailer to a national 600-store company with over $1 billion in sales, they have delivered increasingly dismal total shareholder returns over the last five years. The Company's stock has underperformed the S&P Retail Index by 5%, 116%, and 40%, in the last five, three and one year periods, respectively. 

Although the Company has suffered weak operating results in the past eighteen months, the vast majority of the stock's underperformance is attributable to multiple contraction. The market is heavily penalizing the Company for its inefficient use of cash and exceptionally poor corporate governance. As a result the Company currently trades at depressed multiples on depressed earnings. In fact, at 6x enterprise value to consensus EBIT expectations for the year ending January 2014, the company trades at nearly a 30% discount to its peer group. Additionally, 6x EBIT is the lowest multiple of any retailer publicly listed in the United States with a market capitalization over $250 million.

The Board's Actions Make Clear Its Total Disregard for Shareholders  

The Jos. A. Bank Board has no truly independent directors, has one of the longest average board member tenures of any US-listed company, and has a combined ownership of only 1.5% of the Company's outstanding stock. These factors have resulted in a Board that defers to the Chairman, Robert Wildrick, and seems to ignore other stakeholders. While we acknowledge Mr. Wildrick's contributions to the growth of the Company during his time as CEO, his past success does not entitle him to run the Company as a personal fiefdom. 

Though the Board technically has four independent directors, the reality is that every member of the Board has relationships or connections to the Company or Mr. Wildrick. The Lead Independent Director, Andrew Giordano, was the former Chairman of the Board who hired Mr. Wildrick to run the Company in 1999. Neal Black, the Company's current CEO, was hired by Mr. Wildrick after previously working with him at Belk. James Ferstl also worked with Mr. Wildrick at Belk and at their ill-fated attempt to turn around Venture stores in the 1990s. The remaining two directors, Sidney Ritman and William Herron, are both friends of Mr. Wildrick and Mr. Giordano from Palm Beach. This cohort allows the Chairman to collect $825,000 per year for consulting the Company on acquisitions that none of the shareholders seem to want. Notably, the entire Board combined only owns a measly 1.5% of the Company's stock. In fact, in 2006 when he was the CEO, Mr. Wildrick sold nearly his entire 5% stake in Jos. A. Bank at an average share price of $28 and has not purchased another share since. 

In 2010, the Board installed a "share compensation" plan for management, providing a cash and stock bonus based exclusively on the annual performance of the Company's net income relative to targets set by the Board. There is no compensation based on any shareholder-aligned metrics, such as earnings per share, return on capital, or total shareholder return. Further, each year, the stock portion of the bonus is for a fixed amount of dollars rather than a fixed number of shares. This actually creates a perverse incentive for management to minimize the share price and thereby, accumulate a larger stake in the Company over time.

The current composition of the Board opens the door for shareholder abuse, and unfortunately, every recent governance action by the Jos. A. Bank Board has only served to tighten the Board's grip on the Company at the expense of the shareholders. The Company continues to have a poison pill and a staggered board even though less than 25% of public companies have a staggered board and less than 10% have a poison pill. 

In addition, while most public companies have taken steps to become more shareholder-friendly, Jos. A. Bank has become increasingly unfriendly towards its owners. In August of 2012, the Board increased the ownership threshold required to call a special meeting from 35% to 50% of all shareholders. Typically, only 10% of shareholders are required to call a meeting, and proxy advisory firms are generally critical of a threshold above 15%. More recently, in July of 2013, the Board once again amended the Bylaws, this time to make Delaware the exclusive venue for shareholder actions against the Company's Board of Directors. 

Limited and Misleading Communication with Shareholders

Shockingly, in the summer of 2012, the Company decided that it would only communicate via "public disclosures to ensure that all Shareholders have equal access to the information." This was a stark change as the Company's CFO had previously held routine investor calls and communicated with sell-side analysts. Further, the Company does not follow the protocol of hosting live public conference calls with investors and analysts, and instead reads a script and only answers prepared and curated questions. 

This policy of no shareholder or analyst contact is misguided in any environment, but is particularly egregious for a business that has faced the most tumultuous period in its history and has seen gross margins plummet over 600 basis points. Rather than help shareholders understand the issues, the Company provided grossly inadequate discussions of its results in the 10-Qs filed with the SEC. Originally, the filings made it appear that most of the margin pressure was due to pricing and competition, with cost inflation of cotton and wool playing only a minor role. It was only after the SEC initiated a correspondence asking for more detail on the gross margin fluctuations during the year that the Company explained that "substantially all of the decline for the first nine months were due to these higher sourcing costs." This practice of disseminating minimal and ambiguous disclosures has undoubtedly caused the stock to underperform by increasing uncertainty and making it extremely difficult for potential new investors to understand the business. 

