Notes From Berkshire Hathaway's Annual Meeting 2014

Berkshire Hathaway's 2014 annual meeting has come and gone.  While many of you have undoubtedly already read synopses of the event, here's a set of detailed notes for a further glimpse into the minds of Warren Buffett and Charlie Munger.


Berkshire Hathaway Annual Meeting 2014 Notes

The meeting started out with Warren Buffett (WB) discussing the results from the first quarter.  $77B in float.  Insurance business is great.  Insurance earnings dragged down operating income, but a lot of that was foreign exchange.

Resolutions for dividend. 97% of the 'A' share voted against with 1% voting for.  Almost the exact percentages of the 'B' shares as well, 97% to 2%.  Almost as many people voted for WB as they voted not to put a dividend in place.


Q&A Session

Carol Loomis (CL) -  Coke vote on compensation.  Why did he handle it the way he did?

WB - Thought he handled in the most effective way.  Does not like the plan, but also does not want to fight with Coke.  Also, doesn't know David Winters, disagrees with some of the calcs from Winters.

Charlie Munger (CM) - Warren handled it well.

WB - CM still Vice Chairman.  If 50M shares at $40 are granted, and then exercised at $60 per share, then that is $10B in comp.  The proceeds plus the tax benefits are used to buy shares back.  

 

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Jonahthan Brandt (JB) - Is there a way to use 3G (given that they are so good as an operator) to manage subsidiaries or hire 3G alumni?

WB - Doesn't think the two fit too well.  Likes to partner with 3G.  Great partners.  Never had rules for subsidiaries regarding headcount.  Leads by example.

 

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Shareholder Question (SH) - The shareholder asked a long question about Obama and WB trying to change policy.

WB - Disagrees with a lot of that question.  Business is doing well.  Corporate taxes as a percentage of GDP are down a lot over the past 50 years.  Return on tangible assets very high in the US.  Corporate taxes are much lower than they've historically been.

CM - I'll avoid this one.

 

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Becky Quick (BQ) - Returns relative to 5 year S&P500, WB had said that when Berkshire fell behind those, then things would need to change.  Well, Berkshire underperformed the S&P500 over the last 5 years.  Thoughts?

WB - They will underperform in strong years, match in normal years, and beat in weak years.  Overall, thinks they will beat over the cycle.

CM - Berkshire's returns are after tax, S&P 500 are pre-tax.  

 

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Jay Gelb (JG) - Question about Berkshire and its discount to Intrinsic Value.

WB - Willing to buy at 120% of Book Value.  If Munger and Buffett both guessed Intrinsic Value, they'd probably be within 5% of eachother, but not 1%.  Lots of businesses are carried at very low book value.

CM - Never want to get stock above IV.  People that want stock high want egg in their beer.  Over long term, system works well.

WB - Using overvalued stock to buy other companies is a strategy that has worked well for others.

 

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Shareholder Question (SH) - Berkshire Hathaway known as buy and hold.  Also M&A usually very good.  What is the trick?

WB - Try to keep the promises and be comfortable about the promises they make.  They take very different approach to the other Private Equity companies.

 

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Andrew Ross Sorkin (AS) - Role in Coke vote vs. steward of culture for Howard Buffett.

WB - Has voted in favor of numerous compensations plans he wasn't crazy about.  Can't remember ever a time a compensation committee has recommended a dissenting vote.  Independent members where you get $300K a year.  They don't look for dobermans, but cockerspaniels.  Non-Exec Chairman is there as a safety valve.  Howard Buffett right for the job.

CM - Gotta pick battles for public disapproval.

WB - If you are in any social organization, if you keep belching at the table, eventually you'll be in the kitchen.

CM - Pleased with how WB has handled things.

 

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Greggory Warren (GW) - Question about BH's cost of capital and ability to exceed it.

WB - Size is an anchor to performance.  Lots of nonsensical cost of capital concepts.

CM - Never heard a sensical one.

WB - Just like CFOs like about cost of capital.  Real question is if retained earnings will exceed "market returns".  Just bought Canadian company for $3B.

CM - Cost of capital means different things to different people.  Likes WB's definition.  We're right and most other people are wrong.

 

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SH - Question about Nebraska Furniture Mart?

WB - Paid 11 or 12 times after tax earnings.  $7M Pretax and $100M in sales.  $4.5M After Tax.  Never asked for an audit.  Asked if she owned the building.  Tuesday sales were larger than monthly sales of RC Wiley in Sacramento.  Texas store 1.8 million square feet and 40 acres will do more sales than any store in the world.

 

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CL - Question about WB's comment about 10% bonds and 90% in index fund. Why wife's trustee vs. BH given he believes BRK will outperform SPY?

WB - Very bullish on BRK.  Allocation is for peace of mind.

CM - WB is peculiar in how he chooses to distribute money.  He can do what he damn well chooses.

 

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JB - Difference between BNSF and Union Pacific?

WB - BNSF has had a lot of service problems.  They spend more than Union Pacific (which also spends a lot).

Matt Rose - Weather had a big impact.  Did 206,000 units in a week.  No rail had ever handled 205,000 in a week.

WB - Thinks BNSF's results will get better.

 

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SH - Question about Natural Gas for utilities.

WB - Largest generator using alternative energy.

Greg Abel - Systems challenged due to weather.  There was enough gas for energy generation and heating homes.  39% of energy in Iowa was renewable / wind.

WB - Gas in Omaha.  Berkshire Hathaway Energy - Named for Mid American.

 

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BQ - Successor for CM?  Charlie is now 90.

WB - Berkshire is better off because of CM with WB.  Big applause.  Not sure anyone could succeed CM.

CM - People don't have anything to worry about.

 

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??? - Question about Matt Rose and WB's succession.

CM - Not worried about successor of WB.

 

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SH - If all net worth had to be invested in one thing, what would it be.

WB - Won't answer that question, CM?

CM - WB gave right answer.

 

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AS - Question about disclosure of compensation for other top paid managers are Berkshire.

WB - Current disclosure of officer compensation is based on SEC rules.  Disclosure of key people sometimes is bad if it is for top TV anchors as an example.  Most at Solomon Brothers not happy because of compensation they compared to others.  Lots of time compensation disclosure is bad for shareholders.

CM - Better of not adding to culture of envy.

 

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GW - Question about cash and acquisitions.

WB - Will always keep at least $20B in cash on hand.  Cash and credit are like oxygen.  You don't notice it until it is gone.

CM - They are better off having outlets for capital investment.

 

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SH - Question about allocation of capital.  Do WB or CM ever fight?

WB - They met at 29 and 35.  Have had lots of disagreements, but not arguments.

CM - Disagreements are good.  WB once called CM the abominable "No" man.

 

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CL - What are BRK's weak points?

WB - Sweep accounts.  Probably lead to better capital allocation.  WB slow to make personnel changes.  Lack of supervision also a weakness, but has benefits.

CM - Doesn't like the sweep idea.  Compares it to giving blood.

WB - No position of General Counsel.  Lots of trust of manager.

 

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JB - See's since 1999 See's growth has stalled.  Grow a lot from '70s to '99.

WB - Boxed chocolates sales are down.  Sees has done a lot other than boxed chocolates.  If they hadn't bought See's they never would have bought Coke.

CM - Ignorance Removal is important.  They still have a lot of ignorance.

 

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SH - Question about Bank of America and the change from cumulative preferred to non-cumulative preferred...was requested by Brian Moynihan...willing to make it non-callable.

WB - Non-call of 6% preferred a good deal.  Non bothered by recent error at BAC.

CM - I agree with you.

 

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BQ - Question on Net Jets.

WB - Small market.  They are biggest.  Have greater than 60% of the market.  Expanding to China.

 

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JG - Potential for using KO or other stock for acquisition.

WB - Unlikely, but possible.

CM - Rail and Utility at BRK is good for investment of extra capital.

WB - Have Todd and Ted, but really want to buy businesses.

 

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SH - Person asking question is an Italian from Genoa.  Question about borrowing money at low rate and investing now while they are able to invest.

WB - Both Rail and Utility could do more with debt.  If they were younger, they'd probably do it.  Good idea.  They'd do it if a deal came along.  Should not have used BRK stock in BNSF.

 

CM - Good idea.  Probably a good idea.

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GW -  Question about Todd and Ted.  How much are each running and where will it be in 5 years?

