Tiger Global Starts Zillow Stake

Chase Coleman and Feroz Dewan's hedge fund has filed a 13G on shares of Zillow (Z).  Per the filing, Tiger Global now owns 9.5% of the company with over 3.1 million shares.

This is a brand new position for the hedge fund as they didn't report ownership of any shares at the end of 2013.  The filing was required due to activity on April 21st.

It should be noted that Tiger Global's venture capital arm has also recently made an investment in fellow real estate company, RedFin.  They were a part of a $50 million round about six months ago.

Lee Fixel, who runs the VC arm, talked about their investment in a press release: "The real estate industry is ready for an innovator who understands how business can be transformed by putting the customer first, as we’ve seen with many industries before. We are confident this strategy will create significant value for all stakeholders over the long term."

You can view some of Tiger Global's other recent portfolio activity here.

Per Google Finance, Zillow is "provides real estate and home-related information. Zillow provides products and services to help consumers through every stage of homeownership, such as buying, selling, renting, borrowing and remodeling. The Company makes home-related decisions and enables homeowners, buyers, sellers and renters to find and connect with local professionals. Individuals and businesses that use Zillow have updated information on more than 37 million homes and have added nearly 100 million home photos."

Second Curve Capital Boosts Consumer Portfolio Services Stake

Tom Brown's hedge fund firm Second Curve Capital has filed a 13G with the SEC regarding their position in Consumer Portfolio Services (CPSS).  Per the filing, Second Curve has revealed a 5% ownership stake in CPSS with over 1.22 million shares.

This marks an increase in their stake of 413,687 shares since the end of 2013.  The filing was required due to activity on April 23rd.

Per Google Finance, Consumer Portfolio Services is "a specialty finance company. The Company’s business is to purchase and service retail automobile contracts originated primarily by franchised automobile dealers and, to a lesser extent, by select independent dealers in the United States in the sale of new and used automobiles, light trucks and passenger vans. Through its automobile contract purchases, it provides indirect financing to the customers of dealers who have limited credit histories, low incomes or past credit problems. It serves as an alternative source of financing for dealers, facilitating sales to customers who otherwise might not be able to obtain financing from traditional sources, such as commercial banks, credit unions and the captive finance companies affiliated with automobile manufacturers."

Marcato Capital's Presentation on Sotheby's & Dillard's

Mick McGuire of hedge fund Marcato Capital Management recently made a presentation on both Sotheby's (BID) and Dillard's (DDS) at the Active Passive Investor Summit.

They are activist investors in Sotheby's and their thesis is summed up by: significant levels of unproductive capital, inappropriate mix of debt & equity, and desire for more shareholder friendly capital allocation.  Daniel Loeb's Third Point is also a BID activist here.

Marcato also presented a passive investment example in Dillard's where activists got involved in the stock a few years ago, the stock continued to drop and the activists eventually bailed on their position. 

Dillard's went on to turn itself around and Marcato thinks it's an attractive passive investment opportunity today as it trades at a 12% free cash flow yield and is using FCF to buy back shares.  The hedge fund thinks DDS could head as high as $155 per share (currently trades around $95).

Embedded below is Marcato's slideshow presentation:




You can view other activity from Marcato here.

East Coast's Q1 Letter on Business Adaptation & the Gas Evolution

Christopher Begg is out with East Coast Asset Management's Q1 letter entitled "The Economy of Evolution."  This time he touches on how businesses are constantly thwarted by change and can be forced to adapt.  Three specific forces they're focused on are: the Amazon effect hurting brick and mortar retail, climate change, and a shift to natural gas.

Since most businesses fail to adapt over time, East Coast looks at whether or not the business' terminal value will be better five or ten years from now.

In particular, the letter goes into depth on the 'gas evolution' and how one can play an impending shift in energy demand.  Instead of looking at the producers or consumers, they prefer to look in the middle, or the 'toll bridges' as the global gas supply chain gets built out.

East Coast then dives into a representative idea, a global terminal storage operator.  They started building a stake in Q4 2013 and have continued to add.  They see it as a transformation play as the company had average operating economics but an inflection point should change that with secular tailwinds.

While the letter does not specifically identify the company, the descriptions sound like it could be Koninklijke Vopak (AMS:VPK).

Embedded below is East Coast's Q1 letter:




We'll end with one last quote from the letter: "Proper temperament is one of the most important attributes of the investor - breathing in reason before instinct."

For more from this firm, head to East Coast's previous letter on understanding mispricings.

Kyle Bass on Global Outlook Pitfalls and Opportunities

Hayman Capital's Kyle Bass recently gave a talk at the Dallas Fort Worth CFA Society for the Texas Investor Summit entitled "Global Outlook Pitfalls and Opportunities For 2014."  In it, he walks through monetary policy and the various scenarios that could unfold and their effects.

In the presentation, he touches on three main topics: the US and tapering, Japan and quantitative easing, as well as emerging markets and slowing growth.

Embedded below is Hayman Capital's .pdf presentation:





You can watch the video of his presentation by clicking here.  You can view recent portfolio activity from Hayman here.


H/T to ValueWalk for finding the video.

What We're Reading ~ Analytical Links 4/23/14

A look at the Aereo Supreme Court case [SCOTUSblog]

What's Alibaba really worth? [Value Venture]

Macro and micro inefficiencies in equity markets [Ada Investments]

Takeaways from a slew of recent earnings calls [Avondale]

Americans still don't trust the stock market [CNN Money]

The stock picker's market fallacy [Pension Partners]

Can Facebook innovate? A conversation with Zuckerberg  [NYTimes]

Brazil's 50 year snooze [Economist]

Sell in May and go away? [Barrons]

Putting lipstick on Ulta [Herb Greenberg]

WWE Network profitable or on the ropes? [SNL]

5 questions on the state of mortgage lending [WSJ]

Why Apple is like a movie studio [Recode]

Big Japan investors tell firms to make better use of cash [WSJ]

Greenlight Capital's Q1 Letter: Sees Tech Bubble Forming

David Einhorn's hedge fund firm Greenlight Capital is out with is first quarter letter.  In it, they talk about how a potential bubble in tech is forming.  As such, they've shorted a basket of momentum names in small size in order to manage risk.

Other main takeaways from the letter include various new longs for Greenlight: Resona Holdings (Japan: 8308), SunEdison (SUNE), Altice (Netherlands:ATC), and Conn's (CONN).  The last long might be a surprise to some, as many hedge funds have been short the retailer that also deals in subprime lending. 

Greenlight also covered many unsuccessful shorts, including Chipotle (CMG), Fortescue Metals, Loblaw Companies, and Michael Kors (KORS).

At the end of Q1, their largest long positions were Alpha Bank, Apple, gold, Marvell Technology, Micron, and Oil States International.

Embedded below is Greenlight Capital's Q1 letter:




You can view other recent portfolio activity from Greenlight here.

Pershing Square's Presentation on Allergan/Valeant: The Outsider

Bill Ackman's hedge fund firm Pershing Square Capital has released a presentation called "The Outsider" that details perspectives from Allergan's largest shareholder and talks about a potential combination with Valeant Pharmaceuticals (background on Pershing's involvement via that link).

One of the main concepts detailed in the presentation is platform value.  Pershing notes that, "Considerations in valuating this asset include management's ability to (1) identify new acquisitions, (2) execute those acquisitions on reasonable terms, and (3) integrate them effectively."

Though Ackman is newer to the VRX story, other hedge funds are not.  ValueAct Capital has been invested in the name for many years and has seen Valeant do all three of the above time and time again.

