What We're Reading ~ 5/6/15

A must-read on behavioral finance: Thinking, Fast and Slow [Daniel Kahneman]

Margin debt hits all-time highs: why you shouldn't be concerned [Kimble Charting]

What you should and shouldn't learn from Warren Buffett [WSJ]

With big names and money flowing in, tech startups in India heat up [NYTimes]

3 stocks pitched by Weitz Value Fund [Forbes]

Transdigm: when is a large moat worth more than 30x earnings? [Seeking Alpha]

On the pricing and valuing of top managers [Aswath Damodaran]

A guide to reading for investors [Safal Niveshak]

A pitch on Viacom [BeyondProxy]

Tim Cook on Apple's future: everything can change except values [Fast Company]

Silicon Valley veteran steers Softbank's deals [WSJ]

How Airbnb could spawn an M&A frenzy in the hotel industry [Fortune]

Casinos failed Atlantic City, but they're still part of its future [The Deal Newsroom]

Insurers take on more risk in search of returns [NYTimes]

Graham & Doddsville Latest Issue: Interviews With First Eagle, Jericho & More

Columbia Business School is out with the latest edition of its Graham & Doddsville investment newsletter.  This issue features interviews with Matthew McLennan and Kimball Brooker of First Eagle Investment Management, Josh Resnick of Jericho Capital, and Harvey Sawikin of Firebird Management.

Additionally, they talk with Eric Yip and Mark Unferth of Alder Hill Management, and Rolf Heitmeyer of Breithorn Capital.

Lastly, the new issue features student investment pitches of: long Altice, long Fiat Chrysler, long HCA, long Genuine Parts Company, and long Precision Castparts (PCP).

Embedded below is the latest issue of Graham & Doddsville:



Be sure to also check out the previous issue of Graham & Doddsville including an interview with Bill Ackman.

Starboard Value Discloses Brink's Stake in 13D Filing

Per a 13D filed with the SEC, Jeffrey Smith's activist fund Starboard Value has disclosed an 8.2% ownership stake in Brink's (BCO) with 3.97 million shares.

This is a newly revealed position as they did not own any shares at the end of 2014.  The filing shows Starboard was out buying BCO shares throughout March and April at prices largely between $26 and $29.

The 13D filing contains the standard activist boilerplate stating that Starboard thinks shares are an attractive investment opportunity and might engagement management in the future.

Per Google Finance, Brinks is "a provider of secure logistics and security solutions services ATM replenishment and maintenance, secure international transportation of valuables and cash management services, to financial institutions, retailers, government agencies including central banks, mints, jewelers and other commercial operations around the world."

Sohn Investment Conference Notes 2015: Einhorn, Tepper, Ackman, Robbins & More

The 2015 Sohn Investment Conference just took place in New York where hedge fund managers pitched their latest stock ideas to benefit the Sohn Foundation and pediatric cancer research. 


Sohn Conference New York: 2015 Notes

- David Einhorn (Greenlight Capital): Short Pioneer Natural Resources (PXD).  Compared it to St. Joe (JOE).  Energy companies with negative development economics, negative on frackers in general.  US production boom: Bakken, Eagle Ford, Permian.  Buy the land, set up drills (expensive).  Huge cumulative CAPEX, more than oil brought out.  None of them generated cash flow, even when oil was high.  $20B cash burn by group last year.  Depletion is the "D" in EBITDAX.  It's not really growth, because once you get the oil out it's gone.  CAPEX has been 75% of revenue over last 5 years.  Not natural gas frackers, they are fine.  PXD:  Well located, well run, Permian assets mainly.  #2 pure play behind EOG.  $26B market cap, EV $27B, may earn $1.50 per share next year.  Spent $19B in CAPEX last few years - funded partially by capital raises.  Proved reserves have been flat or down despite huge CAPEX.  $36 rev/bbl, if you take out the $28 CAPEX, they lose $12/bbl.  Negative NPV if you include time cost of money.  If you had used $68 price of oil, reserves are only worth $9/share.  He says if you cut their costs, it's $22/share.  Value creation per $ spent is only 0.74.  You can view Einhorn's slideshow presentation on PXD here.  For even more from him, we recently posted up Greenlight Capital's Q1 letter as well.


- Barry Rosenstein (JANA Partners): Walgreens (WBA) and Qualcomm (QCOM).  WBA an example where activism worked.  12 layers of management between CEO and store managers vs. 5 at CVS.  Turnaround began with deal to buy Alliance Boots.  Then they got involved (cost cutting, tax inversion talks, but they didn't actually do the latter).  QCOM: Bloated costs, board with no owner orientation, family in positions, issuing a lot of stock.  He tries to downplay the breakup idea (tech analysts say it can't be done).  He says they need to return capital; doing a $15B repurchase, which is 13% of market cap (says they have 30 per share in cash).  He wants to cut/change management compensation, reduce board size, evaluate corporate structure (break off the chipset business).  Smartphone market is large and growing, IP model approved by China (although many OEMs still not paying royalties).  For more from this manager, we recently posted Rosenstein's appearance on Wall Street Week.


- Keith Meister (Corvex Capital): Long Yum Brands (YUM).  1/3 in China, outside of that it's almost all franchise, inside it's owned.  KFC, Taco Bell, Pizza Hut restaurants.  Says China problems are being fixed.  Top 5 holder of the stock.  Says franchise mix leads to more leverage, better multiples.  Simply put it's a bet on recovery in China (previous food issues at KFC).  SSS getting better, but still negative.  51% of those surveyed in China said KFC was their favorite place to eat.  Today 0.97 of $2.09 in earnings is China.  If they go back to '12 rev/unit, it would be over $3 EPS from China alone in 2017, that would be about $6 EPS in 207, with stock at $60, paying only about 10x now.  China business is very different - should spin it off.  Have it enter a franchise business deal with the main "FranchiseCo."  Says it unlocks $16/share of value.  ChinaCo becomes "more Chinese" which helps in China.  Valuation: 50-90% upside.  $130-16 PT.  Franchise co worth $88 in 2017, ChinaCo, $41-72 depending on how well it recovers from the food scandals.  Dan Loeb's Third Point also laid out the YUM investment thesis its Q1 letter.