WB - At $7B now.  They know a lot about business and management.  They are doing lots of other things.  Only grow over time.

CM - Nothing to add.

 

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SH - Question about 0% interest rates.

WB - Very surprised by how well things have gone.  Would like to believe he would have done the same thing given how well they've gone.  Ben Bernanke is a hero.  Surprised by how other members of the fed didn't understand situation.

CM - In Japan no one would have expected low rates in 20 years.  Very confusing to economics professors.  If not confused, then didn't understand.

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CL - Conglomerate model has worked well for BRK, but not lots of others.  What is the future of that for BRK?

WB - Collection of businesses has worked well for America.  Thinks business plan is good.  System for allocating capital.  As if conglomerate is buying using cash or stock.

CM - They have more investment options than others.  Can buy companies, insurance companies, marketable securities, etc.

JB - Forest River vs. Thor for recreational vehicles?

WB - Bought Forest River about 10 years ago.  Pete sold it to PE firm in 90s.  PE firm created hell for him.  He quit, it went BK.  Pete bought it out of BK and sold it to BRK 10 years ago.  WB doesn't know the RV business and no one else at BRK does.  Talks to Pete once every couple years.  His company.  Six IT people.

 

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SH - Question about Oil sands and impact on BRK.

WB - Business in Marmon does business with Oil Sands.  Owns some XOM with business in oil sands.  Also has BNSF moving oil.  Rail moves oil 2x faster than pipelines.  Oil sands are important for mankind over centuries to come.

CM - Economic if NatGas is cheap and oil expensive.

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Before breaking for lunch, Buffett provided an update on the bet he made regarding the performance of the S&P500 relative to a fund of hedge funds.  Buffett is way ahead on bet.

 

 

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2ND HALF
 

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WB - Sent out 11,000 more tickets this year compared to prior year.

BQ - Question about Energy Future Holdings.  Also, other companies in umbrella of similar risk.

WB - He gets credit on Energy Future Holdings.  Business models can be at risk.  Geico - Mail - Phone - Internet.  When change from government employees at one point they almost went broke.

CM - Remove your ignorance, scramble out of mistakes.
 

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JG - Heinz - Normalized Earnings Power and his estimated future earnings.

WB - He will be filing public statements.  Has historically had 15% margins and expects those to go up over time.
 

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SH - Expand on thoughts of investment opportunity.  Why buy some companies vs others?  Example, ones he bought vs. KO or Moody's.

WB - Bought a bit early in Fall of 2008 vs. early 2009.  Did reasonably well overall.  Plus they did get BNSF in Fall of 2009.  Want to buy good businesses for reasonable prices over time.

CM - Private businesses more ideal target than stocks, and guesses that will continue, right Warren?

 

WB - Yes.

CM - Love buying transmission lines in Alberta.  Have to adapt to BRK.

WB - Have bought a fair amount of Wells Fargo last couple years.  Weak banks have bounced back the most.

 

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AS - Geico and usage based pricing and impact on auto industry and Geico.  Also, self-driving cars.  Would you sell Geico if need for auto insurance went away?

WB - Won't sell.  Underwriting in auto a bit different than life.  Different variables.  Feels very good about Geico, the management, and ability to manage risk.  Self-Driving cars will be good for society and bad for auto insurers.

CM - Things can take long time.  Example is movies on demand.  Thinks self-driving cars will take a while.
 

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GW - Why not many foreign acquisitions?

WB - No preference for US businesses, but that seems to be where the deals are coming from.  More recognition in the US.  Some awareness.  Lots of great things to say about Iscar.  April had record sales.

 

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SH - Circle of competency.  How does one know what their circle of competency is?

WB - Good question.  Need to be self-realistic.  Was out of his circle of competency when he bought Berkshire Hathaway.  Has also stretched in the area of retail.  Ms. B (of Nebraska Furniture Mart) didn't take BRK stock because it wasn't in her circle of competency.  Her areas were cash, retail, and real estate.

CM - Not that different.  Someone that's 5'2" probably isn't going to be great at basketball and someone that's 350 pounds probably not going to be great at ballet.  95 year old probably not going to get the leading role in a romantic movie.  Circle of competence can be a relative concept.  I need to compete against idiots and there's a large supply.

 

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CL - Question about the logic of comparing the annual change in Berkshire's Book Value vs. S&P 500.

CM - (Charlie interrupted Buffett from answering) - Doesn't make any sense.  It's insane and doesn't make sense, but WB likes impossible challenges.

WB - Given that wishy washy answer, Buffett won't add to it.
 

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JB - Question about Prices on Marmon and Iscar.

WB - Iscar was 80% then put the rest.  Marmon was an installment sale with 64% was first, then 36% was 2nd and 3rd installment.

CM - Price went up as value went up.

WB - With both transactions, all feelings are good.

 

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SH - What non-tech thing would you do if you were 23?

WB - I'd probably do what I did, go into investment business.  One question he'd ask if they had to put all money in one business (not their own) for 10 years, what would it be?

CM - Larry Bird trick - asked every agent, if I don't go with you, who's the 2nd best I'd go with?

 

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BQ - Capitalism vs. Rooms given his comments about people using AirBnB.

WB - Omaha can't size itself to the event.  Doesn't like 3-day minimum rule.

CM - Nothing to add.

 

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JG - Question about Geico.  Allstate's share = 10%, State Farm's = 19%.

WB - Passing Allstate this year.  State Farm is a great company.  Recommends "The Farmer from Merna".  Says he thinks Geico will be number one by time he's 100.  Tells Geico he'll do his part.

CM - Geico is like Costco in that cost is part of its soul.  Easy to talk the game, but they can back it up.

 

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SH - Question about frugality.

CM - WB is frugal.  Doesn't like to spend money.

WB - Bought house in 1958.  CM bought his in 1960.  Life would be worse with more.  At certain point there is inverse correlation.

 

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AR - Berkshire paid $8.9B in taxes last year.  Pfizer is looking at offshoring for taxes.  Thoughts?

WB - Wouldn't do it.

CM - It'd be crazy.

WB - Tries to minimize taxes, low cost housing, tax breaks on energy.

 

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GW - Union Pacific moving freight to Mexico, thoughts relative to BNSF?

WB - UP has edge in Mexico.  KSU has good presence in Mexico, but also good prospects elsewhere.
 

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SH - Intrinsic value difference and what are competitors to Berkshire?

WB - Intrinsic value is present value of all future cash.  Aesop bird in the hand is equal to two birds in a bush.  Sees no competition to Berkshire.

CM - Too tough to replicate and no one teaches it.
 

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CL - Question about inflation from Goodhaven.

WB - Berkshire would be worse off.  EPS would go up.  Intrinsic value would go up in dollar terms.
 

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JG - Question about acquisitions.

CM - Sum return of all deals is bad.  We are peculiar, but most don't want to be like us.

WB - Having a corporate acquisition team is bad because they always want to do acquisitions.

 

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SH - Question about too big to fail.

CM - Thinks the crisis has improved things dramatically, but there will always be problems.  Criminal prosecution of individuals does change behavior.

WB - Like prosecutions of individuals more than prosecutions of corporations.  Corporation is just going to write a check.  There will be problems from time to time.  At BRK, there are 300,000 employees.  He's sure there is someone doing something they shouldn't be.

 

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BQ - Question about serious rail accident and insurance for major accident.

WB - Ajit has offered to provide insurance, Matt Rose has proposed it.

CM - BP was the big surprise.  No one imagined that could happen.

 

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JG - Question about insurance (P&C, Specialty Lines).

WB - BRK has competitive advantages (people, capital, ratings, underwriting).

 

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SH - Any plans to buy sports team or manufacturers?

WB - Owns 1/4 of minor league team.  If you ever hear they are looking to buy another team, it is time to consider a successor).  Guard companies at airports should be owned by people without deep pockets.

CM - Whatever WB thinks of sports teams, CM thinks less.

 

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AS - Question about Ackman on recent transaction where he partnered with acquirer.

WB - Scares corps.  Can be good when managements need to be changed.

 

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GW - Question about cash and acquisitions.

WB - Love to buy company for 2 or 3 billion.  Prefers one 30 billion dollar deal over smaller deals.

 

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SH - What was the best question?

CM - Best was about Berkshire Book Value compared to S&P Performance.