This is due in large part to a fantastic management team with CEO Michael Pearson at the helm.  There's a great book on the best capital allocators of our time called The Outsiders, which made Warren Buffett's recommended reading list.  Ackman argues Pearson should be included in that group.

Embedded below is Pershing Square's slide deck on Allergan and Valeant, entitled "The Outsider":




You can download a copy here.

JANA's Barry Rosenstein on Activist Investing: Interview

JANA Partners' Barry Rosenstein talked with CNBC today about activist investing and touched on his stake in Walgreen's (WAG).  Rosenstein says that the company has a "lot of levers to pull, including tax inversion."  Shares of WAG jumped during the interview and WAG is apparently JANA's largest position.

Regarding shareholder activism, he says that, "We don't get involved unless we have concrete ideas that make sense on a long-term and short-term basis and we know we have shareholder support and they're the right solutions for the company."

Embedded below is video of a segment of Rosenstein's interview with David Faber:



You can view additional recent portfolio activity from JANA here and for more on their investment process, you can check out an in-depth interview with JANA Partners here.

Jeff Ubben on Valeant Pharmaceuticals and Microsoft: Interview

ValueAct Capital's Jeff Ubben appeared on CNBC today to talk about some of his positions.  The activist investor talked about his stakes in Microsoft (MSFT) as well as his long-term holding in Valeant Pharmaceuticals (VRX), which is in the news today in a big way.

Late yesterday, we flagged that Pershing Square had acquired an Allergan stake and was working with Valeant to propose a merger.

Ubben highlights how ValueAct's Mason Morfit joined VRX's board in 2007 and so this has been a long-term play for them as they have huge confidence in CEO Mike Pearson.  Ubben says, "Allergan and Valeant are a perfect match."

He then talked about Microsoft (MSFT) and Ubben thinks new CEO Satya Nadella's interests are aligned with theirs.

Embedded below are the videos of Jeff Ubben's interview with David Faber:

Video 1 on VRX


Video 2 on MSFT


You can view some of ValueAct's recent portfolio activity here.

Lone Pine Capital Almost Doubles Michael Kors Stake

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding their position in Michael Kors (KORS).  Per the filing, Lone Pine now owns 5.5% of the company with over 11.2 million shares.

They've almost doubled their stake recently as this marks an increase in their position of over 5.1 million shares since the end of 2013.  The filing was made due to activity on April 10th.

With this move, KORS has obviously become a bigger part of their portfolio.  KORS was the sixth largest holding in their Lone Cypress fund as of the end of the first quarter, at around 3.1% of assets.

You can view other recent portfolio activity from Lone Pine here.

Per Google Finance, Michael Kors "is a global lifestyle brand . The Company designs, materials and craftsmanship with a jet-set aesthetic that combines stylish elegance and a sporty attitude. The Company is an American sportswear house to a global accessories, footwear and apparel company with a presence in over 85 countries. Its segments include retail, wholesale and licensing. It is focused on retail stores, department stores, specialty stores and select licensing partners."

Pershing Square Acquires Allergan Stake, Working With Valeant Pharmaceutical To Propose Merger

Bill Ackman's hedge fund firm Pershing Square Capital Management has just filed a new 13D with the SEC regarding shares of Allergan (AGN).  Per the filing, Pershing Square now owns 9.7% of the company with over 28.8 million shares.  This is a brand new position for Ackman and the filing was made due to activity on April 11th.

The stake is actually broken down into 24.8 million shares underlying call options at strikes ranging from $1.20 to $1.33 and exercise dates from March 2015 to April 2015.  They also have exposure to 3.45 million shares of common stock via forward purchase contracts with an expiration of April 22, 2015 and based on a forward price of $140.37.


Working With Valeant Pharmaceutical To Propose Merger

Pershing has filed the 13D jointly with Valeant Pharmaceutical (VRX).  Pershing and Valeant entered into their agreement on February 25th, 2014 and they're working together via a joint vehicle called 'PS Fund 1, LLC' that VRX will contribute $75.9 million to.

There's a lot of details and it's worth viewing the entire SEC filing here (including all exhibits)  But basically, what you need to know is that Valeant intends to propose a merger with AGN.

VRX has been a serial acquirer in the pharmaceutical space under the guidance of CEO Michael Pearson.  The stock is also a hedge fund favorite.

ValueAct Capital has held a large VRX stake for quite some time, as has Ruane Cunniff.  Additionally, VRX was one of Lone Pine Capital's top five holdings in their Lone Cypress fund as of the end of the first quarter.  With Ackman joining the party and now working with VRX, there are a lot of prominent investors involved here.

Per the 13D, Pershing Square intends to "engage in discussions with the Issuer and Issuer’s management and board of directors, other stockholders of the Issuer and other persons that may relate to governance and board composition, management, operations, business, assets, capitalization, financial condition, strategic plans and the future of the Issuer."

The filing also notes that, "Valeant currently intends to propose a merger in which the Issuer’s shareholders will receive a combination of cash and Valeant common shares. Valeant has not yet determined the amount of cash and number of Valeant common shares it will offer, but it currently expects the cash component will total around $15 billion. Barclays and Royal Bank of Canada have indicated that they are prepared to deliver financing commitments covering the cash portion of the transaction at the time Valeant makes an offer.  Although Valeant currently expects to make an offer, it is under no obligation and provides no assurance it will do so.  If Valeant fails to make an offer before May 2, 2014, the Reporting Persons will have the right to terminate the letter agreement."

*** Update: Valeant has proposed a merger of $48.30 in cash and 0.83 shares of VRX for each share of Allergan, with shareholders allowed to elect a mix of cash and shares.  Based on today's trading, that's a deal of about $157 per AGN share, a significant premium over the $116 they were trading at just yesterday. 

If the merger goes through, AGN shareholders would own 43% of the combined company. As Allergan's largest shareholder, Pershing Square would elect to take only stock in the deal and plans on being a holder of the combined entity. ***


Now we know what Ackman was buying with the proceeds from his sale of General Growth Properties shares and Beam shares.

What We're Reading ~ Hedge Fund Links 4/21/14

Lone Pine admits lousy quarter but reaffirms strategy [II Alpha]

Hedge funds suffer worst start to year since crisis began [FT]

Viking Global hits a few bumps and ponders a new vehicle [II Alpha]

Largest hedge funds vulnerable to 2008 repeat [Risk]

What a hedge fund failure looks like [All About Alpha]

The big unwind: how hedge funds drove the brutal NASDAQ selloff [Business Insider]

European hedge fund assets hit record high in Q1 [HedgeWorld]

JANA, Och-Ziff pressuring Walgreen's to relocate to Europe [HedgeWorld]

Profile of T. Boone Pickens [Forbes]

The basic strategy that made Cliff Asness successful [Financial Post]

Tiger Global raises $1.5b in 8th global VC fund [VC Circle]

Marc Lasry, Wesley Edens buy NBA team [HedgeWorld]

Parallels Between Great Investors and a Renowned Sushi Chef: Jiro Dreams of Sushi

At first glance, it may seem odd to compare a sushi chef to an investor.  But as you'll see by the end of this post, they both share a common goal: to become masters of their craft.

Jiro Dreams of Sushi is a documentary about renowned sushi chef Jiro Ono in Tokyo, Japan.  His restaurant, Sukiyabashi Jiro, is a Michelin three-star restaurant, requires reservations a month in advance, and prices start at ¥30,000 (around $300 US).

After watching this insightful documentary, it became glaringly evident that investors and sushi chefs have a lot more in common than one would think.