- Larry Robbins (Glenview Capital): Long Abbvie (ABBV) & Brookdale Senior Living (BKD).  Money is cheap now.  BB junk bond 10-12 year debt for less than 4% after tax.  Own over-capitalized businesses and have them borrow money.  ABBV:  Old school pharma to new.  Spending 16% of revenue on R&D.  Structural acquirers and owner-activists pressure them on both sides.  Why ABBV?  1. Growth through 2020, 2. Numerous areas of upside optionality, 3. Excess cash they could use for acquisitions.  Says Humira grows through 2017, acknowledges the debate about patents expiration.  Biosimilars are not exact copies.  6 key upside optionalities: Pipeline is underappreciated, making biosimilars is 1000x harder than generics (state by state regulation, difficult process, etc), Humira patent protection possible, could change formulation of Humira to extend economics, look at Evercore ISI work, paying 30% repatriation tax plus dividend taxes in US "don't give it to us, keep it and do something productive with it", says they could buy 30% of shares with leverage, adding $15 to share price, also could be more M&A "they could be the pill swallowed, or be the Pacman."  Almost a double from here.  BKD: Bet on the aging population.  By far the largest and can sell ancillary services in same facilities.  Also real estate options.  You can also read Robbins' thesis on other stocks in Glenview's recent letter.


- Lee Cooperman (Omega Advisors): 8 stock picks (ACT, AER, C, DOW, GOOGL, GM, PCLN, GULTU).  Generally bullish, 7-9% return on market, appropriately valued, negative view of fixed income.  35% of stocks in SPX yield more than bonds.  Inflation is not bad for stocks - it raises their nominal revenue.  Bear markets occur for one of four reasons: oncoming recession, overvaluation, geopolitical event occurs, hostile Fed.  Nothing today indicates oncoming recession.  He says he doesn't understand the consternation about the Fed hiking rates.  On average, the stock market raised 30 months after the first hike, the shortest was 10 months.  On average, a year later, market is up 9.5% the year after a rate hike.


- Mala Gaonkar (Lone Pine Capital): Long Microsoft (MSFT).  Value hidden in legacy tech.  1.5B installed office users globally, only 250M actually pay for it.  New stronger management (Satya Nadella).  Built the cloud platform Azure. Works with 3rd party software, no more "saving Windows first."  Solid mid-to-high single digit revenue growth.  Most controversial aspect of this pitch.  Fear is consumer Windows will die, but it is only 5% of revenue.  Enterprise software is 17%, and more more sticky.  Mainframes still a $5bn annual business and they are using MSFT software.  "Price elastic market" very stick in ADBE, Autodesk as well.  Cloud is 10% now, growing faster than the rest of the business.  Office 365 more than doubles users.  Reduces piracy.  Operating cost cuts.  Been no restructuring since dawn of PC age.  Spend $1bn marketing consumer Windows.  Cloud shift cuts costs - no commissions to pay resellers.  Capital return, has way too much cash.  Raised share buybacks, but should be much higher.  Could earn 3.89 next year, fro 3.04 this year.


- Jeff Gundlach (DoubleLine Capital): Puerto Rican Muni Bonds.  They have priced in a lot of problems.  Triple tax free yield of 11% for 8s2030 at about 78 of face.  Says they may go lower first. "You're supposed to buy them at 78."  Also talked about negative interest rates and said to borrow infinite amounts at that level.  Fed talk is just noise.  2 year Treasury bottomed 4 years ago - you can see it on the chart.  Same with 10 year - 2012 was the low.  Very bearish on junk bonds, says no one alive in the room has lived through a secular rise in high yield bond yields.  Junk bonds do NOT do well when the Fed starts hiking rates.  A couple of years of runway.  For more from Gundlach, watch his appearance on Wall Street Week.


- David Tepper (Appaloosa Management): Thoughts on markets.  Also said junk bonds are not cheap.  "Something has to give."  "Either stocks have to go up a hell of a lot, or treasuries will go down a hell of a lot."  Could 22.78 P/E vs average now 17x on stocks.  Implies 30% move if treasuries don't move.  Monetization of debt in China.  "Don't fight the Fed; don't fight 4 feds."  (US, ECB, Japan, China).  Implies Hong Kong stocks are cheap, 10x P/E.  "Maybe the big banks aren't that bad if you look at them."  Don't short options that lengthen (they become more valuable).  This is why it's risky to short China.  What happens when China does first cut?  Stocks start going up.  Reinflation of their economy.  Says terrible environment for bonds.  "This monetary policy has worked for 5 years."  Now all 4 central banks are going one way.  "Good luck" with shorting.


- Bill Ackman (Pershing Square): Long Jarden (JAH), Platform Specialty Products (PAH), and Valeant Pharmaceuticals (VRX).  JAH: 45x return in 14 years, constantly undervalued over the years.  Always valued on next year's EPS.  PAH: A shell they funded.  NOMHF: Nomad, another shell/SPAC.  Flat at cash value for a year, then bought Iglo and the stock went up 80%.  Why is the market mis-valuing these companies?  He calls them "Platform companies" not just on multiples based on comaprables.  Others as examples: Danaher, Liberty Media, AB InBev, Transdigm.  Key is to find the right management teams that do good acquisitions.  VRX: Paid $196/share, 20m shares, 20% of his capital.  Tax-advantaged structure.  Units have autonomy.  Drawback is there is a lot of competition in acquisitions.  Gives the example of the Bausch & Lomb acquisition.  Value of business is correlated with ability to buy companies and integrate them, take synergies.  PT $332, from $223.  Based on organic growth and small deals.  Compares it to a Berkshire Hathaway in the making.  For more from Ackman, check out Pershing Square's presentation from its European investor meeting.


- Ian Bremmer (Eurasia Group):  Geopolitical analyst.  Oil production in the US has reduced our willingness to engage in fights, especially in the Middle East.  "Weaponization of Finance" to use finance to influence behavior.  US may have realized that they spent so much in Iraq and the country still fell apart.  "We will see $100 oil no time soon."  "Likely to see an Iranian deal, which will be another 1.2m barrels a day."  Putin is in a corner.  More Russian cyber attacks against the US.  China - the rise is important.  They are not confronting the US militarily.  Economically China does want to challenge US hegemony.  "Best money the Americans ever spent was the 4% of GDP on the Marshall Plan.  It paid off for decades."  The only country in the world with a cohesive global strategy is not us, it is China.  China does not want to occupy countries.  Some countries will be hedging, and ally with China economically.  Including Germany, South Korea, etc.  For the next 5-10 years, China is more stable than you think.  They will be the world's largest economy, but they will be totalitarian still, and will have a lot of world influence.


- Jay Walker (Founder of Priceline): Black Swan events more likely than ever.  A few people with a few million dollars could wipe out billions in market cap.  "Bioweapons plus drones plus social media."  Risk of economic collapse.