WB - No answer.

 

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SH - Question about Mid American and Ebit + Depreciation - CapEx...resulting in negative return?

WB - Doing great with tangible assets.  Investment is available for more capital as long as regulators allow for  rates.  Plus their rates are generally more competitive.

CM - I agree.

 

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SH - Thoughts on education market in US and China in the future.

CM - We are getting the easy questions now.

 

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SH - Question about housing reform and GSEs

WB - 30 Year mortgage is good for homeowners.  Private industry can't do it alone.  Issue is how do you keep government in without it getting to be political.

 

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SH - Comment by Whitney Tilson about the Brazilian Partners.  Question was will Berkshire be able to get special deals once Buffett is gone (i.e. will the stamp of approval go away when Buffett is gone).

WB - Buffett name will be the Berkshire name.

CM - Good partners get good partners.  Success of Jorge Paulo.  Good at cost cutting.  Thinks cost cutting is good.

 

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SH - From Taiwan, named son after Warren Buffett.  If BRK doubles and then doubles market cap will be $1.2T.

WB - Depending on price, buybacks might make sense.  Will have excess cash issue.

CM - Not a tragedy to have that problem.

 

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SH - Question about AirBnB and Uber.

WB - Things are changing, stays away for investment purposes.

CM - Very disruptive.

 

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SH - Question about whether financial education should be taught in schools.

WB - Earlier the better, very important for good financial habits.

CM - Fault goes to parents.  Very hard to fix people with bad parents.  Lots of problems with college business schools and economics departments.

 

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SH - Question about dividend and breaking company into four parts.

WB - The company is much better and stronger as a whole than broken up.

 

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THE END

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What We're Reading ~ Hedge Fund Links 6/6/14

Hedge fund AUM hits $2.9 trillion [FINalternatives]

The hedge fund fee conundrum [All About Alpha]

Carl Icahn acquired Fannie/Freddie shares from Fairholme [Reuters]

Marcato Capital sends letter to American Realty Capital [Yahoo Finance]

Profile of David Abrams (ex-Baupost) [WSJ]

Want to work at a hedge fund? Go to these schools [CNBC]

Hedge fund cover without the hedge fund fees [Bloomberg]

The mysterious power pulling strings on Wall Street [Guardian]

In defense of hedge funds [Guardian]

Hedge fund replication: is it right for you? [P&I]

50 stocks most loved by hedge funds [WSJ]

The $13 billion mystery angels [BusinessWeek]

Icahn's son Brett setting up a hedge fund [WSJ]

What We're Reading ~ Analytical Links 6/4/14

Q&A with Alice Schroeder, author of The Snowball, book on Warren Buffett [Reddit]

For great returns, follow the cash [Millennial Invest]

Does value investing work in the tech sector? [Alpha Architect]

A lifelong pursuit of investment knowledge [Abnormal Returns]

On the importance of ROIC [Base Hit Investing]

Mauboussin on dividends and buybacks [Credit Suisse]

The demise of set-top box makers [BuysideNotes]

E-commerce is a bear - what one entrepreneur learned building [Medium]

Beware of emotions when investing [Investors]

Confessions of a former analyst [LinkedIn]

It's activists, not Buffett who can change corporate America [Dealbook]

Deciphering the economics of venture capital [TechCrunch]

What We're Reading ~ Hedge Fund Links 5/30/14

Baupost Group looks to real estate, Greek bank warrants [ValueWalk]

David Einhorn's comments at Greenlight Re investor day [Santangels Review]

Lee Cooperman's presentation why equities are the place to be [ValueWalk]

Top 500 hedge funds control 99% of industry assets [Reuters]

Interview with JANA's Barry Rosenstein [Barrons]

The rise of David Tepper [Marketwatch]

Hedge funds haunted by deflation spectre [FT]

Marcato Capital urges Intercontinental Hotels to pursue merger [Dealbook]

How do hedge funds get away with it? [New Yorker]

3 reasons the New Yorker is wrong about hedge funds [Forbes]

What to expect from a hedge fund [WSJ]

Hedge funds won't make you rich [Bloomberg]

Hedge funds' investing prowess doesn't live up to billing [WSJ]

How Athenahealth's CEO met his short-seller (Einhorn) [Fortune]

Ackman said to plan public hedge fund in London [Dealbook]

Woodbine Capital said to return client money [Bloomberg]

CQS' Hintze warns on market volatility [WSJ]

The trade of the century: when George Soros broke the British Pound [Priceonomics]

Tiger Global Exits Carter's Stake

Chase Coleman and Feroz Dewan's hedge fund Tiger Global has filed an amended 13G with the SEC regarding shares of Carter's (CRI).  Per the filing, Tiger Global has completely exited its stake and no longer owns any shares.

The filing was made due to activity on May 23rd.  The hedge fund had previously owned over 6.4 million shares and it had been a longstanding position.  Some hedge funds had been concerned with product cost inflation and the potential impact on gross margins this year.

Hedge funds that owned sizable CRI stakes as of the end of Q1 include Hound Partners, Pennant Capital, Glenview Capital, and White Elm Capital.

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

Per Google Finance, Carter's is "a branded marketer of apparel for babies and young children in the United States. The Company owns two brand names in the children’s apparel industry, Carter’s and OshKosh. Its Carter’s brand provides apparel for children sizes ranging from newborn to seven. OshKosh brand provides its line of apparel for children sizes newborn to 12. Its Carter’s, OshKosh, and related brands are sold to national department stores, chain and specialty stores and discount retailers."

Baupost Group Added to Vivendi Position

Seth Klarman's investment firm Baupost Group has added to its holding in Paris listed media company Vivendi (PAR:VIV).  Vivendi recently published the final version of its 2013 annual report which shows that during 2013 Baupost increased its holding from 1.38% to 2.0% (or 18.2 million to 26.8 million shares).

This newly updated shareholder information was correct as of December 31st, 2013 but unfortunately there's no clarity as to what they might have done with their stake since then (if anything).

Baupost have held a stake in Vivendi since 2011/2012 with a 2.04% stake.  By the end of 2012 they had trimmed the position down to 1.38% and now they've built it up again.

London Value Investor Conference Notes 2014: Morfit, Hawkins, Yacktman & More

Today we're pleased to present notes from the London Value Investor Conference 2014 that just took place benefiting School Aid to improve the quality of education in Africa.  Enjoy! 


Mason Morfit – ValueAct

Mason Morfit is a partner with activist manager ValueAct Capital.  ValueAct has held 75 core investments since inception in 2000.  Roughly half of these core investments (37) have resulted in a board seat. Unusually in the activist world, 36 of the 37 board positions have come via invitation rather than a proxy contest.  Mason Morfit has recently resigned his seat on the board at Valeant Pharmaceuticals.  Valeant was the highest returning investment in ValueAct’s history. 

Morfit is now focusing his energy on Microsoft where he took up a board seat earlier this year. The networks that ValueAct has built up over the years by sitting on boards has been a major contributor to their success.  Morfit said that gaining the Microsoft board seat while owning a relatively small amount of the company’s equity was the culmination of this work.  He mentioned that their contacts with people at Seagate and AT&T were particularly important in landing the seat. Interestingly, Morfit talked about ValueAct’s investment in Adobe which they started in 2011. Morfit seemed to suggest that there were similarities between the Adobe and Microsoft cases.  ValueAct has had success at Adobe partly due to the introduction of annual subscription charges for its leading software, Photoshop.  Is it possible that the subscription model could be pursued at Microsoft with, for example, Microsoft Office?

Executive compensation is a very important lever for ValueAct. Morfit said that their research shows that executive pay is not well connected to company performance. One of the key strategies they pursue is to put pressure on companies to directly tie CEO pay to shareholder returns. ValueAct are happy for CEO’s to receive high levels of compensation for high shareholder returns but they should only receive small sums for average and poor shareholder returns. ValueAct prefer CEO’s to own a significant amount of the company’s stock and in the Valeant case they succeeded in getting CEO, Michael Pearson, to borrow money to buy Valeant shares.

Another interesting fact that came out of Morfit’s presentation was that whilst he thinks the activist space is getting very crowed at present they have only bumped into another activist once and that was recently with Carl Icahn at Ebay.  ValueAct subsequently sold their stock quickly and moved on.