Shareholders Have Spoken Loudly that Hoarding of Cash for Acquisitions is the Last Straw

In addition to poor operational performance and inadequate communications with investors, the Company's hoarding of cash stands as the last straw for most investors. The Company has never paid a dividend or re-purchased any shares. As a result, the Company has a growing cash pile that reached a staggering $377 million at the end of the fiscal year ended January 2013. This equates to $13.50 per share or 32% of the Company's market capitalization. Remarkably, the Company's cash reserve is more than double the value of its property, plant and equipment, more than its total inventory, and even more than 1.5x the Company's total liabilities. We see no conceivable business justification for holding this much cash. By year end the cash pile could approach $16 per share or nearly 40% of the Company's market capitalization, all while Mr. Wildrick is being paid a substantial sum to supposedly search for acquisitions that shareholders do not want or agree with. 

All of these actions reflect an insular Board focused on maintaining the status quo, combined with the audacious belief that shareholders will sit idly as they embark on a path of value destruction. 

Fortunately, at the shareholder meeting in June, shareholders sent a clear message to the Board that the current path is unsustainable. Over 31% of shareholders voted against incumbent directors James Ferstl and Sidney Ritman despite their running unopposed. Additionally, for the first time in the Company's history, the Say on Pay proposal was voted down. It is obvious from these results that shareholders are losing their patience and that the Board's grip on the Company is becoming tenuous.

The Way to Unlock Substantial Value  

While the above-mentioned issues are concerning, we believe that Jos. A. Bank has a solid long-term foundation, a talented operational management team, and exciting growth prospects. With the right capital allocation, strong corporate governance, better aligned management incentives, and more appropriate investor communication, we believe that the Company and its shareholders will thrive in the years to come. 

First, while the business has performed poorly recently, we believe that these issues are largely temporary. Most of the problems stem from the fact that the Company's raw material purchases take longer to feed through for the Company than its competitors. The timing difference is generally minor, but from 2010 to 2011, cotton and wool experienced a 10-sigma price move. The price of cotton, specifically, nearly quadrupled in 18 months before falling by over two-thirds in the following six months. As costs were spiking for its competitors, Jos. A. Bank took advantage of their lower input costs and promoted aggressively. This produced banner years in fiscal years 2010 and 2011, growing revenue over 27% combined. In 2012, as competitors' costs were normalizing, the Company faced rising input costs at a time when unfavorable weather conditions also left it long in inventory. The Company tried to become even more promotional to clear its inventory at the expense of margins, but struggled. Ultimately, it decided to reset its promotions at the end of 2012 and early this year. Most observers have noticed that the Company's television advertising has been considerably less frequent and sensational. 

The change in promotional intensity, combined with much lower and less volatile cotton and wool costs, is great for the future of Jos. A. Bank's business. Though sales growth has suffered from the reduction in promotions and likely will continue to suffer through the rest of the year, there will be a solid base from which to grow once the business laps the changes, and gross margins should benefit from the powerful dual tailwinds of less promotions and lower raw material costs. The few analysts who cover the stock expect earnings per share of close to $2.75, but we see no reason why margins do not return to historical averages in the low-60% range, which would yield normalized earnings closer to $4 per share. At today's share price near $40, excluding the cash pile, the Company trades at approximately 6x normalized earnings. This is simply too low for a retailer with real growth from box increases, a new factory store concept, and optionality around tuxedo rentals. Longer term, at maturity, we believe that Jos. A. Bank should be able to earn $175 million in free cash flow, or a 25% yield on the current enterprise value.   

Unfortunately, the Company has chosen not to explain any of this to the investment community, and instead is focused on finding acquisitions for "long-term growth." The best investment that the Company can make today for its long-term shareholders is to repurchase shares at today's stock price, which is incredibly depressed as a result of a ballooning corporate governance discount in an information vacuum. Repurchasing shares with all of the cash on the balance sheet should increase normalized earnings close to $6 per share.

In our view, the paths to restoring the Board's relationship with shareholders as well as the market's confidence in the Company are straightforward. 

- Immediately take action to de-stagger the Board and add a significant number of truly independent directors who have no prior connections to the current Board members or management.

- The Company should immediately return all of its cash to shareholders, preferably through buy-backs, as long as the stock continues to suffer from its severe discount. Further, the Company should outline a policy for returning all future cash flows to investors.

- The Board should rework its compensation practices to align management incentives more closely with the creation of long-term shareholder value. While business has struggled for the past 18 months, the executive team has done an admirable job operating the business over the long term. We believe that most shareholders would gladly reward the CEO, Neal Black, and other executives with cash and stock bonuses worth substantially more than current levels if they succeed in creating real value.

