Jeff Gundlach: Short Homebuilders (Sohn Conference Presentation)

We're posting up notes from the Sohn Investment Conference in New York, produced in partnership with Bloomberg LINK.  Next up is Jeffrey Gundlach of DoubleLine who argued that housing is declining and said to short homebuilders.


Jeff Gundlach's Sohn Conference Presentation

Pitch: Single Family Housing recovery is not happening.  Household debt fell only because mortgage credit dropped due to default.  Housing market has been supported by a surge in second lien financing and cash transactions.  Cash transactions are 50% of deals, up from 20% in pre-2008.  Existing home sales and new ones are weak. Housing starts have improved, but still below 1M per year.

Housing affordability isn't really that good now if you look at the long-term charts. There are no first-time buyers. Household formation is depressed. Young people are staying with parents much longer and have higher unemployment rates. Student loan debt is higher, another headwind. People moving rate has been in decline for decades. Still 19.4% negative equity nationally.

Generational preference shift - young people prefer to rent. He says home ownership rate will DECLINE further, not rebound like most people think. Says the rest of his career we will NEVER see 1.5M housing starts in a year again. IDEA:  Short XHB. 

Be sure to check out the rest of the presentations from the 2014 Sohn Investment Conference.

Chris Shumway: Short CNH, Long Moody's (Sohn Conference Presentation)

We're posting up notes from the Sohn Investment Conference in New York, produced in partnership with Bloomberg LINK.  Next up is Chris Shumway of Shumway Capital.  He pitched shorting the deliverable forward version of Chinese currency (CNH) and also pitched Moody's (MCO) as a long.


Chris Shumway's Sohn Conference Presentation

Shumway: Was at Tiger until 2002.  Grew funds to $8B, CAGR of 17%.  Now runs his own investments and seeds new funds.  First time speaker. Returned outside money in 2011, time horizon has extended - now does some private investments.

His macro views:  his main concern is if the global economy got going too quickly, inflation could take off which would choke off the whole cycle.  China deflation was good, because it meant the economy could grow, disinflationary for a long time.  Now "it feels a little bit strange out there."  Especially the damage to the growth stocks which have gotten crushed on no short-term valuation support.

Three big areas of concern now:   

1. The Fed.  Yellen dashed hopes of "considerable time" to making it 6 months before taper happens quickly.   

2. Russia.  Putin.  Risks are real.  A big risk, that is mispriced.   

3. China. China growth is slowing. Massive excess credit growth, 11% more than GDP.  Over time, it should be the same.  This is unsustainable.  Non-performing loans have skyrocketed.  Shadow banking is 44% of credit growth.  Much of the projects have no return.


IDEA 1:  Short the CNH. (deliverable forward version of Chinese currency.) Tracks the CNY with very little variation.  They have limited stimulus options left, and they all lead to more non-performing loans. Says GDP is growing 6% and decelerating, not the 7% stated.  Simplest way to fix this is currency devaluation.  Did this in 1994, from 5.5 to 9 CNY to the dollar.


IDEA 2: Moody's.  MCO. Long term after tax returns.  Ratings agency, and Investors Services.  A great business, straightforward story. Global duopoly, with third player Fitch.  Unrated debt costs you 150 bps in yield, costs only 5 bps to get rated.  81% ROE over last 10 years. Moodys covers 95% of the companies, S&Ps covers 92%, Fitch does 50%.

Key: "It's a Bloomberg-like business."  Huge cost to have all the data, and they have it.   Corporate EBITDA growth grows at GDP,4%, pricing 4-6% per year. Europe adds 2-3%.  Get 10-13% revenue grower, with 100bps operating margin expansion.  Gets you operating income growth of 14-17%, 5% buyback, plus dividend gets 19-22% total return. Bear case:     1. Litigation.  6 years since Lehman crisis and still no lawsuit. (S&P had it)     2. Revenue growth rate is decelerating due to tougher comps.   Price target is $143 base, $171 upside.


Be sure to check out the rest of the presentations from the 2014 Sohn Investment Conference.

Michael Novogratz on Brazil: Sohn Conference Presentation

We're posting up notes from the Sohn Investment Conference in New York, produced in partnership with Bloomberg LINK.  Next up is Michael Novogratz of Fortress Investment Group who pitched a contrarian play of going long Brazil.


Michael Novogratz's Sohn Conference Presentation

Wrestled at Princeton (he was one of the people that helped get wrestling back in the olympics), 11 years at GS, was a helicopter pilot.  First time speaker. Spent time discussing the current macro environment.