Morfit said that the UK offers a very good environment for activists to operate in as there are no regulations against large investors talking to one another. In the past, ValueAct has been involved with Misys and Invensys in the UK.  He admitted that they find mainland Europe a harder nut to crack but that he expects them to do more work there during the next ten years.

For more from ValueAct, we've previously posted Morfit's lectures on activist investing.


Mason Hawkins – Southeastern Asset Management 

Mason Hawkins said that if you want to outperform you must invest in companies with good leadership.  Finding high quality partners is even more important now that there is less value in the market.  He finds it relatively easy to identify investments at a good price but picking great business leaders is harder. Getting the people right is the hardest part.  He recommended William Thorndike’s book the “The Outsiders” as an excellent guide to how to identify successful CEOs. 

He pointed out that Southeastern has sometimes misjudged managements and in those cases they are prepared to get involved to put things right.  Southeastern has taken an activist stance many times over the years, filing twenty four 13Ds.  In the last year alone it has been involved in activist campaigns with four companies in the US: Level 3, ACS Group, Texas Instruments and Chesapeake Energy. In the previous year they were involved in gruelling battles with Dell and Olympus in Japan. 


Donald Yacktman – Yacktman Asset Management 

Perhaps the biggest piece of news from Don Yacktman was that during the Q&A he said they had recently been out buying Samsung Electronics.  He said the stock is currently very cheap. Yacktman talked about valuing stocks as bonds, a subject he has covered before. He sees value as a function of future cash flows. His funds like to invest in predictable businesses as this allow them to more accurately project cash flows into the future.  They like high returns on tangible assets at a reasonable price. Another interesting snippet from Yacktman was that they always vote against stock options as remuneration for management. 


David Samra – Artisan Partners 

Samra said that it is hard to find good ideas at the moment and that his best idea and largest holding was cash. Long Compass Group (LON:CPG). The company has a dominant position in the contract food and support services market. Great management, good growth, potential margin upside. They bought in 2009 at 11x earnings. Compass now trades at 19x earnings.

Long Samsung Electronics.  Samra said that he thought that Samsung was cheap compared to US companies like Apple.  Samsung is trading on a PE of 6.6 with a strong balance sheet and lots of cash. He likes the management team and is not worried that the company is family controlled.

Long Aker Solutions (OSL:AKVER). An oil services company which is going through restructuring. Sells for 0.6 of 2013 revenues and 11.6x 2013 operating income. The company is protected by entry barriers.

Long Chubb Corporation (NYQ:CB). A property and casualty insurer with low leverage, disciplined underwriting and a good track record over time.  It trades at 1.5 book value and 2013 10.7x PE.  It should trade at x2 book value. 


Aled Smith – M&G Investments 

Long: Ingredion (NYSE:INGR) Ex-quant, Aled Smith argued that the secret sauce for stock picking is not to be found in numbers and spreadsheets but in the qualitative aspects of today’s complex businesses.   He pitched Ingredion, formerly Corn Products International, a global manufacturer and supplier of starch and sweetener ingredients to food and beverage producers. Smith particularly rates the CEO, Ilene Gordon who he argues has increased innovation, cut waste, reduced injuries and introduced a continuous improvement culture. Ingredion is moving away from sugar to higher value added products.  Smith also likes the oligopolistic qualities of the business.  M&G own 1m shares which they purchased in March this year. 


Tim Hartch – Brown Brothers Harriman 

Tim Hartch focuses on high quality and resilient businesses with a durable competitive advantage. He requires a margin of safety in the region of 75% of intrinsic value.

Long: Zoetis (NYSE:ZTS) Zoetis was spun out of Pfizer in early 2013. Hartch purchased shares in Q1 2014 between $28-30. He values the company in the low $40s.  Zoetis is the world’s leading animal health company. They sell products to poultry farmers, ranchers, vets and cat and dog owners.  Sales relating to livestock account for 65% of the business whilst the animal companion market accounts for 35%. The pet and livestock market is growing driven by global population growth and growing global wealth. Unlike human health care, governments are not exerting downward pressure on costs. The customer base is loyal. Zoetis has the largest R&D budget in animal health. The company is diversified with over 300 different medicines, vaccines and services and is not dependent on a few big drugs. 

Long: Svenska Handlesbanken (Sweden).  This is a Swedish based bank that provides services for private and corporate customers.  The bank has been run conservatively and had a good financial crisis. Hartch likes the simplicity of the way they do business.  They make money from traditional banking. Local managers operate what they refer to as the 2church tower model “ where  local managers get to know their local clients.  Most Swedish towns have a church with a tower and the idea is the bank only serves the local community that can be seen by climbing to the top of the tower. Despite the traditional approach, Svenska Handlesbanken has the highest return on capital amongst banks in Sweden. Unusually, the bank does not pay bonuses but instead staff are rewarded via promotion. Capital ratios are good. The bank has entered the UK market over the last 12 years, opening 25-30 branches per year and now has 170 branches in total. Many customers in the UK are dissatisfied with the performance of British banks and Hartch thinks that the UK could become Svenska Handlesbanken’s most profitable market.


Andrew Cormie – Eastspring Investments 

Andrew Cormie argued that Asia Pacific region (excluding Japan) is currently cheap at 1.6x price/book.  He noted that historically when Asian markets have been priced this way returns have been positive over a one, three and five year time horizon.  Long: Bank of China (BoC) and Noble Group (Singapore) 


Philip Best & Marc Saint John Webb – Argos Investment Managers 

Best and Webb are deep value, Graham and Dodd style managers that specialise in buying things that most fund managers would not touch. Since inception in Dec 2007 they have returned 331% compared to the Euromoney European Smaller Companies index return of 192%  They like small, illiquid stocks, family owed stocks, orphan stocks, failed IPOs, fallen angels (once high flying growth companies that have fallen to earth and become hated).  They are not necessarily afraid of value traps and actively look for situations that make other investors fearful. Long: Donegal  Investment Group (Ireland); Camellia (LON:CAM); Les Nouveaux Constructeurs (France); Biesse (Italy); Hochdorf (Switzerland). 


Jonathan Mills – Metropolis Capital 

Jonathan Mills said that he agrees with Warren Buffett that it is better to buy a great business at a reasonable price but in the current market he is finding it a challenge to identify wide moat businesses with a margin of safety. Mills' answer to the problem is to consider a narrow moat business if it is what he calls “owner occupied”.

An owner occupied company is one where the founder has a significant ownership stake. Mills said that public markets do not distinguish between companies that are owner occupied and those that are not.  Yet a study by Bain & Co has shown that between 2002 and 2012 companies with founder traits outperformed the S&P 500 by three times. Mills says that founders tend to have long time horizons, be good capital allocators, are customer focused, restless innovators and keep costs down.

Long: Admiral Group (LON:ADM).  Admiral floated in 2004 and the founders Henry Engelhardt and David Stevens are still there. Since the IPO it has paid out dividends of over £1.4bn (current dividend yield 7%).  Admiral uses a capital light model and therefore should not be valued on book.  It is trading at 2013 13x PE – at the lower end of range for Admiral historically. 


Andrew Hollingworth – HollAnd Advisors 

Long: Buckle( NAS:BKE). Buckle is a retailer of casual apparel, footwear, and accessories. Return on Net Tangible Assets, last ten years avg 47%. Sales per share growth last 10 years 10.2% compounded. Management shareholding approx. 40%. Around 90% of net income has been returned to shareholders in the last 4 years. All growth has been organic (no acquisitions). 2013 13.4x PE. EV/EBIT 7.8x.  Eleven analysts cover the stock but there are no buy ratings at the moment. 


Charles Heenan – Kennox Strategic Value 

Long: Fujikon Industrial Holdings (Hong Kong).  Founded in 1983.  Heenan likes to see a long-term track record. Fujikon is primarily a manufacturer of headphones and headsets. Historic yield of 10%.  Strong balance sheet, 50% cash holding and no debt. In terms of historic PE values Fujikon has a 5 year average PE 11x and 10 yr average of 9x.  2014 10.13x PE. 


This concludes the notes from the London Value Investor Conference 2014.  If you missed it, we've also posted up notes from the Sohn Conference, that took place recently as well as the Next Wave Sohn Conference.

See What Top Hedge Funds Have Been Buying: New Q1 Issue Released Today

The brand new Q1 2014 issue of our premium publication, Hedge Fund Wisdom, was just released today.  Subscribers please login at www.hedgefundwisdom.com to download it.