- The Company should terminate Mr. Wildrick's consulting arrangement and use the cash savings to build a legitimate investor relations department. The Company's current communication strategy is designed to impede, rather than encourage, investors from becoming shareholders. The Company also has no corporate presentation, does not attend investor conferences, does not communicate with sell-side analysts, and will not interact with current or prospective investors. As a result, prospective investors are at an information disadvantage compared to shareholders who completed their initial diligence prior to the Board's change in communication policy. This severely limits the pool of possible investors and negatively impacts the stock price. A professional investor relations team would quickly correct this problem and help to restore transparency to the business.

We strongly believe that with these actions, the Company's stock could be worth more than $70 per share today, which better reflects the solid business that has been built over the last two decades. 

We remind you that as directors, you owe a fiduciary duty to the shareholders, the true owners of the Company. Your recent actions and general approach towards shareholders indicate that you have been neglecting your duties as a Board. We urge you to immediately act to restore shareholder confidence by following the suggestions outlined in this letter. Otherwise, we believe it is likely that shareholders will hold the Board accountable and seek change by replacing the Chairman at the 2014 annual meeting. Once again, we encourage our fellow shareholders to voice their displeasure with the Board and let it be known that change is needed immediately. 

Sincerely, 

/s/ 

Ed Bosek
BeaconLight Capital LLC

Lone Pine Capital Starts SolarWinds Stake, Adds to Michael Kors

Per two 13G's filed with the SEC, Steve Mandel's hedge fund firm Lone Pine Capital has revealed two updated portfolio positions.


New SolarWinds (SWI) Position

First, Lone Pine has disclosed a brand new position in SolarWinds (SWI).  Per the filing, the hedge fund owns 7.3% of the company with 5,479,465 shares.  The disclosure was made due to portfolio activity on July 31st.

Per Google Finance, SolarWinds is "designs, develops, markets, sells and supports enterprise information technology (IT), infrastructure management software to IT professionals in organizations of all sizes. The Company’s product offerings range from individual software tools to more comprehensive software products that solve problems encountered by IT professionals. Its products are designed to help management of their infrastructure, including networks, applications, storage and physical and virtual servers, as well as products for log and event management. It offers a portfolio of products for IT infrastructure management. Its products operate in three categories: Free Tools, Transactional Products and Core Products. In May 2013, the Company completed N-able acquisition."


Boosts Michael Kors (KORS) Stake

Second, Mandel's firm has boosted its holdings in Michael Kors (KORS).  Per the filing, Lone Pine now owns 5.2% of KORS with 10,498,164 shares.  This marks a 30% increase in the number of shares they own since the end of the first quarter.  This filing was required due to portfolio activity on August 2nd.

Per Google Finance, Michael Kors is "a designer, marketer, distributor and retailer of branded women’s apparel and accessories and men’s apparel bearing the Michael Kors name and MICHAEL KORS, MICHAEL MICHAEL KORS, KORS MICHAEL KORS and various other related logos. The Company operates its business in three segments: retail, wholesale and licensing. Retail operations consist of collection stores, lifestyle stores, including concessions and outlet stores located primarily in the United States, Canada, Europe and Japan. Wholesale revenues are principally derived from department and specialty stores located throughout the United States, Canada and Europe. The Company licenses its trademarks on products, such as fragrances, cosmetics, eyewear, leather goods, jewelry, watches, coats, footwear, men’s suits, swimwear, furs and ties."


For more from this hedge fund, we've highlighted some of Lone Pine's other portfolio activity here.

SAC Capital Boosts Sinclair Broadcast Group Stake, Discloses LIN Media Position

Steve Cohen's hedge fund firm SAC Capital filed 2 separate 13G's with the SEC regarding two positions.


Sinclair Broadcast Group (SBGI)

Per a 13G, SAC has boosted its stake in Sinclair Broadcast Group (SBGI) by 159% since the end of the first quarter.  They now own 5.2% of the company with 3,850,741 shares.  The filing was required due to portfolio activity on August 9th.

Per Google Finance, Sinclair Broadcast Group is a "diversified television broadcasting company. The Company owns or provides certain programming, operating or sales services to more television stations."

You will see a bit of a theme with SAC's recent portfolio activity with their other purchase below:


LIN Media (LIN)

SAC has disclosed a 5.1% ownership stake in LIN Media with 1,701,054 shares.  The filing was made due to portfolio activity on August 9th.

LIN Media recently completed its merger with LIN TV Corp.

According to the company, LIN Media is "a local multimedia company that operates or services 43 television stations and seven digital channels in 23 U.S. markets, and a diverse portfolio of websites, apps and mobile products that make it more convenient to access its unique and relevant content on multiple screens."

We've also highlighted some more of SAC Capital's recent portfolio activity here.

Richard Gerson's Falcon Edge Capital Discloses E-Commerce China Dangdang Stake

Richard Gerson's hedge fund firm Falcon Edge Capital has just filed a 13G with the SEC regarding shares of E-Commerce China Dangdang (DANG).  Per the filing, Falcon Edge has disclosed an 8.2% ownership stake with 4,392,000 shares.  This is a newly disclosed position and the filing was required due to activity on July 29th.