Parallels Between Great Investors and a Renowned Sushi Chef


1.  Develop a constant, repeatable process.  Jiro does the same thing almost everyday.  He sculpts the pieces of sushi the same way over and over.  He constructs the day's menu and seating chart.  He even boards the daily train from the same exact spot each time.  His attention to detail might seem maniacal to some, but to him, it's a necessity to achieve greatness.

Applied to investing, great capital allocators seek to identify their own 'style' of investing.  Many of the greatest investors develop a repeatable process of finding ideas that meet various criteria.  Instead of being a deep value investor one day and then becoming a momentum trader the next, talented investors seek to find their niche and stick to it over and over and over again.


2.  Never stop learning, pursue perfection.  Jiro talks about how he is always trying to improve despite the fact that he was 85 years old when this documentary was filmed (in 2011).  He wants to be at the top of his game, even though he doesn't know how high up that is.

Jiro's fish vendor says that, "even at my age (50), I'm discovering techniques.  Just when you think you've figured it all out, you realize that you're just fooling yourself."  His shrimp vendor adds, "When you work at a place like Jiro's, you are committing to a trade for life."

The documentary also references 'shokunin' frequently, which literally translated seems to mean 'artisan,' but it sounds like the meaning goes much deeper than that in Japanese culture.  Jiro says that, "Shokunin try to get the highest quality fish and apply their technique to it.  All I want to do is make better sushi.  I do the same thing over and over, improving bit by bit.  There is always a yearning to achieve more."

Likewise, investing is a continual education.  Great investors are always improving and refining their process.


3.  Be passionate about your craft.  Instead of retiring, Jiro is doing what he loves on a daily basis: making sushi and perfecting his art.  He gives his all every single day.  Jiro says, "You have to love your job.  You have to fall in love with your work."

Some investors, like Warren Buffett and Charlie Munger, are getting up there in age but they don't stop.  They love what they do and they come into work each day excited to try to find their next investment and to perfect their art.


4.  Develop a discerning palate.   Jiro says, "The quality of ingredients is important but you need to develop a palate capable of discerning good and bad."  In investing, 'ingredients' can be the various inputs that determine the success of a business, such as the management team.  While that 'ingredient' is important, at the end of the day, you still have to develop a palate that's capable of discerning between a good and a bad business.

As Warren Buffett put it, "When a manager with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact."


5. Be highly selective.  Jiro's vendors are very specific: 1 focused on tuna, 1 for shrimp, 1 for rice; each is the best of their trade.  This is somewhat akin to an investment fund that has analyst teams broken down by sector.  The analysts and sector heads become so immersed in those businesses that they become micro experts.  Jiro trusts these vendors to bring him the best ingredients, and fund managers trust their teams to bring them the best ideas.

There's also a fantastic scene at the Tsukiji fish market where Jiro's tuna vendor comments that, "I either buy my first choice or I buy nothing.  If ten tuna are for sale, only one can be the best.  I buy that one."

This is comparable to focusing on a strict set of criterion each investment must pass before it's added to the portfolio.  An example of this is Mohnish Pabrai, who frequently talks about the importance of an investment checklist.  Extrapolated further, many successful investors have allocated capital only to their best ideas.  As Fairholme Capital's Bruce Berkowitz says, "Why put money in your tenth best idea?" 


6.  Determine the important metrics.  Jiro's eldest son, Yoshikazu, helps run the restaurant and will succeed his father one day.  In the film, he goes to the market to buy some octopus and the vendor points out the color difference between two octopuses.  Yoshikazu doesn't care; he says he's only focused on one thing: the flavor.

In investing, investors need to identify the few key metrics that define and drive a given business.  Once those metrics are identified, it helps the investor really focus on the business' performance.


7.  Learn from a mentor.  A fish vendor says, "When you work for Jiro, he teaches you for free.  But you have to endure ten years of training."  There's a natural progression for employees at Jiro's restaurant from preparation cook to apprentice to a chef who opens their own restaurant.  Jiro is the master and his son, Yoshikazu, is the protégé being groomed to takeover.

On Wall Street, there are many examples of successful mentor/protégé relationships.  In value investing, you have Benjamin Graham and Warren Buffett.  In global macro, you have George Soros and Stanley Druckenmiller.  In long/short equity, you have Julian Robertson and all of his Tiger Cubs (John Griffin, Andreas Halvorsen, Lee Ainslie, among many others).

This just goes to show that some of the greatest investors (and sushi chefs) have spent time to learn under the best.  It also reinforces the junior analyst > analyst > sector head > portfolio manager hierarchy that many larger firms employ.  You have to gain valuable experience and learn the necessary skills to succeed in the craft of investing. 


8.  Identify your competitive advantage.  Jiro recognizes his strengths and weaknesses.  Investors should do the same.  Warren Buffett famously says to, "focus on your circle of competence."

There's one particular scene in the documentary where everyone says Jiro's rice is the best.  A hotel wanted to buy the same rice from Jiro's vendor, but the vendor said no because, "what's the use if they don't know how to cook it properly?"

Jiro purchases very specific rice from this vendor and uses a distinct preparation method that involves very high pressure to cook it and requires it to be served at a specific temperature.  He doesn't know anyone else who does this.

Other examples include the fact that his chefs massage the octopus for an hour to make it less tough texturally.  Jiro also plans the progression of the courses in a certain order, something it took him years to refine.  His specific vendors, focus on high quality ingredients, and preparation techniques are some of the things that differentiate him from the competition.

Fund managers these days are often asked by potential investors what their competitive advantage is over other active managers.  Good investors will have identified this and can quickly point it out, whether it be experience, style/strategy, sector focus, time horizon, their limited partners, or a myriad of other factors.


9.  Attention to detail is key.  Jiro is laser focused on every detail of the dining experience at his restaurant.  Before customers arrive, Jiro sets a seating chart in order to enhance the flow of the meal while accommodating groups so they can sit together.  If he notices a customer is left-handed, he immediately adjusts where he is placing the sushi in front of them.  He also alters portion sizes based on whether the diner is male or female.  The presentation of each piece of fish is timed ideally for taste, texture and temperature.  Jiro is very methodical in everything he does.

Attention to detail in investing is key as well.  Just ask hedge fund manager Jim Chanos, who famously identified fraud at Enron by obsessively examining their books.  This is also why so many hedge funds dig so deep on potential investments.

Analysts perform channel checks by visiting countless retail stores, talking with competitors & industry experts, surveying customer preferences, etc.  And don't forget the basics: listening to company conference calls and reading SEC filings (including the fine print) etc.  It's the little things that can make a big difference.


10.  Take advantage when opportunities arise.  Jiro doesn't necessarily have the same menu everyday.  His son sees what the best ingredients are at the market for that day and Jiro molds the menu around it.  In this manner, the fish market is a lot like the stock market.  Advantageous investors scoop up shares of specific companies when they find the prices they're looking for. 

There are other similarities, too.  Jiro and his chefs are familiar with all the ingredients they work with, so they know what is good at any given day at the market and when to strike (this ties back in to developing a discerning palate).

The same can be said for many investors who build a 'universe' of investments they've become familiar with over time from past research.  When a business they like finally trades at a price they're comfortable with, they can buy.



As you can see, there are some interesting parallels between great sushi chefs and great investors.   If you haven't seen it already, Jiro Dreams of Sushi is a well-done documentary worth viewing, especially if you like sushi (just don't watch it hungry).

Embedded below is a trailer for Jiro Dreams of Sushi:



You can purchase a DVD copy here or you can watch via instant video here.

"Always try to improve on yourself.  Always strive to elevate your craft.  That's what he taught me."  ~ Yoshikazu on his father, Jiro

Ackman Cuts Beam Stake Yet Again

In what has seemingly become routine selling, Bill Ackman's hedge fund firm Pershing Square has filed another amended 13D with the SEC regarding their Beam Inc (BEAM) stake.