Inside The New Issue

- The latest portfolios of 25 top hedge funds:  See the latest positions from David Tepper, Steve Mandel, Seth Klarman, John Paulson, and many more.

- In-depth equity analysis of 2 stocks:  Hedge funds bet big on these 2 stocks recently. Play catch-up quickly with detailed bull and bear case analysis.

- New consensus buy/sell section: Top 5 new buys, top 5 sells, top 5 additions, top 5 reductions.  Each list shows the most popular stocks among top managers.

- Expert commentary on each fund's moves:  We've been tracking these funds for over 6 years and explain the quick thesis behind some more of their trades.

- 1 convenient document (93 pages):  All the latest hedge fund data aggregated in one place to save you time. Search the PDF for your favorite manager or stocks with ease.



To Read The New Issue, Sign Up Below

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

Quarterly Subscription: $89.99 per quarter

Want to pay by check or soft dollar account?  Email us: info@hedgefundwisdom.com

Capitalize For Kids Investors Conference in Toronto: Ainslie, Lasry, Robbins, Dinan & More

Today we're proud to introduce the Capitalize for Kids Investors Conference that will take place October 23-24 at Arcadian Court in Toronto, Canada.  This is the first major conference of its kind in Canada so it's a great opportunity for those of you based there.

Their goal is to annually raise over $1 million for the Hospital for Sick Children.  This year they'll be raising capital for the Centre for Brain and Mental Health.  To learn more about the conference, head to the Capitalize for Kids website.


Speakers List

- Lee Ainslie, Maverick Capital
- Marc Lasry, Avenue Capital
- Larry Robbins, Glenview Capital
- Jamie Dinan, York Capital
- Jeff Smith, Starboard Value
- Steve Shapiro, GoldenTree Asset Management
- Jody LaNasa, Serengeti Asset Management
- Jacob Doft, Highline Capital
- Michael Thompson, BHR Capital
- Brian Zied, Charter Bridge Capital
- Frank Brosens, Taconic Capital
- Evan Vanderveer, Vanshap Capital
- Jeff Hales, Alignvest Capital
- Scott Ferguson, Sachem Head Capital
- Chuck Akre, Akre Capital
- Guy Gottfried, Rational Capital
- Sahm Adrangi, Kerrisdale Capital
- John Thiessen, Vertex One

As you can see, this event is absolutely loaded with quality speakers in order to benefit the Hospital.  In addition to the conference, if you join the cause you will also receive actionable investment ideas from several research partners throughout the year.  They include Horizon Kinetics, Veritas Investment Research, Voyant Advisors and many more.

Embedded below is the flyer for the event:



To hear investment ideas from these hedge fund managers, register for the event by clicking here. It should be a great conference benefiting a great cause.

NYU Stern Evaluation Investment Newsletter: Marc Lasry Interview

NYU Stern's student-run investment newsletter Evaluation is out with its second issue.  This time around, they focus on distressed investing with interviews with Avenue Capital's Marc Lasry, as well as bankruptcy expert Dr. Ed Altman, among others.

Also featured are investment pitches from the Stern Investment Idea contest.  Ideas include long Urban Outfitters (URBN), short Ulta Salon (ULTA), long Apple (AAPL), long Bonanza Creek Energy (BCEI), long Wisdom Tree (WETF), long Amerco (UHAL), and long FTI Consulting (FCN).

Embedded below is the second edition of NYU Stern's Evaluation investment newsletter:



If you missed it, we posted NYU Stern's inaugural issue here as well.

Marcato Capital Files 13D on Life Time Fitness

Mick McGuire's hedge fund firm Marcato Capital Management has filed a 13D with the SEC on Life Time Fitness (LTM).  This is a brand new position for the hedge fund and they now own 7.2% of the company with over 2.9 million shares.

The filing was made due to activity on May 12th.  The activist investor included the typical boilerplate in the 13D and didn't outline any specific plans at this time.

Marcato's position is comprised of various stock options as they have calls referencing an aggregate of over 1.7 million shares with an exercise price of $30 and expire in July 2014.  They also sold put options for the same underlying amount of shares with the same strike and expiration date.  They've also entered into swaps.

Their trading activity log shows they were buying stock at the end of March around $47.80, the end of April around $47.74 and in the middle of may around $48.45.

Per Google Finance, Life Time Fitness is "operates multi-use sports and athletic, professional fitness, family recreation and spa centers in a resort-like environment."

For more on this hedge fund, check out Marcato's presentation on Sotheby's & Dillards.

50% Discount to the Value Investing Congress: Only 275 Seats Available

The 10th annual Value Investing Congress will take place on September 8 & 9 in New York City.  This year, they're limiting attendance to only 275 people, so if you want to attend you'll have to sign up fast. 

*** We're pleased to offer readers a special discount: over 50% off.  Click here to register and use discount code: MARKETFOLLY

This discount expires on June 24th, but don't wait until then to sign up because there's so few seats this year and it will sell out quickly.

Speakers List

- Leon Cooperman, Omega Advisors
- Jeffrey Smith, Starboard Value
- Alex Roepers, Atlantic Investment Management
- Carson Block, Muddy Waters Research
- Guy Gottfried, Rational Investment Group
- Sahm Adrangi, Kerrisdale Capital
- Whitney Tilson, Kase Capital
- David Hurwitz, SC Fundamental
- Michael Kao, Akanthos Capital
- John Lewis, Osmium Partners
- Tim Eriksen, Eriksen Capital
- Cliff Remily, Northwest Priority Capital
- And More Speakers Will Be Announced Soon
 
Also, the press is not being invited to the event, so if you don't want to miss out on the latest investment ideas from the above hedge fund managers, be sure to attend.

Discount Code

To take advantage of the discount for our readers, enter the discount code: MARKETFOLLY
Sign up with this link to secure one of the few seats available

What We're Reading ~ Analytical Links 5/14/14

Dream Big: on the Brazilian Trio behind 3G Capital [Amazon]

On investment process [Dasan]

Predicting the present with Google Trends [Berkeley]

A look at Yahoo: a puzzle, a mystery and an enigma [Aswath Damodaran]

The unlikely ascent of Jack Ma, Alibaba's founder [NYTimes]

Recession-baby millennials shun stocks after US slump [Bloomberg]

Families are dining out a lot less [RestFinance]

The future of monetising television [TheGuardian]

What happens when the cable TV money dries up? [Sports on Earth]

Africa growth outlook [WEForum]

Macau jackpot turns to bust for stock investors amid rout [Bloomberg]

Murdoch's $14 billion TV plan sets up showdown with Malone [Bloomberg]

AT&T's deal strategy raises questions [Dealbook]

How dumb are fund investors? [WSJ]

Post Office says it lost $1.9 billion in quarter [NYTimes]

Tiger Global Discloses Tuniu Position

Chase Coleman and Feroz Dewan's hedge fund Tiger Global has filed a 13G with the SEC regarding shares of Tuniu (TOUR).  Per the filing, Tiger Global has revealed a new position in TOUR with 3.6 million shares. 

This represents a 10.1% ownership stake in the company.  The filing was required due to activity on May 9th when the company completed its initial public offering (IPO).

In other recent activity, Tiger Global also started a Zillow stake.

Per Google Finance, Tuniu is "an online leisure travel company. The Company offers a selection of packaged tours, including organized tours and self-guided tours, as well as travel-related services for leisure travelers. It offers packaged tours sourced from over 3,000 travel suppliers, covering over 70 countries, as well as all popular tourist attractions in China. The Company’s product portfolio consists of over 100,000 stock-keeping units (SKUs) of organized tours, over 100,000 SKUs of self-guided tours, and tickets for over 1,000 domestic and overseas tourist attractions. Its online platform, which consists of its tuniu.com Website and mobile platform, provides comprehensive product and travel information through user-friendly interfaces to enable leisure travelers to plan their travels and search for itineraries. Its online platform contains photos, information and recommendations for all destinations it covers."

Farallon Capital Discloses Gleacher Stake

Andrew Spokes' hedge fund firm Farallon Capital has filed a 13G with the SEC regarding Gleacher (GLCH).  Per the filing, the hedge fund has disclosed a 7.3% ownership stake in Gleacher with 451,000 shares.