Says it was partially the bad weather and expects volatility to remain low. Pitch: Long Brazil. It's been hard to make money there for the last 4 years.  Contrarian pitch- "things are so bad, that they are good."

Be sure to check out the rest of the presentations from the 2014 Sohn Investment Conference.

Sohn Investment Contest Winner Michael Guichon: Long Fiat

We're posting up notes from the Sohn Investment Conference in New York, produced in partnership with Bloomberg LINK.  Next up is the winner of the Sohn Investment Contest.  Michael Guichon won.  He's an MBA student at Columbia and he pitched long Fiat.


Michael Guichon's Sohn Conference Presentation

David Einhorn, Bill Ackman, Michael Price, and Seth Klarman were judges. Finalists: Fiat, PENN, Intercontinental Hotel. Winner is 1st year CBS student. 

Fiat. Expected to trade on NYSE in Oct 2014. 90% upside, PT 16.50 euros. FCA: Fiat Chrysler Autos.  EV/EBITDA 3x.  Cheapest automaker in the world.  Also owns Ferrari/Maserati. 

Risk is continued weakness in legacy markets. 6th largest automaker globally. Bought Chrysler in 2009.  Paid $4.4B for a business that generated $3.1B in 2013. Synergies, common components, scale for R&D.

Be sure to check out the rest of the presentations from the 2014 Sohn Investment Conference.

Viking Global Almost Doubles ACADIA Pharmaceuticals Stake

Andreas Halvorsen's hedge fund firm Viking Global has just filed a 13G with the SEC regarding shares of ACADIA Pharmaceuticals (ACAD).  Per the filing, Viking has disclosed a 5% ownership stake in ACAD with over 4.95 million shares.

This means they've almost doubled their stake since the end of 2013 when they only owned 2.6 million shares.  The filing was required due to portfolio activity on April 24th.  Thus far this year, Shares traded as high as $32 before sliding down to as low as $15.64.  It currently trades around $20.

Per Google Finance, ACADIA Pharmaceuticals is "biopharmaceutical company focused on small molecule drugs that address unmet medical needs in neurological and related central nervous system disorders. The Company has four product candidates in clinical development led by pimavanserin, which is in Phase III development as a first-in-class treatment for Parkinson's disease psychosis. It holds worldwide commercialization rights to pimavanserin. In addition, the Company has a product candidate in Phase II development for chronic pains and a product candidate in Phase I development for glaucoma, both in collaboration with Allergan, Inc., and a product candidate in Phase I development for schizophrenia in collaboration with Meiji Seika Pharma Co., Ltd. The Company's clinical-stage product candidates include Pimavanserin, Alpha Adrenergic Agonists, Muscarinic Agonist and AM-831."

For more on this hedge fund, check out a rare interview with Andreas Halvorsen on investment process.

Next Wave Sohn Conference Notes: John Khoury, Jason Karp, Nitin Saigal, Ethan Devine, Will Snellings

The 19th annual Sohn Investment Conference in New York, produced in partnership with Bloomberg LINK, has completed and we've posted notes from the event.  This year though the event featured a new addition: Next Wave Sohn.  This mini-conference was held before the main Sohn event and featured emerging managers pitching their latest investment ideas.  Here are those presentations.


Next Wave Sohn Conference Notes 2014


John Khoury. Long Pond Capital 

Idea: American Homes for Rent (AMH).  REIT, buys houses, fixes them up and rents them out.   Debate is whether it is a good business or not. Bears say it is impossible to manage thousands of homes efficiently. Bull case: 95% occupancy, length of stay 2x that of apartments NOI margins at or higher than apartments. Doing securitization now at L+1.66 Levered up- "you want to own an asset when it begins to be securitized."

Currently 2.7% FCF yield, but with 45% net leverage get 7.0% FCF yield. "REITs do not trade at 7% FCF yields."   Apartment REITS trade at 5%, if this gets there, stock has $23 PT, 40% upside. "Free call option" is consolidation, they could roll up other businesses.  Still only 20% of 1% of the total market. $3T market opportunity.  Founder and management own $1B of the stock. Unlevered now, so limited downside if they are wrong.


Jason Karp.  Tourbillon Capital

Idea: Ctrip (CTRP) - Tourbillon: looks for durable themes, ideas that there is a different way to look at it (he's formerly of SAC). Chinese travel one of the highest probability growth themes on the planet. $7.5B market cap, $800M cash,  $48 now, LT price target $115-170.  Trades at 17-25x p/e.