About Falcon Edge

Gerson founded Falcon Edge after previously working with John Griffin at Blue Ridge Capital for many years.  He co-founded the Blue Ridge China, PE unit.  Falcon Edge launched with Navroz Udwadia (formerly of Eton Park) and James Minshull as COO (also from Eton Park).


About DangDang

Per Google Finance, E-Commerce China Dangdang Inc. (Dangdang) is "a holding company. It is a business-to-consumer (B2C), e-commerce Company in the People’s Republic of China."

Perry Capital Files 13D on J.C. Penney & Sends Letter to the Board

Richard Perry's hedge fund firm Perry Capital has just filed a 13D with the SEC regarding shares of J.C. Penney (JCP).  Per the filing, Perry now owns 7.26% of JCP with 16,000,000 shares.  This is a brand new position for the hedge fund.

The filing was required due to activity on August 9th.  However, Perry started buying JCP shares as early as June 12th at $17.77 and throughout July and into August.  Their most recent disclosed purchases come on August 1st at around $14.86.

Perry owned 12 million JCP shares as of June 30th, and then has purchased an additional 4 million shares since then.  With the slide in JCP shares down to current levels of $12.81, Perry is already down on this position.


Perry's Letter to JCP's Board

Below is the letter Richard Perry sent to the Board of Directors today:

"August 9, 2013

Dear Mr. Engibous and the J. C. Penney Company Board of Directors,

Perry Capital currently owns shares representing beneficial ownership of 7.26% of J. C. Penney Company. Shareholders and creditors have increasingly lost confidence in the company, as evidenced by the recent significant decline in the company’s stock and bond prices.  This market reaction is particularly alarming given the company’s meaningful improvement in liquidity following its $2.25 billion term loan financing. We strongly urge the Board to take immediate and proactive steps to improve the financial and operational management of the company.

Assuming recent press reports are accurate, Perry Capital would be very supportive of a return to the company by Allen Questrom and Ken Hicks. While we appreciate Mike Ullman’s willingness to assume the interim CEO role at a critical juncture, we believe it is imperative that the Board promptly establish a Board and management structure that provides the company the greatest chance for success. We believe that immediately appointing Allen Questrom Chairman of the Board and Ken Hicks CEO is imperative at this juncture, and we anticipate that the company’s various constituents would be highly supportive of such a change. In the words of Citigroup retail analyst Deborah Weinswig in a publicly available research note:  “Questrom + Hicks = Dream Team” (Dear Board of Directors, Time is of the Essence! August 9, 2013).

Given the urgent nature of the situation, I am releasing this letter publicly so that other shareholders who feel the same way can express their opinions directly to the Board. 

Sincerely, Richard Perry"

Bridger Capital Starts New TrovaGene Stake

Roberto Mignone's hedge fund firm Bridger Capital filed a 13G and Form 3 with the SEC regarding shares of TrovaGene (TROV).  Per the filing, Bridger has disclosed an 11.9% ownership stake in TROV with 2,142,857 shares.

This is a brand new position for the hedge fund and the filing was required due to portfolio activity on July 30th. 

The company recently closed a registered direct offering of $15 million in common stock at $7 per share to an 'unnamed institutional investor.'  Doing the math on Bridger's share count above, it appears as though Bridger is that investor.

Per Google Finance, TrovaGene is "a development-stage molecular diagnostic company that focuses on the development and marketing of urine-based nucleic acid tests for patient/disease screening and monitoring. The Company's novel tests predominantly use transrenal DNA (Tr-DNA) and transrenal RNA (Tr-RNA). The Company's technology is used to all transrenal nucleic acids (Tr-NA). The Company’s urine-based test addresses market needs, such as women’s healthcare-fetal medicine-down syndrome, infectious diseases, cancer testing, transplantation, drug development and monitoring of therapeutic outcomes, ultra-sensitive analytical and detection system, technologies for the collection, shipment and storage of urine specimens, and transrenal nucleic acid extraction, and instrumentation/system platform."

Greenlight Capital Sells Some Einstein Noah Restaurant Group Shares

David Einhorn's hedge fund firm Greenlight Capital just filed an amended 13D with the SEC regarding shares of Einstein Noah Restaurant Group (BAGL).  In it, they disclose a 53.1% ownership stake with 9,233,469 shares.

According to the Form 4 filed with the SEC, Greenlight sold 1,500,000 shares of Einstein Noah Restaurant Group (BAGL) at a price of $15.52 on August 6th.