The filing was made due to portfolio activity on May 2nd.  The company's board of directors has approved a liquidation of assets.

Per Google Finance, Gleacher is "an investment bank that provides corporate and institutional clients with financial advisory services, including merger and acquisition, restructuring, recapitalization, and strategic alternative analysis. Gleacher offers a range of products through its Investment Banking, Mortgage Backed/Asset Backed & Rates (MBS/ABS & Rates), Corporate Credit and ClearPoint divisions. It also provides capital raising, research-based investment analysis, and securities brokerage services, and, through the Company's ClearPoint Funding, Inc. subsidiary (ClearPoint), engages in residential mortgage lending."

Paulson & Co Adds To Mallinckrodt (MNK) Stake

John Paulson's hedge fund firm Paulson & Co has filed a Form 4 with the SEC regarding their position in Mallinckrodt (MNK).  Per the filing, Paulson acquired 786,207 shares on  May 7th, 8th, and 9th at prices between $73.0131 and $76.8431. 

After these transactions, Paulson now owns over 6.7 million MNK shares.  For a reference point, they owned 5.6 million shares at the end of 2013 per their 13F filing.  The hedge fund was recently granted an option to increase its stake in MNK to 20%.

Mallinkckrodt has been one of the many pharmaceutical plays involved in M&A lately.  After acquiring Cadence Pharmaceuticals, they recently announced an agreement to acquire the controversial Questcor Pharma (QCOR).  Barry Rosenstein's hedge fund JANA Partners also has a sizable stake in MNK as well.

Per Google Finance, Mallinckrodt is "a global specialty pharmaceuticals company. The Company develops, manufactures, markets and distributes both branded and generic specialty pharmaceuticals, active pharmaceutical ingredients (API) and diagnostic imaging agents. The Company uses its API products in the manufacture of its generic pharmaceuticals and also sells them to other pharmaceutical companies. The Company operates through two segments: Specialty Pharmaceuticals and Global Medical Imaging."

You can view other portfolio activity from Paulson & Co here.

ValueAct Capital Acquires More Microsoft Shares

Jeff Ubben's hedge fund firm ValueAct Capital has filed a Form 4 with the SEC regarding their stake in Microsoft (MSFT).  Per the filing, ValueAct has acquired over 2.9 million shares on May 8th and 9th at prices ranging from $39.49 to $39.59.

This comes in addition to the 66.8 million shares ValueAct already owns.

Recently, we highlighted that ValueAct's Mason Morfit stepped down from Valeant Pharmaceuticals' board and the hedge fund will also likely be reducing their stake.

Morfit is now on Microsoft's board as they look to push the company in the right direction after new CEO Satya Nadella has replaced Steve Ballmer.

Per Google Finance, Microsoft is "engaged in developing, licensing and supporting a range of software products and services. The Company operates in five segments: Windows & Windows Live Division (Windows Division), Server and Tools, Online Services Division (OSD), Microsoft Business Division (MBD), and Entertainment and Devices Division (EDD). The Company’s products include operating systems for personal computers (PCs), servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools; software development tools; video games, and online advertising."

Larry Robbins' Slideshow Presentation From Sohn Conference: HUM, WLP, MON

We posted up notes from the 2014 Sohn Conference in New York if you haven't seen them.  At the event, Larry Robbins of Glenview Capital pitched longs of Humana (HUM), WellPoint (WLP), and Monsanto (MON).  The conference has recently released his slideshow presentation and it is embedded below:



Be sure to check out the rest of the Sohn conference notes here.

David Einhorn's Slideshow Presentation on AthenaHealth From Sohn Conference

If you missed it, we recently posted up notes from the 2014 Sohn Conference in New York.  There, David Einhorn of Greenlight Capital unveiled a short of Athena Health (ATHN).  The conference has released his full slideshow presentation now and it is embedded below:



Be sure to check out the rest of the hedge fund pitches from Sohn here.

What We're Reading ~ Hedge Fund Links 5/9/14

The rich list: highest earning hedge fund managers of the past year [II Alpha]

Hedge fund managers paid too much? [Pension Pulse]

Why do investors love large hedge funds? [All About Alpha]

On navigating a big ship [Research Puzzle]

The case for alternative mutual funds [HF Intelligence]

UK dominates European hedge fund assets by wide margin [P&I]

Does big money hurt hedge fund returns? [Barrons]

Rising interest rates will hurt these hedge funds [Barrons]

Greenlight asked SEC for delay on disclosure of Micron stake [Dealbook]

FPA's Romick hoards cash, sees few opportunities [Reuters]

Sotheby's, Loeb end fight over board [Dealbook]

High frequency trading hurts hedge funds [Marketwatch]

"My time on the sell side" [A Wealth of Common Sense]

ValueAct Steps Down From Valeant Board, To Trim Position

ValueAct Capital filed an amended 13D with the SEC regarding their position in Valeant Pharmaceuticals (VRX).  Per the filing, they note that Mason Morfit will be stepping down from the board of directors.

The key takeaway here is that ValueAct says they're doing this in order to trim their position size because they have a "practice of reducing portfolio weightings in companies where we no longer serve on the board of directors."

Their current stake is valued at approximately $2.5 billion and the letter specifically references that they'd like to still maintain "more than $1 billion in shares."  As far as the timetable of their sales, the letter hints that they might choose to sell some of their stake "later this year."


Mason Morfit's Letter to Valeant

Here's the full letter of his resignation:

"Dear Mike, 

I am hereby resigning effective today as a director of Valeant Pharmaceuticals International. 

As you know, ValueAct Capital has been a shareholder of Valeant Pharmaceuticals since 2006 and I have been a member of the board of directors since 2007. My team and I are proud to have worked with you and to have been a part of tremendous value creation for all shareholders. As I have told you, after seven years on the board of directors, and with my new position on the board of directors of Microsoft, the time has come for me to reallocate my time to other board work. The company is in an extremely strong position and I feel good about the future of Valeant. 

Due to the company?s strategy, there have been very long periods during which we have not been able to buy and sell shares. Most recently, ValueAct Capital has been restricted from selling any shares in Valeant since June 2013, during which time the stock has risen from $85 to $135. Beginning in February 2014, I expressed to you and the board my desire to manage down this position in our fund (currently approximately $2.5 billion out of our $14 billion in assets under management). By resigning today, with the Allergan transaction in the public domain and with Valeant?s earnings report later this week, this will create an opportunity for ValueAct Capital to sell if we choose (of course depending on stock price) later this year. Serving out the remaining term of my board service, could potentially create additional delays and complications, particularly if Allergan enters into negotiations with Valeant. 

To reiterate, we are making a portfolio management decision, not a decision about Valeant?s fundamental business, future performance or the merits of the Allergan deal.  ValueAct Capital has a practice of reducing portfolio weightings in companies where we no longer serve on the board of directors. We have done this consistently since our inception in 2000. That being said, after my resignation we still plan to be large Valeant shareholders for some time. We currently plan to hold more than $1 billion in shares and Valeant should remain one of our top positions. I wish you, your team and my board colleagues all the best and look forward to many more years of extraordinary performance.  Sincerely,  /s/ G. Mason Morfit"


For more on ValueAct, head to Jeff Ubben on Valeant in his recent interview as well as Mason Morfit's lecture on activist investing.

Glenview Capital Boosts Flextronics Stake

Larry Robbins' hedge fund firm Glenview Capital has filed an amended 13G with the SEC regarding their position in Flextronics (FLEX).  They've disclosed they own 11.86% of the company with 70.1 million shares.

The filing was made due to activity on May 5th and this marks an increase of 9.95 million shares since the end of 2013 when they owned 60.1 million shares.

If you missed it, Larry Robbins just pitched ideas at the Sohn Conference as well.

Per Google Finance, Flextronics is "is a global provider of global supply chain solutions, through which the Company designs, build, ship and services a packaged electronic product to original equipment manufacturers (OEMs) in the markets, which include High Reliability Solutions (HRS), which is consists of its medical, automotive, defense and aerospace businesses; High Velocity Solutions (HVS), which includes its mobile devices business, including smart phones, and consumer electronics, including game consoles, high-volume computing business, including notebook personal computing (PC), tablets and printers; Industrial and Emerging Industries (IEI), which is consists of its household appliances, equipment, and industries businesses, and Integrated Network Solutions (INS), which includes its telecommunications infrastructure, data networking, connected home, and server and storage businesses."