China is largest global spender on international tourism, but low per capita. Thesis is travel spend per person will catch up with other countries. China is only 50% internet penetration, but already has 600M users, double the US population.  If CTRP just holds share, the revenue goes up 7.7x . They have 40% market share now. People always mismodel or underestimate the upside.

In 2009, sell side thought PCLN would do $9.19 eps in 2013, they actually did $41.00. PCLN went from $5.5B to $61.7B, up 10x in 5 years. CTRP is on similar trajectory, but their core market is growing faster.  Controversy: margins have declined because they are investing in their business in a battle with eLong. Mobile room nights went from 0% to 35% since 2012.  Problem is operating margins from 2007-2011 were 40%.  Now in the 20s, but he says it will expand back up since they will not be able to spend so much on the business simply because the topline is so big.


Ethan Devine. Co-PM of Indus Capital

Idea: Goldcrest. Listed in Japan.  Largest condominium developer in Japan. Trades at 0.50x book.  Condos in Tokyo.  Thesis is stock is cheap, despite how hot real estate is in Tokyo.  He focuses on global special situations.


Nitin Saigal. CIO at Kora Management

Idea: Bharti Infratel.  Originally thought it was a great short:  Unattractive Industry, Regulatory uncertainty, hurdles to scale, capital allocation concerns.   Bull case:   There is competition and was overdevelopment in the past, but supply has rationalized. 900M cell phones in India, only 90M smartphones. Data demand story- like the US, China. India just did a spectrum auction.  $7B market cap, 80k towers, 25% market share- has scale- nationwide tower network. Capital allocation has gotten better- dividend payout increased, disclosure better. Costs $50k to build a tower, one tenant 7.5% ROI, 3 tenants $15,500 annual revenue 25% ROIC.  Thinks it should trade  at 330 rupees/share, trades at 6% FCF yield, growing 15% per year, TEV/EBITDA 11X.  Kora is an emerging markets fund, based in NYC, but offices in China, India, and Sao Paolo  


Will Snellings. Founder of Marianas Fund. 

Idea: Jet Blue (JBLU). Two big changes: consolidation- top 5 players control 85% of capacity.  Cost curve shift- Southwest was destabilizing the industry, taking share because they had a cost advantage- which they no longer have. So industry is still below mid-cycle economics. Jet Blue has youngest fleet in industry- 8 years, low cost position and low ticket prices.  Has 7.5% of industry capacity- small enough to grow without disrupting industry stability.  2013: $758M op cash flow vs $4.5B EV, $2.8B market cap.  JBLU has materially underperformed the industry over last 2 years.  He worked at Ospraie while setting up his own fund.  Likes structural changes in businesses that make a bad industry become a very good one.


We've also now posted up notes from the main Sohn conference as well, featuring David Einhorn, Bill Ackman, Paul Tudor Jones and more.  So be sure to check that out as well.

What We're Reading ~ Hedge Fund Links 5/2/14

A glimpse inside the strategies and tactics of 3G Capital [Santangel's Review]

Interview with Sio Capital's Michael Castor [Pension Pulse]

Baupost bets on Spanish real estate [ValueWalk]

Update on Ivory Investment Management [ValueWalk]

Estimates show 90% of hedge funds 'socialize' [All About Alpha]

Ackman's Pershing Square subsidies hint at future moves [Dealbook]

Hedge funds drive to another record [WSJ]

SEC chair: we've found bogus private equity & hedge fund fees [Fortune]

Fidelity's Danoff looks beyond tech stocks [Reuters]

Berkowitz's Fairholme seeks to form trust company [BizJournals]

How hedge funds are pushing companies to leave America [Forbes]

How to revive animal spirits in CEOs [Jeff Ubben]

Pershing Square Exercises Allergan Options, Acquires Voting Securities

Bill Ackman's hedge fund firm Pershing Square Capital Management today filed an amended 13D with the SEC regarding their new stake in Allergan (AGN).  Per the filing, Pershing Square notes early termination of the waiting period under the Hart-Scott-Rodino Antitrust Act was amended and granted with respect to Pershing's shares.

As such, Pershing exercised their call options to purchase 24,831,107 shares of AGN.  The purpose of this transaction was to acquire voting securities of the issuer.

Ackman has been working with Valeant Pharmaceuticals (VRX) to acquire AGN.  Allergan, however, has apparently been exploring a sale to Sanofi as well as Johnson & Johnson, according to Bloomberg.

You can view other recent portfolio activity from Pershing Square here.