Per Google Finance, Einstein Noah Restaurant Group is "an owner/operator, franchisor and licensor of bagel specialty restaurants in the United States. ENRGI operates under the Einstein Bros. Bagels (Einstein Bros.), Noah’s New York Bagels (Noah’s) and Manhattan Bagel Company (Manhattan Bagel) brands. ENRGI operates in three business segments: the Company-owned restaurants segment, the manufacturing and commissary segment, and the franchise and license segment. The Company-owned restaurants segment includes the restaurants that it owns. The manufacturing and commissary segment produces and distributes bagel dough and other products to its Company-owned restaurants, licensees and franchisees and other third parties. The franchise and license segment earns royalties and other fees from the use of trademarks and operating systems developed for the Einstein Bros., Noah’s and Manhattan Bagel brands."

For more on this manager, check out Einhorn's presentation from the Sohn Conference.

What We're Reading ~ Hedge Fund Links 8/9/13

Everyone thinks everyone else is manipulating Herbalife [Dealbreaker]

Bridgewater asks if a perfect storm is brewing in Europe? [ValueWalk]

Tepper's firm turns 20, posts strong gains [II Alpha]

Comments from David Einhorn's GLRE call [SeekingAlpha]

George Soros, partners bet on Brazil telecom industry [WSJ]

Sony brush-off leaves Loeb with few options [Dealbook]

Paul Singer hates benchmarking [HFIntelligence]

Hedge funds copy Soros' regulatory sidestep [FT]

Soros Fund withdrawing all of its money from Pershing Square [Reuters]

Hedge funds profit from return of M&A [FT]

How hedge funds can effectively advertise [Forbes]

Who's afraid of hedge fund advertising? [New Yorker]

Wall Street's big SAC Capital problem [CNBC]

Big hedge funds to swoop on start-up talent [WSJ]

The Art of Value Investing: How the World's Best Investors Beat the Market (Book Review)

Today we're reviewing the new book, The Art of Value Investing: How the World's Best Investors Beat the Market by John Heins and Whitney Tilson.  These two have aggregated an entire book full of quotes and anecdotes from top hedge fund managers over the years.


The Art of Value Investing: Book Review

MarketFolly.com exists primarily to track hedge funds, examine why they're buying/selling certain stocks, and to learn from great managers.  After all, investing is a continual education.

While learning from your own mistakes is one way to improve your investment process, it can also save you a lot of aggravation and money to take the time to learn from others who are willing to share what they've learned as well, and that's exactly what this book does.

The Art of Value Investing makes you feel as if you're sitting at a giant table full of some of the best investors today.  A topic of investment process is opened for discussion and everyone chimes in with their thoughts, all while you sit there rapidly absorbing all that you can.

Chapters of the book include wisdom from managers on topics such as: circle of competence, generating ideas, portfolio construction, guarding against risk, and more.


Hedge Fund Managers Quoted in the Book

The list is quite extensive, but here's some of the bright minds that are quoted repeatedly in the book:

Seth Klarman (Baupost Group)
Howard Marks (Oaktree Capital)
David Einhorn (Greenlight Capital)
Jon Jacobson (Highfields Capital)
Lee Ainslie (Maverick Capital)
Julian Robertson (Tiger Management)
John Burbank (Passport Capital)
Mitch Julis (Canyon Capital)
Joel Greenblatt (Gotham Capital)
Jeff Ubben (ValueAct Capital)
James Crichton & Adam Weiss (Scout Capital)
Larry Robbins (Glenview Capital)
Ricky Sandler (Eminence Capital)
Bruce Berkowitz (Fairholme Capital)
Thomas Gayner (Markel Corp)
Prem Watsa (Fairfax Financial)

And that's just a few of the big names.  Tons more established and up and coming managers divulge their experiences in The Art of Value Investing.


Quote from the Book

We asked the authors for some of their favorite quotes from the book, and they sent one from David Einhorn on page 107:

"We take the traditional value investor’s process and just flip it around a little bit. If you’re looking for something that’s cheap, you’ll probably do a variety of screens—on price‐to‐sales, price‐toearnings, price‐to‐book, whatever—to identify stocks that appear to be inexpensive. Once you have that list, then you start to research if there are good reasons the stocks deserve to be cheap, or if maybe there’s an investment opportunity because they’re cheap without a good reason. We think that’s the way most value investors approach it.

We never do screens like that. We start by identifying situations in which there is a reason why something might be misunderstood, where it’s likely investors will not have correctly figured out what’s going on. Then we do the more traditional work to confirm whether, in fact, there’s an attractive investment to make. That’s as opposed to starting with something that’s just cheap and then trying to figure out why. We think our way is more efficient."


High Praise From Other Hedge Fund Managers

This is a fantastic book for any investor, whether you're a beginner or a professional.  Don't take our word for it, though.  Here's what Omega Advisors' Lee Cooperman had to say about The Art of Value Investing:

"They have provided in one publication invaluable insights from some of the most accomplished professionals in the investment business.  I would call this publication a must-read for any serious investor."