What We're Reading ~ Analytical Links 5/7/14

Charlie Munger's essay on wisdom as it relates to investment management [Ycombinator]

A pitch on Altisource Portfolio Solutions [Value Venture]

Is Barnes & Noble the next Gamestop? [MicroFundy]

Notes on the Outsider CEOs [Student of Value]

Alibaba files to go public in the US [Yahoo Finance]

All the western companies you'd have to combine to get something like Alibaba [Quartz]

US home ownership rate falls to lowest since 1995 [Bloomberg]

The financial vulnerability of Americans [House of Debt]

Why has student debt increased so much? [Vox]

Tax avoidance: the Irish inversion [FT]

Pay TV field could shrink with AT&T interest in DirecTV [LA Times]

As Netflix resists, most firms try to befriend Comcast [NYTimes]

On online video ads [NYTimes]

On the world of peer to peer lending [NYTimes]

Warren Buffett didn't belch at Coke pay plan [Bloomberg]

Philippe Jabre Interview: Columbia Business School's Graham & Doddsville

Columbia Business School is out with the Spring 2014 issue of its Graham & Doddsville newsletter.  In it, they interview Philippe Jabre of Jabre Capital as well as Arnold Van Den Berg and Jim Brilliant of Century Management.  It also profiles H. Kevin Byun of Denali Investors and Eric Rosenfeld of Crescendo Partners.

Additionally, pitches from the Pershing Square Challenge are presented.  MBA students presented longs of Allegion (ALLE), Carnival (CCL), Clean Harbors (CLH), Naspers (JSE:NPN) and a short of Cablevision (CVC).

The full issue is below, but here's some select quotes from Jabre's interview:

Jabre talks about starting his own firm and notes that,

"Before you start a  hedge fund you have to  follow the right steps. I  always tell people it's the  same as if you are a doctor,  architect, or lawyer opening  a practice. I first joined a  bank, then after ten years I  joined Lehman Brothers.  Then, with a group of four  partners, we spun off from  Lehman Brothers and  created GLG. And then  after that, I created my own  fund. You follow the steps  so people will follow you.    I remember after business  school I wanted to create  my own fund at age 25. My  father told me if you want  to lose money, go lose  money at other people's  expense. You can't become  a fund manager unless  you’ve lost a lot of money  and survived. So JabCap was  a normal evolution when I  started it seven years ago. A  lot of clients followed  because I had a very good  track record at my prior  funds over the previous  fifteen years and that made  it easier. But you need a  track record and you need  to have clients. The barriers  to entry are very high today  and what people look for is  a track record and the  experience of managing  money unsupervised. And  that's a very difficult concept that you learn with time."


Jabre on opportunities: "So the key thing is to find  things that have done nothing for ages and  suddenly there is an event  that you need to be the first  to understand or appreciate.  And this is where you have a huge opportunity to outperform."


Embedded below is the Spring 2014 issue of CBS' Graham & Doddsville newsletter:



For more from Columbia Business School, be sure to check out their interview with Maverick Capital's Lee Ainslie in a previous issue as well as their interview with Li Lu.

Soros Fund Discloses Sinclair IS Pharma and Spansion Stakes

George Soros' family office Soros Fund Management has disclosed two new positions recently.


Sinclair Pharma

First, Soros has revealed a new stake in London listed Sinclair IS Pharma (LON:SPH).  Due to trading on May 2nd, Soros now owns 5.02% of Sinclair's voting rights.

Other notable holders of Sinclair Pharma include the Toscafund which was set up by Martin Hughes and is now managed by Johnny de la Hay with 26.8% of voting rights and Lansdowne Partners with 11.03%.

Per Google Finance, Sinclair IS Pharma is "a specialty pharmaceutical company focused on treatments in dermatology, wound care, oncology support and critical care through surface technology and delivery systems. It has presence in five European markets and a marketing partner network across developed and emerging markets."


Spansion (CODE)

Second, Soros Fund has started a new position in Spansion (CODE).  Per a 13G filed with the SEC, Soros has revealed they own 5.11% of the company with over 3 million shares.  This is a brand new position and the filing was required due to activity on April 25th.

Per Google Finance, Spansion is "a designer, manufacturer and developer of Flash memory semiconductors. The Company focuses on a portion of the Flash memory market that relates to flash memory solutions for microprocessors, controllers and other programmable semiconductors that run applications in a range of electronic systems. These electronic systems include automotive and industrial, computing and communications, consumer and gaming. In addition to flash memory products, the Company assist its customers in developing and prototyping their designs by providing software and hardware development tools, drivers and simulation models for system-level integration. Spansion’s products are designed to accommodate various voltage, interface and density requirements for a range of applications and customer platforms. Spansion's product designs are based on its two-bit-per-cell MirrorBit technology and floating gate NOR flash memory technology."

For more, check out George Soros' best investment advice.

Sohn Conference Notes New York 2014: Einhorn, Tudor Jones, Shumway, Laffont & More

Below are notes from the 19th annual Sohn Investment Conference in New York, produced in partnership with Bloomberg LINK.  As always, top hedge fund managers pitched their latest investment ideas to benefit pediatric cancer research.  Here's this year's edition.


Sohn Investment Conference Notes: New York 2014

David Einhorn (Greenlight Capital): Short Athena Health

Bill Ackman (Pershing Square): On GSE's Fannie/Freddie

Philippe Laffont (Coatue Management): Long Liberty Global

Chris Shumway (Shumway Capital): Short the CNH, long Moody's

Larry Robbins (Glenview Capital): Long Humana, WellPoint, Monsanto

Paul Tudor Jones (Tudor Investment Corp): On the macro environment

Michael Novogratz (Fortress Investment): The case for Brazil

James Grant (Grant's Interest Rate Observer): On Russia and Gazprom

Jeff Gundlach (DoubleLine): Short homebuilders

Zach Schreiber (PointState Capital): Long refiners Valero & Marathon

Mariko Gordon (Daruma Capital): 3 long ideas

Dan Ariely (Duke University): On the psychology of money

Investment Contest Winner: Michael Guichon: long Fiat


And if you missed it earlier, we also posted up notes from the Next Wave Sohn Conference.  This was the mini-conference that took place before the main event where emerging managers pitched their latest ideas.

David Einhorn Short Athena Health: 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 David Einhorn of Greenlight Capital who pitched Athena Health (ATHN) as a short.


David Einhorn's Sohn Conference Presentation

Short a "Bubble Basket" as mentioned in Greenlight's Q1 letter

Deep dive into one of the companies without disclosing the others.

Athena Health (ATHN): Could fall 80% or more from recent peak. Provides software, services for practice management, claim processing.  Stock up big since the IPO.   He plays a video of selected clips of Jonathan Bush, the CEO which makes him looks really loopy, spouting off a bunch of buzzwords: SaaS, mobile, social, crowdsourcing, platform, monetize.

Have to believe revenues compound 18% per year for 15 years for it to be worth what it trades at today.  More clips showing the CEO who really seems foolish. They aren't really a software company, they are doing the work, reading the faxes, scanning documents, and storing them.

Should really compare this to ADP - business process outsourcing industry.  These businesses have 6.7%  to 14% operating margins.   Base case drops to $43 when you take out revs/doc which is too high, and margins too high.

Then he compares to EPIC which is winning in this space.  They are the standard - not the single digit cloud e-health records. (EHRs) More clips of the CEO that make him look a bit like a lunatic, almost like a parody.  Industry consolidation will shrink the market for ATHN, and they may lose more share to EPIC. 

Bubble stocks: best reason to own them is they keep going back up.  When they stop going up, they become falling knives.  There is a huge gap between this and when value investors will be interested in them.   Then he closes with a clip of the CEO bragging that they are trading at 21,000 times earnings, and that they are not worth that and that he forgot the question.

CRM, CNCR, ULTI, N, VEEV, WDAY, NOW were all on Einhorn's slide - maybe his bubble basket?  Basically all cloud/SaaS stocks.

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

Mariko Gordon: Long Electronics For Imaging, H.B. Fuller, Pacira Pharmaceuticals (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 Mariko Gordon of Daruma Capital who pitched three ideas: Electronics For Imaging (EPII), H.B. Fuller (FUL) and Pacira Pharmaceuticals (PCRX).