- Sohn Investment Contest Winner (Angelo Martorell, Wharton Student): Long IAC Interactive (IACI).  Owns March.com/Cupid/Tinder, Ask.com, About.com, Vimeo, HomeAdvisor.  $5.9bn EV.  Uses sum of the parts and says market not giving value for Tinder, because there is no revenue, profits.  IACI has all the best dating properties.  "Facebook of dating."  If Tinder was private it would be more than the market cap of entire IACI.  Says 1/4 of millenials won't marry.  "Network of effect."  Tinder premium will give unlimited right swipes, 2.5% of MAUs will pay for it.  $10/month.  Online dating makes it very easy to have an affair.  Tinder will crush Ashley Madison.  You can have dates in places you travel.  Cross-selling - some can go from Match to Tinder and vice versa.  Users spend 77 minutes/day on Tinder versus 40 minutes on Facebook.  Also it's fully integrated with FB.  Valuation?  Says you get Tinder for free with current stock price.



Next Wave Sohn New York 2015

- Snehal Amin (Windacre Partnership): Long PowerFinance


- Didric Cederholm (Lion Point): Ukrainian sovereign bond play (steepeners) & Ally Financial (ALLY)


- Alex Denner (Sarissa Capital): Long Ariad Pharmaceuticals (ARIA)


- Daniel Dreyfus (3G Capital): Long Phillips 66 (PSX)


- David Zorub (BlueMountain): Long Sunrise Communications

David Einhorn's Sohn Conference Presentation: Short Pioneer Natural Resources

We've posted up notes from the 2015 Sohn Investment Conference that just ended in New York.  David Einhorn of Greenlight Capital pitched a short of Pioneer Natural Resources (PXD) and embedded below is his full slideshow presentation.


David Einhorn's Sohn Conference Presentation 2015




Check out the rest of the Sohn Conference notes here.

Bill Ackman's Sohn Conference Presentation on Platform Value Companies

We've posted up notes from the 2015 Sohn Investment Conference that just ended in New York.  Bill Ackman of Pershing Square Capital management pitched longs of Jarden (JAH), Valeant Pharmaceuticals (VRX), and Platform Specialty Products (PAH). 

His slideshow presentation is embedded below which focuses on the concept of platform value companies.


Bill Ackman's Sohn Conference Presentation 2015



Check out the rest of the Sohn Conference notes here.

Carl Icahn on Wall Street Week: Worried About the High Yield Market

Anthony Scaramucci's rebooted show Wall Street Week just finished its third episode and this week they had on activist investor Carl Icahn.

He talked about the markets and said "I'm very concerned about the market.  You have a situation where this market keeps going up and up with zero interest rates and that's what's really pushing it.  And yet, a lot of the economic news isn't all that good and also, perhaps more importantly, earnings aren't good."

"We're very hedged."  It sounds like he's using CDS and derivatives to hedge his portfolio.

Icahn said he's even more worried about something else:  "What's even more dangerous than the actual stock market is the high yield market.  I think it's ridiculously high." 

He then went to talk about activism and how he's been involved over the years.

And lastly, he talked about his investment in Apple (AAPL) and how it's almost doubled since he first got involved but he hasn't sold a share (and he's actually bought more on the way up).

Embedded below is the video of Carl Icahn's appearance on Wall Street Week:



For other great episodes of Wall Street Week, check out their interviews with JANA Partners' Barry Rosenstein as well as DoubleLine Capital's Jeff Gundlach.

Intangibles of Building a Great Hedge Fund: Ken Griffin, Alex Klabin, Jason Karp (Milken Institute Panel)

At the Milken Institute conference recently, numerous prominent hedge fund managers gathered on a panel entitled: The Intangibles of Building a Great Hedge Fund: People as an Asset Class.

Ken Griffin of Citadel, Alex Klabin of Senator Investment Group, Jason Karp of Tourbillon Capital, and Gideon Berger of Blackstone all took part in the discussion on investing and the hedge fund industry.


Milken Institute Panel: Intangibles of Building a Great Hedge Fund

Here are some select quotes from the panel and the full video is below:

Alex Klabin on what makes a great investor:  "Great investors, in my view, are able to distill complicated ideas / complicated situations down to the one or two things that really matter. And then make an analogy in their head to distill what the core of the investment is."

Ken Griffin on science versus art in investing:  "In every one of our businesses, there's a science and there's an art.  The science is usually caps in the process and hard work that goes behind driving an investment decision.  We'll do thousands of meetings a year, it's as unglamorous as it can be.  But you use it to assimilate information about how a company's progressing, how a business is unfolding or developing.  And if you're really good, you have an idea of what guidance is going to look like, what the quarter's going to look like.  The art comes down to not how well you can do all that work, but how well you can differentiate your idea from what other people perceive reality to be.  And you're successful in this business when you have a differentiated point of view and the market agrees with you when the information that you have becomes known by all ... You need to have the ability to understand: how will other investors respond to this information when it becomes known.  That's the art in the business, and it's a tough art."

Jason Karp on people as an asset class:  "In our industry, people spend more time on stocks than they do on people.  In my 17 years, what I've discovered is that people, if you train them properly, if you invest in them properly, have more duration, yield, and optionality than any stock I've ever purchased."

Jason Karp on what he looks for in hiring:  "One of the things that we screen for is a variable called openness to change.  And it's the single most important variable that we screen for.  It's basically how well you're able to quickly change your mind when you're presented with conflicting information."

Gideon Berger on what he looks for when investing in managers: "Some people are trying to become lifestyle hedge fund managers, and some people are just trying to get rich, and some people love investing.  What are you actually trying to do?  The two things that we focus on the most: 1. the commitment to building the organization and 2. character that suggests we think they can withstand adversity."

Gideon Berger on what they do before investing:  "What we try very hard to do is be very explicit and write down our investment thesis going in.  Why are we making this investment?  Where do we think the edge or opportunity is coming from? If the thesis is playing out, but the investment isn't playing out, that's an opportunity to add to the position.  But if the thesis isn't playing out but you're making money, that's good luck.  Separating why you're making an investment versus results is very important."

Embedded below is the video of the panel from the Milken Institute:


 

Markel Meeting Notes From Berkshire Hathaway Weekend

Thanks to Grizzly Rock Capital for compiling and sharing the following notes from the Markel (MKL) meeting during the Berkshire Hathaway weekend.