Third Point on Dow Chemical, IHI Corp & SoftBank: Q1 Letter

Daniel Loeb's hedge fund firm Third Point is out with its first quarter letter to investors.  In it,they detail their position in Dow Chemical (DOW) in-depth.  Instead of summarizing it, we'll let you read the full pitch in the letter below.  They also touch on a Japanese midcap: IHI Corp.

Additionally, Third Point updates its stake on Softbank.  They feel the decline in shares this year was unwarranted and write,

"SoftBank is witnessing substantial growth in underlying asset value, de-levering via the Yahoo! Japan transaction, and poised to drive further de-levering and free cash flow growth in SoftBank Mobile.  It currently trades at a 23% NAV discount to consensus estimates of value.  Alternatively, valuing SoftBank Mobile on a P/FCF methodology suggests SoftBank is trading at a 45% discount.  The discrepancy lies in the fact that the EV/EBITDA approach understates SoftBank Mobile's high free cash flow conversion and low cost of capital.  These discounts are clearly unwarranted.  We anticipate SoftBank's NAV will post continued growth and shrink this discount as management's strategy comes into further focus and transparency around underlying assets (particularly Alibaba) improves."

Embedded below is Third Point's Q1 letter:




You can download a .pdf copy here.

Trian Partners on Ingersoll Rand: Q1 Letter

Nelson Peltz's investment firm Trian Partners is out with its first quarter letter.  In it, we learn that they've turned over their portfolio a bit at the start of 2014.

They cut stakes in Allegion and Wendy's.  Trian also revealed that they've initiated a brand new position that's around 11% of NAV. 

They did not disclose the name of the company, though it sounds like they'll be coming public with the name at some point.  They describe the position as follows: "We believe the company has an attractive business model and secular tailwinds that could propel its already strong market shares.  However, (the stock) has underperformed its peer group as it relates to EPS growth, total shareholder return and margins."


Trian on Ingersoll Rand (IR): Q1 Letter

In other recent activity from this firm, we highlighted how Trian boosted its Ingersoll Rand stake.  Their Q1 letter talks about their IR stake:

"We have advocated in prior letters that the separation of IR’s Security division (Allegion plc) would better allow management to focus on the margin opportunity at its remaining Climate and Industrial segments. IR’s Climate Segment, which is 75% of total revenue, achieved just under an 8.5% EBIT margin in 2013 – well below UTX’s 15% EBIT margin in its comparable Climate, Controls, & Security division. Similarly, IR’s Industrial Segment, 25% of total revenue, achieved only a 14% EBIT margin in 2013 – well below Atlas Copco’s comparable Industrial & Compressor Technique segments. We believe that as a more focused company, IR will be better able to reduce the margin gap with its closest peers and drive high-teens EPS growth. IR management believes in the outsized earnings growth potential of the business and has guided to 85 to 100 basis points of annual margin improvement and a 15-20% EPS CAGR through 2016. At a valuation of 17.5x’s 2014 earnings, in line with the large-cap U.S. Multi-Industrial peers, we believe investors receive attractive earnings growth, commercial construction exposure, and a strategically valuable Irish tax domiciliation for no additional premium to peers. Going forward, we remain optimistic that management will continue to grow earnings. In fact, during 2013, segment level margins for Climate and Industrial increased 90   basis points year-over-year despite mixed end market growth and an organizational focus on completing the spin. On February 11, 2014, the company reported fourth quarter results and issued guidance for FY 2014. Guidance called for 3-4% revenue growth and a 14-20% increase in EPS despite the tax rate increasing from 15% to 25%. Furthermore, the Board initiated a new $1.5 billion share repurchase program and a 19% increase to its quarterly dividend. On April 23, 2014, IR released first quarter earnings which exhibited solid 4% organic revenue growth and a 13% increase in consolidated operating profits. Furthermore, management maintained the guidance on the year while issuing second quarter guidance above Wall Street consensus estimates. We remain optimistic that continued margin improvements, recovering end markets, and capital return will drive outsized shareholder returns from today’s trading levels.

On March 31, 2014, Nelson informed IR that he had decided not to stand for re-election as an   IR board director when his current term expires on June 5, 2014 due to other board commitments. Nelson joined the IR board in August 2012. IR expressed to us that Nelson is a valued member of the IR board and expressed its appreciation for his contributions and service to the company. Trian continues to be a large shareholder and is very supportive of IR’s progress and plans to enhance shareholder value, as detailed above."

For more from this firm, head to Nelson Peltz's presentation on Mondelez.

Corsair Capital's Pitch on Orora Limited: Q1 Letter

Jay Petschek and Steven Major's hedge fund firm Corsair Capital is out with its first quarter letter.  In it, they pitch Orora Limited.