Pershing Square's Bill Ackman also praised the book:

"(The book) is a thoughtfully organized compilation of some of the best investment insights I have ever read.  Read this book with care.  It will be one of the highest-return investments you will ever make."

Highfields' Jon Jacobson called it a "must-read" and ValueAct Capital's Jeff Ubben said that, "The lessons are like scars and they are revealed here firsthand."

If you enjoy reading MarketFolly, then you'll love soaking up the wisdom from  The Art of Value Investing: How the World's Best Investors Beat the Market.  It's like having your own archive of the minds of some of the most talented managers in the game.

Trian Partners Sells Danone & State Street, Trims Family Dollar & Ingersoll Rand Stakes: Q2 Letter

Nelson Peltz's investment firm Trian Partners recently released its second quarter letter.  In it, they detail that they sold out of their investment in Danone (DANOY) as well as State Street (STT).  Additionally, the firm mentions that it has recently trimmed its positions in Ingersoll Rand (IR) and Family Dollar (FDO).


New Mystery Investment

Peltz has built a new mystery position which he did not reveal in the letter.  He said that some of the above stakes were sold in order to partially fund their new mystery purchase.

Here's all they had to say about this new position:  It's "a company comprised of world class businesses where we see a path to superior value creation."

Andrew Ross Sorkin said that sources are pointing to Peltz acquiring a stake in DuPont (DD) back at the Delivering Alpha Conference last month, but Peltz didn't really confirm it when asked about it.

At any rate, here's their long portfolio composition by sector: 30% consumer staples, 28.1% consumer discretionary, 17.6% industrials, 13.9% financials, 10.4% basic materials, 0% other.


Other Highlights

Their Q2 letter also touches on their investments in PepsiCo (PEP) and Mondelez (MDLZ) and basically re-hash everything they laid out in their white paper on the companies which we highlighted recently.  Peltz also talked about his PEP & MDLZ stakes at the Delivering Alpha Conference too.

According to the letter, Trian also retains its positions in Lazard (LAZ), Legg Mason (LM), and Wendy's (WEN).  Their thesis on Legg Mason remains unchanged: "Better fund flows, strong free cash flow, and improving margins should allow the shares to be valued closer to peer averages."

In the second quarter, Trian's total firm assets hit an all-time peak of approximately $6.3 billion.  Net exposure finished the month at 100% net long (136.4% long and -36.4% short).

Interview with Crispin Odey on Market Outlook, Strategy & Delta Airlines (DAL)

Crispin Odey of Odey Asset Management was recently interviewed by Killik & Co and talked about his general view of markets, his strategy in his funds, and one of his favorite stock picks: Delta Airlines (DAL).


Odey's Strategy

On his strategy: "The whole idea was to protect people's capital, but to take advantage of any opportunities that were coming along."

Odey likes to look for new trends.  While it's a global fund, it has a high European bias due to the fact that that's where their expertise lies.


Odey's US Market Outlook

His medium-term outlook has been more optimistic than most about the US and he mentions he's worried about the recent mention of tapering, saying it would be "difficult for equities and the stock market."  So he's not quite as optimistic as he was.


Delta Airlines (DAL)

One of the ideas Odey likes is Delta Airlines (DAL) "because it's making a 6% return on sales and valued at 60% of sales."  The airline industry hasn't made money in the States but things have changed now due to all of the industry consolidation.  He likes that there's full capacity on the planes these days and fancies the stock over the next 2-3 years.

Embedded below is the interview with Crispin Odey:



For more on this manager, we've posted up some of Odey's portfolio activity here.

What We're Reading ~ Analytical Links 8/7/13

Most valuable lesson in investing: get rid of your ego [Financial Sense]

Notes from Mohnish Pabrai's lecture at Columbia University [BaseHitInvesting]

Looking at investing during periods of rising interest rates [Marketwatch]

Lauren Templeton shares investing lessons from Sir John Templeton [Finance Trends Matter]

Fear gauge shows complacency has taken hold [FT]

18 insights from the new Market Wizards book [ST50]

S&P 500's most shorted stocks [CNBC]

On the future of television [Barrons]

Who should try to beat the market? [Fool]

The impact of rising interest rates on housing affordability [Eye on Housing]

Why breakup of Russian potash cartel is such a threat [Globe & Mail]

On a blip in the economy [NYMag]

Did Goldman overstep in charging its ex-programmer? [Michael Lewis]

Howard Marks Says We're in 'Middle Ground,' Advises Caution Ahead: Latest Memo

Oaktree Capital's Chairman Howard Marks is out with his latest memo entitled, "The Role of Confidence."  In it, he tackles how if people are confident that an economy's future is good, then they'll go out and essentially make the economy good by spending and investing... it becomes self-fulfilling.