2015 Markel Meeting Notes During Berkshire Weekend

• Having LT shareholder base is "critical to what Markel does"
• Culture!
• Organized in 1930 as small insurance agency.  Steve joined company 40 years ago in 1975.  Company was still a small insurance broker.
• Went public in 1986.  Raised $5 million and market cap was $35ish million dollars
• Worked with cousins on growing the business.  Wanted the credibility of being a public company.  Recruit and develop talented associates around core 4 principles
• Today, over last 28 or 29 years Markel developed a number of businesses and bought many others.  Market cap is $10 billion
• Spending time over the past few years making sure the market is "built to last" and managers are in place to continue the success.  World of insurance is not limited and Markel should be able to continue to take advantage of opportunities.

Questions & Answers

How have you implemented the "Markel Style"?  How do you react with people don't fit?

• Markel style is attempt to describe culture and values.  
• Every Company has a culture – whether they say it or not.  
• Notion of teamwork and joy of building the company. Some people are just wired to like that.    
• Needs all associates to have the same culture to grow.  Mathematically harder with scale.  
• Other side to story is entropy. “Becomes a flywheel”  
• Have formal HR practices – if the person is not “Markel style” they won’t be there long term  
• “Believing in teamwork is more important than the individual”   
• Disdain for bureaucracy  
• Having a focus on shareholders   
• Being interested in sharing the results.  Meritocracy  
• If someone is more interested in building net income than net worth, that isn’t the Markel Style
• Key when doing an acquisition is figuring out who the people who don’t fit and “getting them off the books” (in a kind way)

Question regarding CarMax (KMX) and credit ability thereof?  Prospect of moat erosion over time?

• Every business subject to competition
• CarMax treats customers very fairly
• CarMax has data on each car that comes in and customer trusts them 

Alternative sources of capital going into the reinsurance market.  Number of hedge funds getting into the space.  Underwriting secondary? What would it take on the reinsurance market versus Alterra?

• 50k foot level: focus on uncorrelated risk for others without focus on uncorrelated returns.
• "It appears God hates cheap re-insurance."
• 100% of what the new guys into the space are doing yet only 20% of what Markel is doing.  Thus, Markel can choose not to participate in reinsurance if the rates aren't profitable.
• 360 degrees of insurance - underwrite, reinsurance, international, etc
• Have other places to put the money
  
  
  
  

What is the biggest threat to Markel over the next 5 years?

• Challenge to identify one thing
• If growth is strong, maintaining the "fly wheel of Markel style" does get harder with scale
• Bc of success, lot of smiling faces and proud people
• "Don't want to believe our own BS"
• Need to have the most up-to-date information technology and working hard to make that happen
• One thing to focus on insurance side is distribution
• CFO answer: (1) liquidity - very conservative with regard to liquidity.  Have to keep an eye on liquidity
• Success can make it easy to say no to new risk even if the pricing is good
• Success that breeds complacence is a dangerous thing
• 3 people that Tom Gayner has tell him if he is out of line: Susan Gayner his wife, COO of Markel Ventures Mike Keegan, and Steve Markel. 

Participated in the Fairfax India raise.  What are the thoughts around investing in a "cash box"?

• Steve Markel - #1 reason is that they have a high degree of confidence in the management of the venture and track record of investing in India profitably.
• Fairfax India is a handful of Indian companies yet will be 8 or 10 public or private positions in Indian companies.
• Fund hasn't made any investments.  Market price moved from $10 to $12 but no change in underlying economics.
• Markel was looking to get into India yet India is somewhat restrictive in terms of allowing foreign control investors
• Markel invested $40 million so modest relative to the size of Fairfax India as well as Markel.

Expand on scalability?

• Working on moving from successful boutique to a strong global entity
• Focus on systems implementation and culture
• "Too hard on the relationships to do these things more often than 10 years!"
• With Alterra, they went full integration day 1.  Some previous acquisitions they were less quick on removing people who wouldn't be successful in the Markel culture.  Biggest thing was that Alterra was a quality organization.

Incentive compensation?  Why is your 12.0% return hurdle for incentive compensation at the current level?

• In an almost ZIRP environment, a double digit rate would be significant.
• On the investment side, the insurance business needs liquidity to pay claims and needs highly liquid securities to do that
• Need to focus on reducing the combined ratio down to ensure profit
• Yet Markel can hold other securities which should help returns
• Biggest focus is on reducing expense ratio including initiatives on getting the expense ratio down.  Have plans over a few years to do just that.

Amount of equity securities?

• Markel would hold up to 80% of book capital in equity securities
• Number is probably in the "high 50%s" range currently as Markel has been bying equities weekly since the Great Recession
• Munger talks about focus and concentration.  However, top 20 positions account for 70% of portfolio.  Reason for 120 companies is that Tom Gayner wants a bench.
• Example is Amazon which Gayner bought and then sold quickly
• Number 1 reason Gayner likes Brookfield Asset Management (BAM) is that the mgmt team have boots on the ground and go where the opportunities are

Third Point's Q1 Letter: New Stakes in Yum Brands, Devon Energy

Dan Loeb is out with Third Point's first quarter letter.  In it, he details how he's "constructive on the US" mainly for 3 reasons: economic data improving, the Fed not raising rates in June, and when they do raise, the expectation is they'll do it gradually. 


New Stake in Yum! Brands

Third Point also reveals two new equity longs.  They've built a stake in Yum Brands (YUM) which includes KFC, Taco Bell and Pizza Hut restaurants.  They see the company turning around its troubles in China with KFC and note Pizza Hut needs to improve to battle competitors on margin. 

Third Point writes, "We think investors should want to own Yum! for its unique open-ended middle-class growth story in China and its strong and growing franchise-led cash flows outside China."


New Position in Devon Energy

Also, the hedge fund revealed a new position in DVN.  They like certain steps the company has taken such as exiting certain businesses, entering joint ventures, and sale of non-core assets.  However, they want the company to continue to streamline its portfolio "to focus on top-tier US assets in the Permian Basin, Eagleford, and Cana-Woodford."


Lastly, it's also worth noting that Third Point now has 10% of its assets invested in Japan.  They also update their positions in Fanuc and IHI.

Embedded below is Third Point's Q1 letter:



For more from this hedge fund, head to Third Point's Q4 letter which outlines their thesis on Fanuc.

London Value Investor Conference Presentations Announced: Discount Expires Tonight

Our readers can save  £120 with the discount code: MARKETFOLLY-APRIL-DISCOUNT

With less than 3 weeks to go, there are now only 29 tickets left for the London Value Investor Conference on 20th May.

The speaker line-up is now complete and we are able to announce some of the presentation titles below.  You can also view the timings on the conference programme page.