Per the filing, they've basically cut their stake in half since their last sales only a few weeks ago.  As we've mentioned before, BEAM shares are effectively a risk arbitrage play since Suntory made an $83.50 per share offer for the company.  With the spread so thin, it looks as though Ackman has been cashing in his chips to deploy the capital to other potential ideas.

The latest 13D shows that Pershing Square now owns only 5.6 million shares, or 3.4% of the company.  The hedge fund was out selling on April 16th and 17th at a price of $83.27.

What We're Reading ~ Analytical Links 4/16/14

Notes from the DoubleLine lunch with Jeff Gundlach [Reformed Broker]

The illusion of conscious investing decisions [All About Alpha]

Prem Watsa says dot-com rally to 'end in tears' [Bloomberg]

Interview with Larry Pitkowsky and Keith Trauner of GoodHaven Fund [Forbes]

Charting a tasty future for Post Holdings [Barrons]

Google moving to play a larger role in booking hotel rooms [WSJ]

US companies adding significantly to their debt [FT]

Amazon's new smartphone? [BGR]

Jeff Bezos' annual letter [SEC]

The problem with profitless start-ups [NYMag]

Can do vs can't do cultures [BHorowitz]

Michael Lewis' "The Big Short" to hit the big screen [CNN Money]

Bill Ackman's Pershing Square Trims Beam Stake Again

Bill Ackman's hedge fund firm Pershing Square Capital Management has filed an amended 13D with the SEC regarding their position in Beam Inc (BEAM).  Per the filing, Pershing now owns 5.5% of the company with 9.1 million shares.

Pershing previously trimmed its BEAM stake just a few months ago and since then, they've reduced their position size even further, down 2.55 million more shares. 

The filing notes that they sold the bulk of their shares on April 11th, 14th, and 15th at prices of $83.26.  This marks a total decrease in their position size of 11.7 million shares since the end of 2013.

BEAM has received a $16 billion takeover offer from Suntory via $83.50 per share in cash.  Since the spread has narrowed, it looks like Ackman is raising capital to potentially deploy into ideas with higher potential returns.

You can view other recent portfolio activity from Ackman here.

What We're Reading ~ Hedge Fund Links 4/11/14

Age bigger factor than size in hedge fund performance [FINalternatives]

Coatue to return $2 billion to investors [CNBC]

On lunch with T. Boone Pickens [Morgan Housel]

Looking at some hedge fund pay [Business Insider]

Hedge fund research: transparently short [Barrons]

Tiger Global invests in Quora [ValueWalk]

Inside Kyle Bass' favorite mortgage servicing play [II Alpha]

Hedge funds' leveraged bets on market rally to magnify selloffs [Reuters]

SAC portfolio manager Plotkin to start his own fund [WSJ]

JANA Partners Reduces Outerwall Position

Per an amended 13D filed with the SEC, Barry Rosenstein's hedge fund firm JANA Partners has reduced its ownership stake in Outerwall (OUTR) down to 4.9% of the company.  Due to portfolio activity on April 8th, they now own 997,041 shares.

This marks a sizable decrease as they've sold over 2.7 million shares since the end of 2013, with 725,000 of those sales coming since the middle of March.

JANA's filing indicates that they reduced the size of the investment "through regular portfolio management activities.  (JANA) is highly supportive of the recent steps taken by the Issuer's board and management, in particular the Issuer's commitment to improving capital allocation discipline, increasing its return of capital to shareholders, and driving cost efficiencies."

You can view additional recent portfolio activity from JANA here.

Per Google Finance, Outerwall is "formerly Coinstar, Inc., is a provider of automated retail solutions, which offers convenient products and services. the Company's offerings in automated retail include its Redbox business, where consumers can rent or purchase movies and video games from self-service kiosks (Redbox segment), and its Coin business, where consumers can convert their coin to cash or stored value products at self-service coin counting kiosks (Coin segment). Its New Ventures business (New Ventures segment) is focused on identifying, evaluating, building, and developing self-service concepts in the marketplace."

Sohn Investment Conference Speakers Announced: Less Than a Month Away

The 19th Annual Sohn Investment Conference is right around the corner on May 5th, 2014 in New York.  This is one of the premier investment conferences each year and it features an insanely good speakers list.  Produced by Bloomberg LINK, the event is a fundraiser to support pediatric cancer research.  You can register for the Sohn Conference here.


Sohn Speakers List

- Paul Tudor Jones (Tudor Investment Corp)
- Bill Ackman (Pershing Square Capital)
- David Einhorn (Greenlight Capital)
- Philippe Laffont (Coatue Management)
- Michael Novogratz (Fortress Investment Group)
- Larry Robbins (Glenview Capital)
- Jeff Gundlach (DoubleLine)
- Chris Shumway (Shumway Capital)
- Zach Schreiber (PointState Capital)
- Mariko Gordon (Daruma Capital)
- James Grant (Grant's Interest Rate Observer)
- Dan Ariely (Professor of Psychology & Behavior Economics at Duke University)


Event Details

Date: May 5th, 2014

Location: Avery Fisher Hall, Lincoln Center.  New York, NY

Time: 12:00 PM - 5:30 PM

Reception to follow afterwards


New "Next Wave Sohn" Event Added This Year

For the first time, a "Next Wave Sohn" mini-conference will take place at the same location just before the main event.  Starting at 9:30 AM, Next Wave Sohn features up and coming managers presenting their latest investment ideas.  If you register for the main Sohn Conference, you can RSVP to Next Wave Sohn for no additional cost.

Here's the speakers list for Next Wave Sohn:

- Ethan Devine (Indus Capital)
- Jason Karp (Tourbillon Capital)
- John Khoury (Long Pond Capital)
- Nitin Saigal (Kora)
- Will Snellings (Marianas Fund)


Sohn Conference Less Than A Month Away

The Sohn Conference is less than a month away, so be sure to register before it's too late.  This year you're essentially getting to attend two conferences for the price of one, with proceeds benefiting pediatric cancer research.

This truly is a fantastic speakers list, so hear the latest investment ideas from top hedge fund managers by registering for the Sohn Conference here.

Howard Marks' Latest Memo: Dare To Be Great II

Howard Marks, chairman of Oaktree Capital, is out with his latest memo.  Entitled, "Dare To Be Great II", the letter is an addendum of sorts to an original piece he penned in 2006 called Dare to Be Great.

In his latest missive, Marks focuses on how investment managers need to define success and outline what risks they're willing to take to achieve it.  Marks devotes several paragraphs to this, stating investors have to:

- Dare to be different
- It isn't easy being different
- Dare to be wrong
- Dare to look wrong
- Looking right can be harder than being right

Marks notes,

"In order to be a superior investor, you need the strength to diverge from the herd, stand by your convictions, and maintain positions until events prove them right.  Investors operating under harsh scrutiny and unstable working conditions can have a harder time doing this than others."

There are numerous aspects that affect how much and what types of risks an investment manager can and will take: emotional stability, career risk (employers and/or clients), etc.  Obviously institutional investors face much of the latter with investors/clients becoming more short-term focused everyday it seems.

The Oaktree chairman concludes that,

"Unconventional behavior is the only road to superior investment results, but it isn't for everyone.  In addition to superior skill, successful investing requires the ability to look wrong for a while and survive some mistakes."


Embedded below is Howard Marks' latest memo: Dare To Be Great II:




You can download a .pdf copy here.

For more on this manager, head to some of Oaktree's recent portfolio activity here.  And for more memos from Marks, head to his previous one on the role of luck in investing.