On Extremes in Confidence

As an investor, he looks for extremes in confidence between 'too much' and 'too little.'  Investors often become overconfident after things have been good for a while, and they become extremely negative when it seems there's no hope in sight.  Investors, he says, should do the opposite:

"When most investors are driven to drop their prudence by an excess of confidence, we should be terrified.  In the same way, when most investors become devoid of confidence and flee the market, we should turn aggressive."

Why should you care what Marks has to say?  Well for one, he always offers insightful tidbits and words of wisdom in his letters.  And secondly, Warren Buffett himself has said he loves to read Marks' missives.  And what Marks is saying is really just another version of Buffett's famous: "be greedy when others are fearful."


Marks Says We're in 'Middle Ground'

This is perhaps the most noteworthy quote from his commentary relevant to the current markets:

"As I wrote in my book, when there's nothing clever to do, the mistake lies in trying to be clever.  Today it seems the best we can do is invest prudently in the coming months, avoiding aggressiveness and remembering to apply caution."


Embedded below is Howard Marks' latest memo for Oaktree Capital:




You can download a .pdf copy here.

For more from this investor, we previously highlighted Marks at the London Value Conference.

Oaktree Capital Files 13D on Star Bulk Carriers (SBLK)

Howard Marks' hedge fund firm Oaktree Capital has filed a 13D with the SEC regarding Star Bulk Carriers (SBLK).  Oaktree disclosed an 18.6% ownership stake in SBLK with 3,865,888 shares.

On May 1st, Oaktree and other purchasers entered into a purchase agreement and agreed to backstop an equity rights offering up to $75 million with a subscription price of $5.35. 

Oaktree also agreed that it would not acquire more than 40% of common shares without approval of the board.  On July 25th, the company announced successful completion of the rights offering.

The 13D also notes that the company has agreed to increase the size of the board by 2 directors.  The filing was required due to portfolio activity on July 25th.

Per Google Finance, Star Bulk Carriers is "an international company providing worldwide transportation of drybulk commodities through its vessel-owning subsidiaries for a broad range of customers of major and minor bulk cargoes including iron ore, coal, grain, cement and fertilizer."

We also just posted up Howard Marks' latest memo if you're interested in hearing his market thoughts.

Glenview Capital Discloses KV Pharmaceutical Stake

Larry Robbins' hedge fund Glenview Capital has disclosed a position in KV Pharmaceutical (KVPHQ).  The firm filed Forms 3, 4, and 13D with the SEC regarding shares.  Per the filings, Glenview has disclosed a 13.6% ownership stake in KVPHQ with 6,661,983 shares.

The filings show that they acquired shares between July 24th and August 2nd at prices ranging between $.2943 and $.5899.  In August 2012, the company filed petitions for relief under Chapter 11 of the US Bankruptcy Code.

Per Google Finance, KV Pharmaceutical is "an integrated specialty pharmaceutical company that develops, manufactures, acquires and markets branded and generic/non-branded prescription pharmaceutical products. The Company focuses on women’s health care products. It markets Evamist, a transdermal estrogen therapy delivering a low dose of estradiol in a once-daily spray indicated for the treatment of moderate-to-severe vasomotor symptoms due to menopause. Through Particle Dynamics, Inc. (PDI), which the Company has approved for divestiture, the Company has developed, manufactured and marketed technologically advanced, value-added raw material products for the pharmaceutical industry and other markets."

For more on this manager, we recently highlighted Larry Robbins' appearance at the Delivering Alpha conference.

SAC Capital Boosts Stakes in Children's Place, Blue Nile & Foster Wheeler

Steve Cohen's hedge fund SAC Capital continues to disclose positions via SEC filings despite the charges they face. 


Children's Place (PLCE)

Per the latest 13G filing, SAC has revealed a 5.1% ownership stake in Childrens Place Retail (PLCE) with 1,139,775 shares.

This is a sizable increase from the end of the first quarter when they only owned 18,512 PLCE shares.  The 13G was required due to portfolio activity on August 2nd.

Per Google Finance, Children's Place "operates as a specialty retailer of apparel and accessories for children. The Company designs, sources and markets its products under its proprietary The Children's Place brand name for sale exclusively in its stores and on its Website. The Company's merchandising strategy is built on offering a collection of interchangeable outfits and accessories to create a coordinated look distinctive to The Children's Place. It offers a focused assortment of styles in a variety of colors and patterns. The Company divides the year into quarterly merchandising seasons: Spring, Summer, Back-to-School and Holiday. Within each season, the Company also introduces a new merchandise line each month."


Foster Wheeler (FWLT)

Due to portfolio activity on August 1st, SAC has also disclosed a position in Foster Wheeler (FWLT) with 5,167,407 shares.  This is an increase of 1.5 million shares since the end of the first quarter.