Here are the presentation titles for 20th May:

Foghorns in the Fog
Jonathan Ruffer, Ruffer LLP

Audience Q&A session led by David Shapiro
Neil Woodford, Woodford Investment Management

Enduring Principles of Value Investing, Audience Q&A Session led by Richard Oldfield
Charles Brandes, Brandes Investment Partners

The Chinese Stockmarket: from Ugly Duckling to Beautiful Princess
Dato' Cheah Cheng Hye, Value Partners Group

Ageless Insights - Sir John Templeton's Insights From Seven Decades of Investor Correspondence
Jeff Everett, EverKey Global Equity

Value Investing: the Good, the Bad or the Ugly?
Nick Kirrage and Kevin Murphy, Schroders

Calculating Intrinsic Value
Tim Hartch, Brown Brothers Harriman

Franchise Investing
Hassan Elmasry, Independent Franchise Partners

Growth Hiding Value
Simon Denison-Smith, Metropolis Capital

Volkswagen - in Rust we Trust
Bernd Ondruch, Astellon Capital Partners

Ivan Martin Aranguez, Magallanes Value Investors - TBC
Kevin Gibson, Eastspring Investments - TBC
Nathaniel Dalton, Affiliated Managers Group - TBC


In order to claim your special £120 discount on this conference, please use the code "MARKETFOLLY-APRIL-DISCOUNT"

Offer expires May 1st, 2015 (Tonight!)

Hedge Fund Links ~ 5/1/15

Billionaire investors reveal their best ideas at the Milken conference [CNBC]

Lakewood Capital's short thesis on TASER [ValueWalk]

Small funds struggle to find big backers [FT]

Activist hedge funds actually good for investors [South China Morning Post]

Hedge fund patent crusade benefits whom? [Boston Globe]

When hedge funds become family offices [Forbes]

What We're Reading ~ 4/29/15

A book with a really cheesy title that supposedly 3G Capital hands out [Amazon]

More detailed notes from Charlie Munger's annual meeting part 1 & part 2 [Forbes]

A dozen things learned about investing from Peter Lynch [25iq]

The first rule of short selling is: don't talk about short selling [Dead Companies Walking]

Margin debt: a market indicator that predicts nothing [Bloomberg View]

The great bond conundrum [Economist]

Wang Jianlin - a billionaire at the intersection of business and power in China [NYTimes]

On China in Africa [Council on Foreign Relations]

Common biases that affect business decisions [HBR]

Jeff Bezos penned his annual letter [Amazon]

The biggest threat to your portfolio [Reformed Broker]

Examining Einhorn's latest investment: AerCap Holdings [Value and Opportunity]

A look at Windstream [J.Allen Capital]

The cable era is over [Bloomberg View]

A profile of billionaire banker Andy Beal [Bloomberg]

Homeownership rate falls to lowest since 1993 [HousingWire]

The slow death of the University [Chronicle]

Broyhill Asset Management Q1 Letter on Ally Financial & Subprime Auto Lending

Chris Pavese's Broyhill Asset Management is out with its first quarter letter.  In it, they note their interest in the automobile industry.  Having previously invested in General Motors (GM) and CDK Global (CDK), they've recently found another idea that they found intriguing: Ally Financial (ALLY).

Broyhill notes that Ally is trading at 70% of tangible book value and they see book value approaching $40 over the next few years.  If the stock trades back to book value, this would mean a 2x return. They're not alone in their bullishness here, as late last year we detailed how Perry Capital liked ALLY as well.

In addition to looking at Ally Financial specifically, Broyhill also takes a deeper look at the myths and realities surrounding the subprime auto lending industry as a whole in an appendix at the end of the letter.

Embedded below is Broyhill's Q1 letter on Ally Financial and the subprime auto lending industry:

Lee Cooperman Trims Pennymac Financial Stake, Exercises Warrants on Aspen Group

Omega Advisors' Lee Cooperman has made two separate filings with the SEC recently.


Trims Pennymac Financial Services Stake

First, Cooperman has submitted a Form 4 regarding his stake in Pennymac Financial Services (PFSI).  Per the filing, Cooperman was out selling 58,100 shares on April 27th and 28th at prices around $18.34.  After the sales, he still has exposure to over 3.3 million PFSI shares.

Per Google Finance, Pennymac Financial is "a specialty financial services firm with a mortgage platform and integrated business focused on the production and servicing of United States residential mortgage loans and the management of investments related to the United States residential mortgage market.."


Exercises Warrants on Aspen Group

Second, Cooperman filed a 13G with the SEC regarding shares of Aspen Group (ASPU).  Per the filing, Cooperman continues to own 9.9% of the company.  However, on April 23rd he exercised warrants yielding him 4 million more shares.

The filing also notes that, "In connection with the exercise of the warrants, the reporting person and the issuer have agreed to waive the 9.99% Blocker contained in the warrant agreement."

Per Google Finance, Aspen Group "offers relevant online education. The Company derives revenue primarily from tuition and fees derived from courses taught by the Company online, as well as from related educational resources that the Company provides to its students, such as access to its online materials and learning management system. The Company’s subsidiary, Aspen University Inc. (Aspen University), delivers education experiences and has served thousands of students."

We've previously detailed other portfolio activity from Lee Cooperman here.

Pershing Square's Presentation From European Investor Meeting

Bill Ackman's Pershing Square Holdings has just released a presentation on its portfolio from a recent European investor meeting.

In it, the hedge fund outlines their thesis on various portfolio companies and updates regarding those positions.  They also offer a look at their thinking on a recent addition to their portfolio: Valeant Pharmaceuticals (VRX).

Embedded below is Pershing Square's presentation from its recent European investor meeting:



You can download a .pdf copy here.

For more from this hedge fund, check out Pershing Square's annual report here.

Falcon Edge Capital Discloses Jumei International Position

Rich Gerson's hedge fund firm Falcon Edge Capital has filed a 13G with the SEC regarding shares of Jumei International (JMEI).  Per the filing, Falcon Edge now owns 5.9% of the company with over 5 million shares.

This is a newly disclosed equity position for the hedge fund and the filing was made due to activity on April 17th.

For more from this hedge fund, we've previously detailed some of Falcon Edge's portfolio activity here.

Per Google Finance, Jumei International is "an online retailer of beauty products. The Company has sold over 30,000 stock keeping units (SKUs) of beauty products."

Paulson & Co Reveals Synthesis Energy Stake

John Paulson's hedge fund firm Paulson & Co has filed a 13G with the SEC regarding shares of Synthesis Energy (SYMX).  Per the filing, Paulson & Co has disclosed a 11.7% ownership stake in SYMX with over 10 million shares.

This is a newly revealed equity position for the hedge fund and the disclosure was made due to portfolio activity on April 14th. 