Baupost Group Dumps Enzon Pharmaceuticals Stake

Seth Klarman's hedge fund firm Baupost Group has filed an amended 13G with the SEC regarding Enzon Pharmaceuticals (ENZN).  Per the filing, Baupost no longer owns a stake in the company.

The filing was made due to activity on March 31st.  Shares are trading under $1 now.  Baupost was out trimming its ENZN stake in January as well.  The hedge fund originally initiated their ENZN position in 2009 at much higher prices.

Per Google Finance, Enzon Pharmaceuticals is "a biotechnology company. The Company’s drug development programs utilize two platforms: Customized PEGylation Linker Technology (Customized Linker Technology) and third-generation messenger ribonucleic acid (mRNA) antagonists utilizing the Locked Nucleic Acid (LNA) technology. The Company has four compounds in human clinical development, a PEGylated version of the active metabolite of the cancer drug, irinotecan, PEG-SN38, and mRNA antagonists Survivin and the Androgen Receptor (AR). In addition, it has mRNA antagonist targets in various stages of preclinical research. The Company receives royalty revenues from licensing arrangements with other companies related to sales of products developed using its Customized Linker Technology-PEGINTRON. It is also using LNA technology to develop mRNA antagonists against oncology targets."

What We're Reading ~ Analytical Links 4/9/14

On unsentimental investors [Ritholtz]

The best and worst thing about investing [Reformed Broker]

Wall Street's brightest minds reveal the most important charts in the world [BusinessInsider]

Dollar General (DG) annual valuation [ModernGraham]

In scrutiny of cable merger, internet choice will be crucial battlefield [NYTimes]

Report on the performance of controlled companies [IRRC Institute]

Bank of America (BAC) has more upside [Barrons]

What investors need to know about rising rates [BlackRock]

Eminence Capital Ramps Up InterXion Holdings

Ricky Sandler's hedge fund Eminence Capital has filed a 13G on shares of InterXion (INXN) with the SEC.  Per the filing, Eminence now owns 5.6% of the company with over 3.88 million shares.

This marks a boost of 677,739 shares since the end of 2013.  The filing was made due to activity on March 26th.

Per Google Finance, InterXion "is a provider of carrier-neutral colocation data center services in Europe. The Company support customers through 33 data centers in 11 countries enabling them to protect, connect, process and distribute their information. Within its data centers, it enables its customers to connect to a range of telecommunications carriers, Internet service providers and other customers. Its data centers act as content, cloud and connectivity hubs, which facilitate the processing, storage, sharing and distribution of data, content, applications and media between carriers and customers, creating an environment, which it refers to as a community of interest. Its core offering of carrier-neutral colocation services includes space, power, cooling and a secure environment in which to house its customers’ computing, network, storage and information technology (IT) infrastructure."

Tiger Global Boosts 58.com Stake

Chase Coleman and Feroz Dewan's hedge fund Tiger Global has filed a 13G on shares of 58.com (WUBA).  Per the filing, Tiger Global now owns 6.5% of the company with over 1.2 million ADR shares (equivalent to 2.5 million ordinary shares).

This means they've boosted their exposure from 300,000 ADR shares (WUBA) at the end of 2013 to over 1.2 million ADR shares now.  The filing was made due to activity on March 28th.

Just recently, we highlighted how John Burbank's Passport Capital was active in WUBA shares as well.

Per Google Finance, 58.com is "a holding company. The Company is an online marketplace serving local merchants and consumers in China through its Website www.58.com and mobile applications. Its online marketplace enables local merchants and consumers to connect, share information and conduct business. The Company’s online marketplace contains a range of information in approximately 380 cities, across diverse content categories, including housing, jobs, used goods, automotive, pets, tickets, yellow pages and other local services. Its online marketing services include listing services, such as real-time bidding and priority listing, and marketing services through collaboration with third-party Internet companies in China. The listings on its online marketplace cover a range of content categories, such as housing, jobs, used goods, automotive, tickets, homecare and relocation, renovation, wedding, business services, travel, education, food, beauty, entertainment, franchise, and other local services."

You can view other recent portfolio activity from Tiger Global here.

Value Investing Congress Las Vegas Notes 2014

Below are notes from the 2014 Value Investing Congress that just took place in Las Vegas.  Click each link to go to that speaker's presentation.


Value Investing Congress Las Vegas Notes 2014

- Thomas Russo's Presentation

- Whitney Tilson's SodaStream Pitch

- Sahm Adrangi: Short Bank of Internet

- Carlo Cannell's 2 Investment Ideas

- Tim Eriksen: Long Awilco Drilling

- Chris Mayer's 2 Picks 

- Eric Andersen (Western Standard): Pitches on Forrester, OFS Capital & Hartmann 

- Eric Sprott (Sprott Asset Mgmt): 2 Ideas

- David Neuhauser (Livermore Partners): Energy pitches

- Lisa Rapuano (Lane Five Capital:  2 Investment Ideas

- Zeke Ashton (Centaur Capital): Long BMW Preferreds 

- Daniel Miller (Gabelli):  2 Long Ideas

- Isaac Schwartz (Robotti & Co): Long Tarkett and Halik Savings Bank

- David Hurwitz (SC Fundamental): Opportunities in Korea

- Michael Kao (Akanthos Capital): His TAG Oil Pitch

- Chan Lee & Albert Yong (Petra Capital): Long Nexen Tire

- Richard Lashley (PL Capital):  TARP Warrants and small cap bank plays

- Richard Pearson: Short Organovo

- John Lewis (Osmium Partners): 3 Long Ideas

- Daniel Ferris (Extreme Value): Long Altius Minerals

- Arnaud Ajdler (Engine Capital): Pitch on Hill International


Enjoy!

John Lewis' 3 Long Ideas at Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is John Lewis of Osmium Partners who pitched 3 ideas: Tucows (TCX), Rosetta Stone (RST), and Intersections Inc (INTX).


John Lewis' Value Investing Congress Presentation

•    Launched 2002 in Greenbay California. Up to ~$1B market cap.
•    17.4% annualized since inception.
•    Their process 1- mid single digit of cash flow multiple, 2- well defined market segments, and 3- internal opportunities to reinvest capital in the business or capital structure.
•    Looks at the quality of the business model – porter’s five forces, define high quality businesses as businesses with long term customers, look for 10% EBIT margins and good returns on capital.
•    Don’t take balance sheet risk – no net debt businesses.
•    Invest alongside owner-operators.


•    Tucows (TCX) is the first idea – owns a variety of subscription based businesses. Think he is the small cap version of Singleton – has repurchased over HALF of the company with 7 dutch tenders. Announced a 15% share repurchase in march. Think its worth 22 versus $12.
•    First business is domain wholesale business very sticky and ting – newer business.
•    Very little following.
•    Domain business - $105MM rev, 11% EBITDA margins and 14MM domains. Three legs to the domain business – yummy names is an exceptional business. Cost basis is less than a dollar and sell them for $1500 - $1800 if they sell it.
•    Two interesting catalysts – GoDaddy was taken private at 2x sales. IPO in third quarter 3-4 sales.
•    Demand Media Spinoff is a comp – thinks it will spin for 1.5x sales.
•    Domain business worth between $10.7 - $17.
•    Ting – mobile wireless carrier. Retention rate is equal to contractual operators like Sprint ,AT&T. 
•    Believes the industry is ripe for disruption. Ting leverages Sprint’s network (MVNO).
•    Ting subscribers are up 380% YoY. Gives someone a $5 Starbucks gift card if they compare their bill to Ting.
•    Churn is 7% - ARPU is $21. $900 in lifetime revenue per customer. Generating an estimated 9x return on customer acquisition costs.
•    Think Ting is worth $10.5 using a DCF
•    Believe the business is worth $22MM per share or 75% upside.