Their thesis is that this is a spinoff that hasn't seen much attention and could have as much as 75% upside.  The company is a bottler of wines in Australia and New Zealand with large market share.  They also are the top local producer of aluminum cans for beverages.

Via cost cuts and new capacity, Corsair sees the company's cashflow increasing over the next few years.

Embedded below is Corsair's Capital's Q1 letter:




For more from this hedge fund, we've also posted Corsair's thesis on Alere.

What We're Reading ~ 4/30/14

Why it's hard to win in investing [Aleph Blog]

On the flaws of human intuition [Abnormal Returns]

The importance of pricing power [Base Hit Investing]

The greatest predictor of future market returns [Philosophical Economics]

Google: The untold story of Larry Page's incredible comeback [Business Insider]

Jim Grant's case against Valeant Pharmaceuticals [Business in Canada]

An updated pitch on AIG [Barrons]

A look at Liberty Media [Weitz Investments]

Michael Kors and Kate Spade go head to head [CNBC]

Why the housing market is stalling the economy [NYTimes]

On China's economy [Economist]

Solar power burns old utilities' business models [Daily Beast]

On tech investing [Dasan]

Spain: where deflation becomes good news for headline GDP [Fistful of Euros]

Reining in predatory schools [NYTimes]

Joe Nocera on Warren Buffett [NYTimes]

Pershing Square Trims Canadian Pacific Stake

Bill Ackman's hedge fund firm Pershing Square Capital Management has filed an amended 13D with the SEC indicating they've trimmed their stake in Canadian Pacific Railway (CP).

Per the filing, Pershing now owns 8% of the company with over 13.9 million shares.  This is a decrease of over 3.2 million shares since their last disclosure at the end of 2013. 

The latest filing was due to activity on April 28th and indicates they sold at $149.75.  CP has been a big winner for Pershing so it appears as though they're simply locking in some profits.

In other recent activity, Ackman has also built a new Allergan stake.

Per Google Finance, Canadian Pacific is "has 14,700-mile network serving the principal business centres of Canada, from Montreal to Vancouver, British Columbia and the United States Midwest and Northeast regions. Its network is consisted of four primary corridors: Western, Eastern, Central and the Northeast the United States."

Hound Partners Boosts Tesoro Holdings

Johnathan Auerbach's hedge fund firm Hound Partners has filed a 13G with the SEC regarding their position in Tesoro (TSO).  Per the filing, Hound now owns 7.08% of the company with over 9.3 million shares.

This is a sizable increase of over 7.8 million shares since their last disclosure from the end of 2013.  The filing was required due to activity on January 24th.

You can view Hound Partners' other recent activity here.

Per Google Finance, Tesoro is "an independent petroleum refiners and marketers in the United States. The Company’s subsidiaries, operating through two business segments: manufacture and sell transportation fuels. Its refining operating segment (refining), which operates seven refineries in the western United States, refines crude oil and other feedstocks into transportation fuels, such as gasoline, gasoline blendstocks, jet fuel and diesel fuel, as well as other products, including heavy fuel oils, liquefied petroleum gas, petroleum coke and asphalt."

Lone Pine Capital Restarts Equinix Position

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding shares of Equinix (EQIX).  Per the filing, Lone Pine has revealed a 5.6% ownership stake in EQIX with over 2.77 million shares.  The 13G was filed due to activity on April 17th.

The hedge fund firm had previously held a EQIX stake, but apparently sold out of the position in the fourth quarter of 2013 as it did not appear on their 13F filing that detailed year-end positions.

With the newly filed 13G, Lone Pine is back in the shares again after a brief hiatus.

Coatue Management, longtime holder of EQIX shares, dumped their position in the fourth quarter as well.  This was significant as it had been one of their top holdings.

Other hedge funds have been involved in this name too and we've posted JANA Partners' thesis on EQIX and then SPO Advisory has increased its EQIX stake.

Per Google Finance, Equinix "connects businesses with partners and customers worldwide through a global platform of data centers. The Company connects approximately 4000 customers, across the Americas, Europe, Middle East and Africa (EMEA) and Asia-Pacific. Platform Equinix combines international business exchange (IBX) data centers, a global footprint and ecosystems. The Company offers each customer a choice of business partners and solutions based on their colocation, interconnection and managed IT service needs. Equinix offers customers direct interconnection to an aggregation of bandwidth providers, including the Internet Service Providers (ISPs), broadband access networks and international carriers. Its customers include carriers and other bandwidth providers, cloud and information technology services providers, content providers, financial companies and global enterprises."

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

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!