On this date, the company announced a direct placement of 12 million shares to accredited investors.  While Paulson was not specifically named, it seems likely that this is where their stake was acquired.

Per Google Finance, Synthesis Energy is "a development-stage global energy and gasification technology company that provides products and solutions to the energy and chemical industries. The Company provides technology, equipment and services to global projects which involve the conversion of low quality coals, coal wastes, municipal wastes, agricultural biomass, and other biomass feed stocks into clean synthesis gas (syngas)."

20th Annual Sohn Investment Conference in New York Next Week: Tepper, Einhorn, Ackman & More

The 20th annual Sohn Investment Conference is right around the corner.  On May 4th, 2015 in New York City (Avery Fisher Hall, Lincoln Center), top hedge fund managers will share their latest investment ideas to benefit charity.

In partnership with Bloomberg, the Sohn Conference Foundation puts on investment conferences in support of pediatric cancer research.   You can find more details about the event, register to attend, and donate here.

As usual, this conference is absolutely loaded with some of the biggest names in the hedge fund industry.  At the event, you'll hear from:

Sohn Conference NYC Speakers List

- David Tepper, Appaloosa Management
- David Einhorn, Greenlight Capital
- Bill Ackman, Pershing Square Capital
- Lee Cooperman, Omega Advisors
- Mala Gaonkar, Lone Pine Capital
- Larry Robbins, Glenview Capital
- Barry Rosenstein, JANA Partners
- Keith Meister, Corvex Management
- Jeff Gundlach, DoubleLine Capital
- Magnus Carlsen, Chess Grandmaster
- Ian Bremmer, Eurasia Group
- Jay Walker, TEDMED


You can register for the Sohn Conference by clicking here.



Next Wave Sohn NYC Speakers List

And just like last year, up and coming managers will be speaking at the Next Wave Sohn Conference that is held just before the main Sohn event.  Next Wave Sohn takes place at 9:15 AM at Alice Tully Hall at Lincoln Center on the same day.  Speakers include:

- Snehal Amin, Windacre Partnership
- Didric Cederholm, Lion Point Capital
- Alex Denner, Sarissa Capital
- Daniel Dreyfus, 3G Capital
- David Zorub, BlueMountain

You can learn more about the Next Wave Sohn event here.


As always, this looks to be a fantastic day of top hedge fund managers presenting investment ideas all to benefit pediatric cancer research.  If you can't attend, you can still learn more about the Sohn Conference Foundation's efforts and donate here.

Barry Rosenstein on Wall Street Week Talking Activist Investing

The classic show Wall Street Week has recently been rebooted by Skybridge Capital's Anthony Scaramucci.  The second episode just aired and featured Barry Rosenstein of activist hedge fund JANA Partners.

In it, Rosenstein talked about activist investing and more.  Rosenstein started JANA in 2001 with $17 million and now manages over $10 billion.  He describes his strategy as: "We try to bring out the full value of the company."

On how he identifies candidates, Rosenstein says: "There are still plenty of companies that should be making changes and aren't.  It's not necessarily that management is bad or the board are bad people... We bring attention and a spotlight.  We're looking for companies that have underperformed... both relative and absolute ... We look at these companies and figure out why."


Embedded below is the video of Rosenstein's appearance on Wall Street Week which starts around the 4 minute mark:



For more on this hedge fund manager, head to our recent post on how JANA has gone activist on Qualcomm.

Jeff Gundlach's Appearance on Wall Street Week

The classic show Wall Street Week has recently been rebooted by Skybridge Capital's Anthony Scaramucci.  The first episode recently aired and featured DoubleLine Capital's Jeff Gundlach.

In it, Gundlach talks about his specialty: fixed income markets.  He pointed out that in 2018-2019, there will be tons of bond maturities.

He's also worried about junk bonds:  "One thing that I think is really important that nobody talks about or has been thinking about is the entire life of the junk bond market has been secularly declining interest rates."

On what will happen to the junk bond market when interest rates go up, Gundlach proclaimed: "I think that's the next bond market crisis."

On interest rates, Gundlach said, "I think the probability of a rate hike in June is very, very low." He also thinks it could be possible that the Fed doesn't raise rates at all in 2015.  He emphasized that the Fed is data dependent and so the data will need to give them a reason to act.

Embedded below is the video of Jeff Gundlach's appearance on Wall Street Week, which starts around the 3:30 minute mark:

Corsair Capital's Q1 Letter & Pitch on Orbital ATK

Jay Petschek and Steven Major's hedge fund firm Corsair Capital is out with its first quarter letter to investors.  In it, they talk about the global macro situation as well as their positions in Ryman Hospitality (RHP), Kindred Healthcare (KND), CommScope (COMM), and Republic Airways (RJET).

Sees IAC Interactive Spin-Off Coming

Additionally, they outline their thoughts on IAC Interactive (IACI).  They feel shares are worth over $100 (currently trading around ~ $72) and see revenue growth via their online dating apps (advertising implementation on Tinder and paid subs on Tinder Plus).  Corsair expects chairman Barry Diller to spin-off the online dating segment (Match Group) in order to unlock value.

Pitch on Orbital ATK

The end of their letter includes a pitch on Orbital ATK (OA).  In summary, Orbital merged with Alliant Techsystems and they see various synergies here.  This, plus increased buybacks and dividends lead them to believe multiple expansion will occur, bringing the company more inline with competitors.  They think shares are worth ~$100 and currently trade around $73. See the letter below for the full pitch.

Corsair's Q1 Letter

Embedded below is Corsair Capital's Q1 2015 letter:



For more from this hedge fund, head to Corsair Capital's recent interview with Graham & Doddsville.

Hedge Fund Links ~ 4/24/15

David Einhorn's presentation from the Grant's conference [ValueWalk]

Hedge fund money going to venture-backed startups is skyrocketing [Yahoo]

Funds and the Freedom of Information Act: the power of the request [ii alpha]

IRS weights rules on hedge fund managers' use of reinsurance [Insurance Journal]

A profile of Ivory's Curtis Macnguyen [Bloomberg]

Eric Schmidt (Google) family office acquires minority stake in D.E. Shaw [PRNewswire]

Hedge funds hawk single-bet deals [WSJ]

A look at Eton Park's latest activity [CNBC]

Orange Capital expresses concern at ACAS [BusinessWire]

There are now more hedge funds than ever [CNBC]

Small hedge funds get bigger share of investors' money [WSJ]

The surprising market response to activist hedge funds [WSJ]

Making sure the hedge fund survives disaster when a general partner is disabled or dies [Forbes]

Carlson Capital Goes Activist on Vitamin Shoppe

Clint Carlson's hedge fund firm Carlson Capital has filed a 13D on their position in Vitamin Shoppe (VSI).  Per the filing, Carlson now owns 5.34% of the company with 1.58 million shares.