•    Rosetta Stone (RST) is the next idea. 
•    Tremendous amount of progress.
•    Perception that they have lost market share – spends $200MM a year in R&D and control distribution – invested $1B in building the brand
•    Perception: Dying CD Business – CD business is in decline – worth only $4 per share.
•    Low margin business perception – maintenance R&D is $10MM, growth RD is ~$30MM.
•    Thinks Adobe is a similar story – from shrink wrapped product business to subscription, LT relationship SaaS business.
•    Hidden asset: Global E&E business – a lot of growth. 100% subscription as a service business with 80% renewals and high margins. Peers trade 4-6x sales, and a lot of M&A. 3x sales for the E&E business – 100% upside. M&A comps around 3x sales.
•    Key part of the business is distribution.
•    Acquired a freemium business – RST bought it below the price it cost to set up at customers at .50 cents – with cross sales already materializing. 
•    Purchased Lexia Learning, Tell Me More and Vivity Labs at attractive multiples.
•    Value CD business at half of sales 
•    SOTP of $28 


•    Next idea is Intersections Inc.  (INTX)
•    Thrown off lots of FCF – bought back shares – a cannibal.
•    Management and board own half of the Company.
•    14% dividend yield
•    BofA is 50% of the total business or $266MM in sales.
•    BofA component priced at 1x cash flow or run-off or $2.5. Shorts think the BofA is the entire business – false. Broke out identity guard- better offering than LifeLock and its compliant/ethical versus LifeLock.
•    Customer acquisition costs  - pay back period is 6 months. $42MM run-rate. Osmium believes it should be worth 15x EBITDA given its high margin profile this would be $6.5 per share. This is  reasonable given zero customer concentration, mid-teen EBITDA marginsand double digit growth (20%+).
•    Pet monitoring device Voyce – complete optionality. 
•    Put in the Oscar “Swag” Bag – a large range of outcomes.
•    $11MM in invested capital.
•    Management has been accurate in forecasting.
•    Followed this Company for six years – in 08 the worst year they were only off by 1% in regards to their forecast.
•    SOTP - $12 per share or a double.

Be sure to check out the rest of the Value Investing Congress presentations.

Zeke Ashton's Presentation on BMW Preferreds: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Zeke Ashton of Centaur Capital Partners who pitched BMW Preferreds.


Zeke Ashton's Value Investing Congress Presentation

•    Founded Centaur Capital Partners in 2002. Long-Bias, goes both long and short.
•    Started out as a “hybrid”, value investing made sense in 1997 – value stocks would just stay cheap. If you  bought tech stocks, made 50% in a month. Since he was new, looking at what worked. Was a value investor at heart, but couldn’t help himself to invest in some of these tech stocks.
•    Ballard power –speculative investment went from 100 to 2.
•    Deswell – cigar butt investment at that time – went up 50% and sold it. Bought it for 2x PE. Stock price declined and was flat, but shareholders received their capital back through dividends.
•    What to take from this? Graham and Dodd works – but buying good companies is better.
•    Comparison – Yahoo! Acquisition of broadcast.com is eerily similar to Facebook’s acquisition of WhatsApp.  Doesn’t know how Whatsapp will play out, but we know what happened with Yahoo! (Plus it was a win for us Dallas Maverick Fans)


•    Opposite End of the value scale – Tesla Vs. BMW. End of the day, both are Car Companies. Market Cap for Tesla $30B market cap, 23,500 cars sold, expecting 35k next year – BMW 2MM cars a year, not counting motorcycles – cars sold growing. From a scale standpoint, completely different businesses.
•    Tesla wasn’t so much in the car business – made a lot of revenue from various “regulatory credits”, which are deducted from your COGS! Alone, these are 8% of revenues. As a percentage of gross margin 45%.
•    TSLA has a smart group of guys – interesting how they hid the credits.
•    BMW is entering the EV market – has been prepping for this for a long time.
•    One BMW model – I3 and the I8 - $135K BMW convertible. 
•    BMW partnered with a Chinese car company to create an EV brand – Zinoro. If TSLA gains billions off opening one Chinese dealership, then what happens ot the JV which is opening multiple dealerships.
•    Financial services business is phenomenal. BMW Finance is a hidden asset. Also has an insurance operation – extended warranties, etc. Amazing businesses. They obtain 45% of all BMW sales as customers – captive base.
•    What would it take to replicate BMW? Well over the past ten years, they have spent over $100B in CapEx and $41B in R&D. Another secret sauce – can access the credit markets at attractive terms.


•    Buy BMW through the preferred – 25% discount or 8x earnings and 3.9% dividend yield. One of the best brands in the world, along with an attractive FinCo
•    SOTP – 6x OCF for the OpCo and a multiple for the FinCo in line with the market. Fair value for common shares $100 euros, common is at $91 – hence preferreds are the most attractive.
•    Tesla is priced for perfection, I wouldn’t recommend a short but it is an interesting company.
•    Q&A asked about the comparison between Chobani and General Mills (Tom Russo’s presentation).  BMW takes their time to be perfect.

Be sure to check out the rest of the Value Investing Congress presentations.

Daniel Ferris' Altius Minerals Pitch at Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Daniel Ferris of Extreme Value who pitched Altius Minerals as a long.


Daniel Ferris' Value Investing Congress Presentation

•    Pitching ALS.TO Altius Minerals.
•    $5.3 per share in cash no debt.
•    Owns and creates royalties on mining assets.
•    10 – 12x chances to make 50x to 100x returns.
•    Just multiplied its royalty income 10x in a single transaction.
•    Narrow the field by buying prospect generator – i.e. trades intellectual capital for physical capital.
•    Two complementary businesses – mineral exploration, project generation and royalty creation. Also purchases royalties.
•    Have repeated this process multiple times – grown NAV.
•    Exit through the sale of a mine and retain a CapEx lite 2% royalty stream.
•    Capital structure - 27.9MM shares – zero debt.
•    Upside through the Kami Project – discovered a 1B tone iron ore deposit in Western Labrador. Four producing mines, skilled labor, mining friendly jurisdiction and the infrastructure in place.
•    Created Alderon Iron Ore – Altius owns 25% which in turn owns 75% of the Kami LP mine – iron ore mine. Hebei Iron & Steel owns the other 20%.
•    Feels good about the downside – hard to value these projects which are not producing- but high upside potential.
•    Could be valued off dividend if initiated.
•    NAV $15 per share currently.
•    Announced two major transaction buy 52% in 11 royalties from Sherritt. Coal and potash royalties.
•    Will pay $42MM for Carbon Development Partnership from Sherritt as well.
•    Excellent royalty portfolio – no exposure to thermal coal market prices.
•    Purchase price of $283MM –  financed with124MM cash, 40MM in an equity securities portfolio, 80MM TL and a 50MM convert – fluid situation. PF NAV, could be worth $20 versus current price of $14 – if they pay a dividend, expected price of $30 or more

Be sure to check out the rest of the Value Investing Congress presentations.

Petra Capital's Presentation on Nexen Tire: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Chan H. Lee and Albert Yong of Petra Capital Management whose presentation was entitled "In Search of Hidden Champions in South Korea."  They pitched Nexen Tire as a long.