Per Google Finance, Foster Wheeler is "a supplier of engineering, construction and project management contractor and power equipment. The Company operates through two business groups: Global Engineering and Construction Group (Global E&C Group), and Global Power Group. Its Global E&C Group, which operates worldwide, designs, engineers and constructs onshore and offshore upstream oil and gas processing facilities, natural gas liquefaction facilities and receiving terminals, gas-to-liquids facilities, oil refining, chemical and petrochemical, pharmaceutical and biotechnology facilities and related infrastructure. Its Global Power Group designs, manufactures and erects steam generators and auxiliary equipment for electric power generating stations, district heating and power plants and industrial facilities worldwide."


Blue Nile (NILE)

Due to portfolio activity on August 1st, SAC also disclosed a position in Blue Nile (NILE) with 669,414 shares.  This marks an increase of 342,114 shares since the end of the first quarter.

Per Google Finance, Blue Nile is an " online retailer of diamonds and jewelry. The Company offers its products for sale through the bluenile.com Website in over 40 countries and territories throughout the world. The Company's online business model allows the Company to avoid many of the costs that are typically incurred by physical retail stores."


You can view other recent portfolio activity from SAC Capital here.

ValueAct Capital Files Form 3 on Willis Group Holdings (WSH)

Jeff Ubben's activist hedge fund firm ValueAct Capital recently filed a Form 3 with the SEC regarding shares of Willis Group Holdings (WSH).  Per the filing, ValueAct has disclosed that they own 18,214,700 shares of WSH as of July 23rd.

This marks a 10% increase in the number of shares they own since the end of the first quarter when they disclosed a 16,500,000 share position in WSH.

Jeff Ubben will be speaking at the Value Investing Congress next month in New York City and Market Folly readers can receive a discount to the event here with code N13MF4

Per Google Finance, Willis Group Holdings is "provides a range of insurance brokerage, reinsurance and risk management consulting services to its clients worldwide. It has market positions in the United States, in the United Kingdom and, directly and through its associates, in many other countries. It is recognized in providing specialized risk management advisory and other services on a global basis to clients in various industries including aerospace, marine, construction and energy. It has three segments: North America , International and Global."

Market Strategist Jeff Saut: Raising Cash In Anticipation of Decline in Stocks

Market strategist Jeff Saut is out with his latest investment strategy for the week entitled "The One Chip Rule."  In it, he compares the markets to playing poker, a comparison numerous others have drawn as there are various similarities.

Saut opines,

"In the stock market’s case, while the human natures of fear, hope, and greed still play a large role, I tended  to substitute card players with the personalities of stocks, the market makers, the Fed, Washington, and politicians. Using  such strategies I found that if you do your homework, and manage the risk, the odds of success in the markets are much  better than a card game. When you lose in the markets at least you get most of your money back and the government shares  in a portion of your losses via the capital gains/capital losses tax system. In a card game it tends to be basically all or nothing  with each hand."

The '1 chip rule' basically says that for every 10 chips you accumulate, you pocket 1 to pay yourself.  In investing, the corollary is to take some profits as your investments run up higher.

Saut uses this analogy because he's been raising some cash recently in anticipation of a decline in stock prices.  While he admits this strategy has been wrong in the near-term, he points to various indicators and seasonality that has caused him to be more cautious.

Embedded below is Jeff Saut's weekly market commentary:




You can download the .pdf here.

For more of the indicators that have led to Saut's cautious approach, head to his commentary from last month.

Investment Thesis on Exor SpA (EXO IM) & Fiat (F IM): The Italians Are Coming

Late last year, we noted that Children's Investment Fund was short Fiat and Jim Chanos' Kynikos Associates has been short as well.  Today, we present somewhat of an opposing view via a bull case on the holding company that owns Fiat and Fiat Industrial: Exor SpA (EXO IM).

The following is a guest post from Steven Wood, CFA of Greenwood Investors entitled "The Italians Are Coming" that was originally published on his site here.


Investment Thesis on Exor SpA / Fiat (F IM)

Simply put, Greenwood's case is based on undervaluation relative to peers, industry-leading growth trajectories, and numerous catalysts ahead.  They like that Exor has been buying back shares at a 33-44% discount to NAV.

Their favorite investment of Exor's is Fiat SpA (F IM).  They think Fiat is a double as cost savings are realized.  Fiat has the Fiat brand, as well as Maserati and Alfa Romeo.  They also own a 90% stake in Ferrari as well as a 58.5% stake in Chrysler.  Greenwood posted an update on Fiat individually back in May here.

Fiat Industrial is the other main asset of Exor SpA and is comprised of 3 major businesses: Case New Holland, Iveco Trucks, and Fiat Powertrain.

Greenwood likes the portfolio of Exor's assets that you can acquire at a discount with upside via improvements in operations at both key companies.  Read on for the full in-depth breakdown of their thesis.

Embedded below is Greenwood Investors' pitch on Exor SpA:




You can download a .pdf copy here.