Their equity exposure to the name has more than doubled since the end of 2014.  The filing details they've been sporadically buying throughout late March and as late as April 20th.

The 13D also notes they've engaged management in discussions about the business, management, and strategic alternatives/direction.

Per Google Finance, Vitamin Shoppe is "a multi-channel specialty retailer of vitamins, minerals, herbs, specialty supplements, sports nutrition and other health and wellness products (VMS). The Company markets over 900 different brands as well as its own brands, including Vitamin Shoppe, BodyTech, True Athlete, Mytrition and PLNT. It offers varieties of products among VMS retailers with approximately 8,000 stock keeping units (SKUs) offered in its store and approximately 18,000 additional SKUs available through its e-commerce and other direct sales channels. Its product offering enables the Company to provide its customers with a selection of products that is not readily available at other specialty retailers or mass merchants, such as discount stores, supermarkets, drugstores and wholesale clubs. The Company sells its products through two segments: retail and direct. In the Company's direct segment, the Company sells its products directly to consumers through the internet."

What We're Reading ~ 4/22/15

The One Hour China Consumer Book [Jeffrey Towson]

A dozen things learned about investing from Lou Simpson [25iq]

3 misconceptions about risk management [Wealth of Common Sense]

15 principles of allocating capital [Beyond Proxy]

Google, Microsoft, stall points and growth [Paul Kedrosky]

Larry Fink's piece "Our Gambling Culture" [McKinsey]

Jeff Gundlach says market hasn't seen full impact of Fed moves [Bloomberg]

Chinese growth is losing altitude, will it be a soft or hard landing? [Economist]

The pricing paradox: when diamonds aren't on tap [Tim Harford]

A look at Sirius XM and the subscription media business [PunchCard]

A pitch on Viacom [BeyondProxy]

Predictions of M&A mania for content companies [Hollywood Reporter]

Time Warner, Viacom back away from Nielsen guarantees for ads [Variety]

The new era of low stock returns [WSJ]

The student loan problem is even worse than figures indicate [WSJ]

Car retailing grabs merger spotlight [WSJ]

Starwood Hotels giving activists reason to check in [Bloomberg]

Greenlight Capital Q1 Letter: David Einhorn Cuts Net Exposure In Half

David Einhorn is out with Greenlight Capital's first quarter letter to investors.  Greenlight finished Q1 -1.7% net of fees.  While many investors will care more about Einhorn's equity picks, we think the more noteworthy takeaway is the fact that the hedge fund has cut net exposure in half from 30% down to 14% net long.

Greenlight writes, "Bottom up: short candidates are easy to find ... the opportunity set on the long side is quite constrained.  Top-down: Valuations are on the high side and earnings are in a precarious spot."

Einhorn then touches on the Federal Reserve, noting that, "How fast it tightens should be less important than the fact that it will tighten."

As far as individual equity moves go, Greenlight made the following adjustments: started new positions in AerCap (AER), Chicago Bridge & Iron (CBI), as well as re-entering General Motors (GM) shares.  They sold Aetna (AET), closed shorts in Safeway (SWY), Freescale Semiconductor (FSL), and Lorillard (LO).  However, they started a new short in Reynolds American (which acquired LO.)

Embedded below is Greenlight Capital's Q1 2015 letter with the thesis on their new investments:

Market Strategist Jeff Saut on Activity Versus Inactivity

It's been a long time since we checked in on well known market strategist Jeff Saut.  His latest piece entitled "Activity Versus Inactivity" is a look at a common dilemma for investors.

In it, Saut takes a look at human nature and writes, "Plainly there are times for investors/traders to be active.  But there are also times for them to be inactive, despite the trait of human nature to be 'active;' and, for the past few months inactivity has been the best overall strategy."

Saut then goes on to talk about some market technicals and the latest market datapoints.  They feel crude oil has bottomed and that the stock market, even if it sells off in the near-term, would be doing so "within the construct of a secular bull market that has eight to nine years left on the upside."

Embedded below is Jeff Saut's latest market commentary:



You can download a .pdf copy here.

Ardsley Partners Starts Position in Bluerock Residential Growth REIT

Phil Hempleman's hedge fund Ardsley Partners has filed a 13G with the SEC regarding shares of Bluerock Residential Growth REIT (BRG).  Per the filing, Ardsley has revealed a 5% ownership stake in the company with 625,900 shares.

This is a newly disclosed equity position for the firm and the filing was made due to activity on April 6th.

You can view more recent portfolio activity from Ardsley Partners here.

Per Google Finance, Bluerock Residential Growth REIT is "a real estate investment trust (REIT). The Company is engaged in acquiring and developing a diversified portfolio of real estate. The Company also intends to acquire residential properties. The Company’s operations are managed by Bluerock Multifamily Advisor, LLC."

Farallon Capital Trims Hudson Pacific Properties Stake

Andrew Spokes' hedge fund firm Farallon Capital has filed an amended 13D with the SEC regarding their stake in Hudson Pacific Properties (HPP).  Per the filing, Farallon now owns 4.1% of the company with over 3.63 million shares.

Their most recent filing was required due to activity on April 10th as Farallon Funds "completed an underwritten public offering of 6,037,500 shares."

Back in January of this year, they had disclosed exposure of over 8.7 million shares, so their net position has decreased by around 5 million shares since then.

Per Google Finance, Hudson Pacific Properties is "a full-service, vertically integrated real estate investment trust (REIT), focused on owning, operating and acquiring high-quality office and media and entertainment properties in select growth markets primarily in Northern and Southern California. Its investment strategy is focused on high barrier-to-entry, in-fill locations with favorable, long-term supply demand characteristics."

For more from this hedge fund, head to other recent portfolio activity from Farallon here.

Viking Global Starts Envision Healthcare Position

Andreas Halvorsen's hedge fund firm Viking Global has just filed a 13G with the SEC regarding shares of Envision Healthcare Holdings (EVHC).  Per the filing, Viking now owns 6.3% of the company with over 11.5 million shares.

This is a newly disclosed equity position for the hedge fund and the filing was made due to activity on April 9th.  Other hedge funds that already held positions as of the end of 2014 include Valinor Management and Bridger Capital, among others.

You can view additional recent portfolio activity from Viking Global here.