Petra Capital's Value Investing Congress Presentation

•    South Korean based value manager based in Seoul – disciples of Ben Graham. Outperformed the Korean index – since inception annualized returns of 24% outpacing the KOSPI.
•    Misconception – Korea is not an emerging market
•    Size of Kentucky – GDP over $1 Trillion dollars in addition to being on of the wealthiest countries in the world.
•    Korea’s credit rating is higher than Japan, China, Israel and Italy.
•    Korean culture is heavily focused on education.
•    One of the best infrastructures in regards to internet – 83% high speed penetration and 80% using LTE smart phones.
•    GS thinks in FY15 – one of the wealthiest by GDP per capita.


•    Nexen Tire – Trades at 9.9x p/e. It is a hidden champion. Nexen tire currently Korea’s third largest manufacturer. One of the fastest growing tire manufacturers.
•    Growing at 20% a year – overall industry grew at 8% a year. Last year replacement tires declined by sales to auto makers increased materially.
•    Third tier tire manufacturer by tire price and brand recognition. 1st tier are players like Michelin/Goodyear.
•    Sales are diversified across the globe. Built a new factory in Czech Republic to penetrate Europe further.
•    Very efficient factories – cost structure is materially lower. Factories are highly automated.
•    Trades around 9x should be worth between 12x – 13x.
•    How to buy this cheap? Preferred stock. Pay a slightly higher dividend but no voting rights. 60% discount to the common stock! Trades at 4x PE .
•    Need to be careful – choose the right security. The price of common stock shouldn’t be overvalued. GAP will narrow eventually. 
•    Another method to buy this business cheap: Holding Company – Nexen Corp the holdco. $300 market cap, 70% BV, 6x P/E. 70% of the value is derived from Nexen Tire. 40% stake in Nexen Tire is GREATER than its market cap.

Be sure to check out the rest of the Value Investing Congress presentations.

Michael Kao's Presentation at Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Michael Kao of Akanthos Capital who pitched TAG Oil (TAO.CN).


Michael Kao's Value Investing Congress Presentation

•    Returned 34.5% net to LPs with under 40% net common stocks and virtually no exposure to traditional credit.
•    Key tenants – capital structure L/S fund with an event driven bias. Look at the capital structure as a spectrum of opportunities. Agnostics between all securities in the structure – looks for the best bang for the buck – asymmetry – more upside than downside. Will create them by combining different pieces.
•    Concentrate in your best ideas.
•    Construct a portfolio of thematically diverse but asymmetric payoffs.
•    Thematic drivers – presenting a common equity idea
•    In FY10 presented GM distressed bonds as post-reorg equity would be valuable – one of their best investments – an 8 bagger since 09.
•    Look for off the beaten track securities
•    In bankruptcy – many interesting securities are created – a different resolution stub with no relation to the common equity was created – a 3 bagger.
•    Pitched Freddie/Fannie preferreds – likened them to railroad bonds – a 20 bagger for them and their largest event-driven position – very strong legal 


•    Common equity is today’s idea: TAG Oil (TAO.CN). E&P equity domiciled in Vancouver – operational assets on 2.8MM acres on conventional and unconventional assets are based in New Zealand.
•    Most prolific driller in New Zealand. Goal is to be the biggest E&P producer.
•    Company has a $140MM EV – 60MM in cash. $40MM in EBITDA.
•    TAO equity looks like a distressed convertible bond. If assets appreciate bond is only worth par. If asset value detriotiates, bond falls in value. If assets go way up, converts participate in equity. 
•    Believe it is trading below its bond floor and multiple option components.
•    Currently operates 26 wells in the Teranyaki basin in NZ. 1400 barrels a day or $40MM EBITDA. •    Event component – low risk drilling opportunities. East coast opportunity – 13B barrels of shale oil available alone, similar to the Bakken. Pie in the sky option – basin with no drilling, but seismic studies show favorable prospects. Valuation scenario assumes no value.
•    Valuation – base case of $6.0 – could double or more if other wells come online.
•    Company has made good acquisitions. Bought a permit for $2MM – huge find. Stock spiked and the Company raised capital at the peak. High flow rates showed high depletion rate in FY13, in January 2013 – APA (drilling partner) drilled out. 
•    Believe Apache pulled out for internal issues. During the period when APA pulled out, Nat Gas was in a trough level – hence Apache needed to focus on unconventional plays and were fed up with NZ environmental delays. APA committed $100MM but paid $26MM to TAO – TAO lost a partner but received $15MM from APA no strings attached for APA pulling out.
•    The Company has raised capital at astute times – never raised debt.
•    Why is it training in deep value territory.
•    Revenue and Book value have grown 4x and 13x respectively. Very asymmetric.
•    Chief risks – commodity risk, the company is 85% oil. Environmental opposition. TAO has had a better chance without APA in obtaining permits.
•    Limited operating history to the wells.
•    Lack of oil and gas infrastructure. If they have a big find, might need a JV partner.
•    CapEx – will spend $100MM plus through FY15 – but it is success based i.e. they can shut it off. •    Any day now the Company will announce results for a basin. If it disappoints – worst case $2 - $2.5. If the play works out, $4 - $5 per share.
•    Question – why are they not using debt? Being conservative – always self-funded themselves.
•    Owns Fannie/Freddie Preferred – question is the common better? If the $210B is paid to treasury is assumed gone to a sink hole- the run down value of entities will fall in waterfall method – common stock will be wiped out – preferreds fully covered. Common does have upside. Preferreds could be a triple.
•    Fairholme has been granted early discovery – will show how certain agencies planned their actions in regards to Fannie/Freddie was blatantly illegal.

Be sure to check out the rest of the Value Investing Congress presentations.

David Hurwitz on Opportunities in Korea: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is David Hurwitz of SC Fundamental who pitched opportunities in Korea.


David Hurwitz's Value Investing Congress Presentation

•    Value investors investing for over 20 years. 20% of their book is in Korea.
•    Unbelievable value in Korea.
•    Activism has worked out well so far. Launched a fund on activist opportunities in Korea.
•    Market capitalization of Korea is bigger than Hong Kong and Italy – similar to Germany.
•    GDP ranks 15th in the world.
•    Trades at 1.1x book versus S&P 500 at 2.6x
•    Graham and Dodd investments are available in KOSPI.
•    Warren Buffet has invested in Korea.
•    Korea is NOT Japan.
•    Minority shareholder rights are very well protected – better than the USA.
•    They have a ROE versus Japan
•    Difficulties of investing – lower volumes, need a trading ID, which isn’t hard to obtain. Accounting is a tad bit difficult due to the transition from Korean GAAP to IFRS. No other activists. Icahn was active in a Korean company years back.
•    Partners with the country’s pension funds. Voted against management – publicly stated they are going to vote for activists (they are the biggest asset manager).
•    1.5% ownership, you can call an annual meeting – phenomenal. At the AGM, you can put out proposals such as board member, buybacks, etc. You have to have held the shares for 6 months.
•    Statutory audit – a position that is effectively appointed by outside shareholders to oversee that the board does its duty properly – access to all books and records.
•    Contacted one of their contacts statutory auditors (activist campaign), the auditor didn’t even know what it meant/obligations.

•    Past case studies – Kubibo Design (spelling?) – trading for net cash, EV of 0. Without subtracting cash traded for 4x earnings. Growing business. Founder owned 50% of the Company. Gave them the cold shoulder. Put the proposal on the ballet requesting the statutory auditor. Real proxy fight and won. End of the day, CEO apologized, looked at capital allocation and the price increased.

•    Kabalem Co – cash was 70% of the market cap, 40% P/PV and 3.9x sustainable earnings. Told them would you buy your competitor for 4x earnings? They said of course. SC then proceeded to tell them that they could buy back their stock for 4x earnings and the light bulb went off – good outcome.