Mariko Gordon's Sohn Conference Presentation

Talked about how everyone has short holding periods of stocks now. Three ideas.

Long: Electronics for Imaging (EFII).  Conversion from analog to digital printing. Company makes large-scale inkjet printers for printing tile, facades, even surfboards. Razor/blade model.  They were not selling ink, but will be soon.  $60 PT, 20x $3/share in 2016. 

Long: HB Fuller (FUL).  Specialty adhesives company. Cut 13 plants down to 7, 1400 employees down to 1000.  Reduced SKUs by 45%.  Only 15% EBITDA margin target though.  $70 PT, stock is $45 now. Bull case target is $90, needs more growth.

Long: Pacira  Pharma (PCRX).  Pain killer medicine..  Costs 100x more than the generic. Lasts up to 72 hours, vs other up to 8 hours. Drug is Exparel. PT $150, stock is $70 now.  Early stage company now, based on 10% market share. $250 bull case PT on 20% market share.

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

Paul Tudor Jones on Macro Trading Environment: 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 Paul Tudor Jones of Tudor Investment Corp who talked about the macro trading environment.


Paul Tudor Jones' Sohn Conference Presentation

"Manic depressive trading in a volatility-compressed world."

Macro trading has been as difficult as he can recall it ever in his career. He spent several charts bemoaning the lack of interest rate changes and fixed income volatility. Even stocks and FX have had very low volatility over the last 2-3 years.

Bad for macro guys who need volatility to trade. According to his models, US bonds should be shorted April 2015, based on a July 2015 rate hike.

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

Bill Ackman On Fannie & Freddie: 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 Bill Ackman of Pershing Square who pitched going long Fannie Mae (FNMA) and Freddie Mac (FMCC).


Bill Ackman's Sohn Conference Presentation

IDEA: Fannie Mae (FNMA), Freddie Mac (FMCC).  $3.89 now.  Same pitch he gave at CSIMA a few weeks ago.  Says his slides will be online. Fannie and Freddie were "stolen from investors."

Should recap it, do like AIG case, get the government out of it. Say full taxed net income could be $17 per share. Need to raise $183B of capital, which you get in 7-10 years from their net income. PT: $23 stock, $47 on bull case.

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

James Grant on Russia & Gazprom: 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 James Grant of Grant's Interest Rate Observer who said to go long Gazprom in Russia.


Jim Grant's Sohn Conference Presentation

In trademark bow tie as always. "No disclaimer, I'm just going with the First Amendment." "Successful investing is having people agree with you - later."

IDEA: Gazprom long.  Listed in London.  Owns 17% of the world's gas reserve, the economic instrument of Putin's foreign policy.  HLF without Carl Icahn.  Donald Stirling with a London ticker.  Opposite of TSLA. Well hated, very out of favor. 32% operating margins.  Endless list of reasons to be bearish. Russian government owns 50% of shares.   Then he compares FB's corporate governance, with dual class share structure to Gazprom.   Trades at 2.4x 2014 earnings.  That is after taxes, and "after stealing."

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

Zach Schreiber Long Refiners Valero & Marathon: 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 Zach Schreiber of PointState Capital and talked about how he expects crude oil prices to fall.  He thinks the refiners benefit and pitched Valero (VLO) and Marathon Petroleum (MPC).


Zach Schreiber's Sohn Conference Presentation

Stanley Druckenmiller gave him over half of his capital after he retired from Duquesne Capital.

IDEA: Short WTI/Long US Refiners.

Valero (VLO), Marathon Petroleum (MPC). They believe WTI crude will drop.  US oil production is growing very fast- same shale as the NG guys did.  US production will grow 1M bpd per year in 2014, 2015. 

Most everyone thinks WTI goes a lot higher, $33T long. Swelling inventories of Cushing crude.   There is a crude export ban, so they have to refine it.

Gulf coast refineries are maxed out at 96% utilization.  Can't import less, because of politics. Cash on cash IRRs are still high at these prices.  Long VLO, MPC.  10-11% FCF yields.  0.4x Debt to EBITDA.

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

Larry Robbins Long Humana, WellPoint & Monsanto: 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 Larry Robbins of Glenview Capital who pitched HMO's long like Humana (HUM) and WellPoint (WLP) and also agriculture play Monsanto (MON).


Larry Robbins' Sohn Conference Presentation

They recapped his amazing calls at the conference, including shorting GM, and long the hospitals, which was a blockbuster trade.

Long ideas: Humana (HUM, WellPoint (WLP), Monsanto (MON).

He says "resist the temptation to think 2014 is different from 2013, just because the calendar has changed." Over last 2 years, high yield bonds yield dropped by 200 bps.

Drivers:   
1. Cheap valuations on stocks, says SPX 16.1, 14.4x 2015.   
2. Lower systemic risk   
3. Corporate deployment- management and owners must "lift up."

Concept of "Convertible equity"  - an investment in a defensive secular growth business, that also carries call options on value-enhancing events.    Need to be more contrarian now. HMOs, and Monsanto, GMO provider are both out of favor.

Managed care. Myth 1: HMO profits are reason healthcare costs are too high. Fact: their profits were only 0.4% of al healthcare spending.  HMOs are the only sector of healthcare that haven't recovered. Pain is in the rear view mirror.  All headwinds turn neutral or to tailwinds over next 5 years. Greater exposure to Medicare and Medicaid- 22% from 9% in 2007.  New management in 4 of 5 biggest HMOs. (HUM, WLP, AET)

HUM: medicare advantage company. Baby boomers are aging, 4x the growth of overall population.  HUM taking share. Seniors like medicare advantage. HUM top-line growth 10-15% range. "Options:"   
1. PBM: outsource to another scale provider to reduce costs   
2. Cash use/returns on cash. 22% D/C ratio, could take on more debt to buy back shares or a small HMO.   
3. Retiree private exchanges.   
4. New markets.    
5. Long-term consolidation.

Base case PT: $143-152 Bull case: $194-207


WellPoint (WLP): traditional managed care. PBM sale ends in 2019.  Could unlock more PBM value as early as 2017.  PT $125-134 base case.

Monsanto (MON).  "In the real world, we cannot solve world hunger on an organic basis."  GMO seeds are best option for environment, and for feeding the world. Looks expensive at 19x this year, but it has new products that could $1.50-2.00 per share earnings. Near-monopoly position with multiple upside levers, Monsanto is suboptimally hoarding capital and value is trapped. 

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

Philippe Laffont Long Liberty Global: 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 Philippe Laffont of Coatue Management who pitched Liberty Global (LBTYA/K) long.


Philippe Laffont's Sohn Conference Presentation

Tech Media Telecom investor.  Was at Tiger before founding Coatue.

IDEA1: Long Liberty Global. LBTYA. Similar pitch to last time, which was Virgin Media, which was bought by Liberty Global. (He's owned LBTYA for a while now).

Says  cable is best infrastructure for high-speed broadband.  Says Fiber is too expensive and wireless is too hard because you need expensive spectrum. NFLX is just rolling out in Germany, France.  It is 30% of the broadband in the US, and this trend will occur in Europe next. 

Comments on merger activity in cable and telecom: he expects more consolidation. TWC and CMCSA happening. Sprint and T-mobile? DirectTV and AT&T?

Liberty Global could be bought by Vodafone. AT&T could buy Vodafone and Liberty Global. CMCSA could buy Liberty Global. Liberty Global could add new assets. So LBTYA could double from $40 to $90 by 2018.

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

Dan Ariely on the Psychology of Money: 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 Dan Ariely of Duke University who talked about the psychology of money.


Dan Ariely's Sohn Conference Presentation

Professor of Psychology and Behavioral Economics at Duke University. Best-selling writer.

His topic: the Psychology of money. Money spent has opportunity cost. Very hard psychologically to make good spending decisions. Wrong decisions:   

1. Think of it in relative terms rather than absolute terms. "For only $3000 more, can get X"    
2. The method of payment effects your decision.  "The pain of payment."  Cash or credit card. Paying with cash is more annoying than credit cards, because of the timing of payment   
3. Principle of fairness. Peak demand pricing annoys us. Locksmith that fixes your lock quickly - we think we pay too much. Money is incredibly interesting. We make lots of mistakes with money.  Design of electronic wallets is very important because they will effect how people save for retirement.


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

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.