•    Current names – not risen in values from originally purchase price

•    Samho Development idea 1. Civil engineering business – government work.
•    Trades for .5x BV, 12.6% ROE, net cash is 105% of market cap.
•    15 years of consistent earnings. Earnings can cut in half and still a bargain.
•    BUSINESS IS FREE $0 EV
•    Owns 6% of the Company.
•    Invested in venture capital and asset management business – so poor capital allocation.
•    Progress made? Passed resolution to repurchase shares. CFO gets it now
•    Convinced them to get rid of biotech investments.

•    Ktcs Corp – call center own the countries 411 directory and a reseller.
•    EV/EBIT of 1x.
•    P/E is 7x P/BV under 1, ROE ex cash 48%. Stable business.
•    Small shareholder has put through a few shareholder proposals.
•    Statutory auditor was fishy – getting paid more than the CEO.
•    Controlled by Korean Telecom – 16% owner.
•    Promised accountability – CEO bought a material amount of shares personally.


•    Strategy – buy things cheap that they make a good return as a passive investor- go active as needed.
•    Have Korean partners and Korean analysts.

Be sure to check out the rest of the Value Investing Congress presentations.

Isaac Schwartz's Pitch on Tarkett & Halik Savings Bank: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Isaac Schwartz of Robotti & Company who pitched Halik Savings Bank and Tarkett.


Isaac Schwartz's Value Investing Congress Presentation

•    Hidden in Plain Sight
•    Update on Kazakh Bank pitched prior – after a good performance it has declined by a third due to nervousness around the Russia/Ukraine situation.
•    Company is timely today versus last year – local investors in Kazakhstan – four primarily done by local investors buying back assets at low price to book values.


•    Idea – Halik Savings Bank – 20% ROE and trades at book value. Book value for share has doubled over the past years. •    Country supplies 3.5% of the world’s oil, and could double that. The other countries that can double output are not-stable. 


•    Tarkett is another idea. Trades in Paris and went public last fall. Leading company in global flooring. Generates 18% ROCE.
•    Poorly done IPO went public at 29 euros, trades at 26. 1.2B USD market cap.
•    Family and other shareholders like KKR and management own over 74% - 26% is free float. Family brought in KKR.
•    Thinks PE can be positive – look at the nature of private equity involvement (i.e. milk for earnings, multiple arbitrage or as a plus utilize industry contacts and plan for the long term). Family REMAINED in control so it did not utilize private equity leverage.
•    Rollup know how provided by KKR.
•    Business diversified around the world – including the former USSR countries. A lot of focus on these companies.
•    They are not in tile – they are the most global and diversified of the global flooring companies. Industry is globally consolidated.
•    Tarkett has a strong market share in Russia. Two thirds share in vinyl – the most popular category. •    A lot of renovation possibility from old soviet era buildings.
•    Barriers to entry in Russia? World’s largest vinyl factory (8x their competitor)
•    Decade to build and distribute brand.
•    Flooring is not a discretionary purchase. 
•    Trades at a big discount to peers – usually doesn’t like relative valuation. In Tarkett’s case margins are lower than competitors and a clear method to increase methods, especially North America. It has rolled up a dozen targets in 5 years.
•    North America has been a drag – but made an interesting acquisitions through Tandus. Purchased from Colin & Aikmans by Oaktree Capital.
•    After a few years, Tarkett purchased this asset from Oaktree.
•    Now they have a large scale and cross selling ability in the USA now.
•    A lot of optionality.
•    In global sports flooring – 50% market share – competes against Berkshire Hathaway (Shaw) is economically sensitive. 
•    Why is it cheap: Russia political issues, USA commercial recovery distant and sports is a bad business going off the past decade.
•    Multiple paths to 50% EBITDA growth – strong upside – good business.

Be sure to check out the rest of the Value Investing Congress presentations.

Eric Sprott's Presentation at Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Eric Sprott of Sprott Asset Management who presented "Investment Opportunity of Your Lifetime."


Eric Sprott's Presentation at Value Investing Congress Las Vegas

•    Eric talked about manipulation and various issues – such as high frequency trading and front running. 
•    Gold manipulation – BaFIN the SEC equivalent in Germany said it was going to investigate the London bullion market Association in Nov/Dec 2013. In Jan 2014, they found that manipulation in Gold is WORSE than LIBOR. 
•    Deutsche Bank left the association that day.
•    Gold Fix study by Stein Business School shows signs of decade of bank manipulation.
•    2013 saw 6-8 sigma events a likelihood of one in a quadrillion.
•    Canada shouldn’t sell their gold at these prices.
•    Sprott’s analysis is that western central banks have no gold left. A raid is effected over 1,300 tones leave ETFs.
•    China’s demand is such that it consumes almost all the world’s mine supply.
•    India cooperates with other Central Planners to eliminate gold imports.
•    Gold isn’t a current account item – it’s a capital account item.
•    Who is buying? Iraq, China, Russia, Switzerland is now providing data on monthly shipping and where it is shipped too.


•    Pitched Barrick Gold and Crocodile Gold. At 1,300 gold price, both would earn .71/-.11, at 2,000 per ounce 2.52/.19 and at 2,400 per oz, 3.56/.36. 
•    Current price is 18.60 for Barrick Gold/.19 for Crocodile – price targets range from 94% upside to 1000% upside.
•    Every gold company has a contingent asset not on their balance sheet (assuming he is talking about a potential settlement).

Be sure to check out the rest of the Value Investing Congress presentations.

Daniel Miller's Pitch on Bon-Ton Stores & Rowan: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Daniel Miller of Gabelli's Focus Five Fund.  His presentation entitled "Investing in Conviction" pitched Bon-Ton Stores (BONT) and Rowan (RDC).


Daniel Miller's Value Investing Congress Presentation

•    Concentrated high conviction approach – owns 25 – 35 of the firms best ideas, with the ability to invest 50% of assets in the top 5 positions, however there is a 15% industry cap.
•    Private equity approach attempt to purchase the business at a 30% - 50% belpw PMV. Question to ask, would we want to own this business and could we generate a 25% IRR if they consummated a LBO?
•    Question to ask, why would you want to buy your 60th best idea?
•    Two ideas: both have transitions in regards to mgmt. teams and are niche operators in an environment with larger players. Both have the potential to rapidly grow FCF over the next quarters.


•    Bon-Ton Stores (BONT) is the first idea. $1.1MM EV/ $225MM market cap. Half of the debt is tied to mortgages, and the remainder from a 06 acquisition – primarily low cost.
•    270 locations – primarily in the mid-west. Operates in primarily small and mid-cap communities. •    Hired a new CEO two years ago – has done a good job restructuring and transforming the business. 
•    Currently trades for 5.0x FY2015E EBITDA of $200MM. Think its private market value is 6.5x EBITDA or $23 per share, roughly a double.
•    Why is it cheap? Poor weather as some stores were impacted for 10 – 20 days, and large shareholders like Fidelity sold some shares.
•    CEO does not want to commute from NYC to Milwaukee anymore, will be leaving next year. CFO is talented however.


•    Rowan (RDC) is the next pitch $4B market cap, $5.1B EV.
•    Is an operator of a young fleet of specialized jackups.
•    Went through a recent transformation.
•    Generates strong cash flow, believes they will generate $4 in earnings by FY15, and $5 or greater in FY16.
•    Why is it cheap? Trades against larger peers with older fleets like Noble, Seadrill, Ensco, etc. – whom which the sell-side is bearish.
•    Should generate ~$1.2B in EBITDA by FY15, apply a 6x multiple and the stock price is implied a $43.5 or 30% upside with no heavy lifting required. Also recently started a dividend.

Be sure to check out the rest of the Value Investing Congress presentations.