Per Google Finance, Envision Healthcare is "a provider of physician-led, outsourced medical services in the United States. The Company conducts its business primarily through two operating subsidiaries, EmCare Holdings, Inc. (EmCare) and American Medical Response, Inc. (AMR). The Company markets its services primarily under the EmCare and AMR brands. EmCare is a provider of integrated facility-based physician services, including emergency, anesthesiology, hospitalist/inpatient care, radiology, tele-radiology and surgery. EmCare also offers physician-led care management solutions outside the hospital. AMR is a provider and manager of community-based medical transportation services, including emergency (911), non-emergency, managed transportation, fixed-wing air ambulance and disaster response. The Company, through VISTA Staffing Solutions Inc, provides physician staffing services.."

Stan Druckenmiller on Oil, China, Interest Rates & More: Bloomberg Interview

Legendary investor Stan Druckenmiller, formerly of Soros Fund and Duquese Capital, recently sat down for a fantastic interview with Bloomberg's Stephanie Ruhle.

We highly recommend watching it in its entirety, but here's a few key takeaways:

On interest rates: "My fear is we’re not going to see anything for a year-and-a-half because they set up metrics eight or nine months ago…I have no confidence whatsoever that you’re going to see rate hikes in September or December or whenever because when they lay out metrics and then they change, and then they change again, and then they change again, who knows where -- when they’re going to go."

On oil: "Well, I'm pretty optimistic on crude prices.  I think they’re going to do better than the forward curve.  Well, because as my protégé, Zach Schreiber, said a year ago, the cure for high prices is high prices.  Well, he would also say now the cure for lower prices -- low prices is low prices."

On China:  "The Chinese stock market is up, I don’t know, 140 percent in six months after being in a downtrend for five to seven years, and it’s doing so on record volume with record breadth.  If it was any other stock market or certainly any developed market, I would tell you, being a market observer, there’s a 98 percent chance China will be in a cyclical boom 6 to 12 months from now.  Because it’s China, and we don’t know the nature of what we’re dealing with here relative to normal mature developed markets, I would downgrade that assessment from 95 percent, but I would still hold it over ... I would point out that the H shares in Hong Kong representing China are 10.1 times earnings"

On European stocks he likes:  BMW, Volkswagen, Airbus, Altice

On potential bubbles:  "I think tech valuations, at least in the private market, are kind of crazy."

On market dynamics:  "My first boss asked me a question when I was 22 years old.  Do you know happens to the money when the stock market goes down?  I said, I don’t know.  It goes into the bond market.  He said, no.  It evaporates.  It evaporates.  You know what happens when stock prices go up?  Wealth goes up.  Confidence goes up.  Economic activity generally goes up, so the more, the merrier."

Embedded below is the video of Stan Druckenmiller's interview with Bloomberg:



For more from this investor, we've also previously posted up past thoughts from Druckenmiller.

Julian Robertson Worried About Bubbles Bursting

Tiger Management's Julian Robertson recently was interviewed by Fox Business and touched on bubbles developing, interest rates, the US Dollar and select US equities.


The thing he said he's worried about most are bubbles developing: specifically, the bubble in bonds created by the Federal Reserve's actions.  He notes it's a hard market to save in and an easy market to borrow in, and those things aren't conducive to long-term prosperity.

Robertson thinks the equity rally will be stalled by an increase in interest rates.  He expects a rate increase this year (warranted by the economy).  "I don't think it's at all ridiculous to think an '08 size (decline)."

Tiger Management's founder also sees the US Dollar strength continuing.

As to what stocks Robertson likes, Gilead Sciences (GILD) was mentioned.  He said he likes growth companies and notes that these types of plays (like Apple, Google, Facebook) used to trade for such high multiples back in the day, but nowadays are trading for cheap.

Lastly, he singled out Amazon (AMZN) as a company he finds fascinating because it doesn't have considerable cashflow and it's "wild that it gets this kind of multiple."  He acknowledges it's done well, but he's short, saying AMZN "don't care" about profitability.

Embedded below are the videos of Robertson's appearance on Fox Business:

Video 1


Video 2

JANA Partners Goes Activist on Qualcomm

Barry Rosenstein's hedge fund firm JANA Partners has gone activist on Qualcomm (QCOM).  They're looking for the company to spin off its chip unit from the patent licensing division and for the company to accelerate share repurchases.

Rosenstein was recently interviewed by David Faber at CNBC and said that, "What we think they ought to do is a transparent review of the client businesses, and determine whether or not it makes sense to do either a partial or full split.  So we are not definitely saying that they should split it up."

JANA now owns around $2 billion worth of Qualcomm shares

Embedded below is the video of Rosenstein's interview with CNBC:



For more from this hedge fund, we've highlighted other recent portfolio activity from JANA.

Balyasny Discloses New Stakes in Basic Energy Services & Tetra Technologies

Dmitry Balyasny's investment firm Balyasny Asset Management has filed two separate 13G's with the SEC.

New Stake in Basic Energy Services

First, Balyasny has revealed a brand new equity stake in Basic Energy Services (BAS).  Per their SEC filing, they now own 5.39% of the company with over 2.25 million shares.  The filing was made due to activity on March 18th.

Per Google Finance, Basic Energy Services is "provides a range of well site services to oil and natural gas drilling and producing companies, including completion and remedial services, fluid services, well servicing and contract drilling. The Company’s operations are managed regionally and are concentrated in the United States onshore oil and natural gas producing regions located in Texas, New Mexico, Oklahoma, Arkansas, Kansas, Louisiana, Wyoming, North Dakota, Colorado, Utah, Montana, West Virginia, Kentucky, Ohio and Pennsylvania. Its operations are focused on liquid rich basins that exhibit drilling and production economics as well as natural gas-focused shale plays characterized by prolific reserves and attractive economics."


New Position in Tetra Technologies

Second, the hedge fund firm has disclosed a new equity position in Tetra Technologies (TTI).  This 13G filing indicates they own 5.39% of the company with over 4.29 million shares of the company.   This was due to portfolio activity on March 18th.

Per Google Finance, Tetra Technologies is "is oil and gas services company, focused on completion fluids and other products, production testing, wellhead compression, and selected offshore services including well plugging and abandonment, decommissioning, and diving. The Company also has limited domestic oil and gas production business. The Company operates under five reporting segments organized into three divisions: Fluids, Production Enhancement, and Offshore. The Fluids Division manufactures and markets clear brine fluids, additives, and associated products and services to the oil and gas industry. The Production Enhancement Division consists of two operating segments: Production Testing and Compressor. The Production Testing segment provides after-frac flow back, production well testing, offshore rig cooling, and other associated services.."


You can view additional recent portfolio activity from Balyasny here.

Corvex Management Adds To Signet Jewelers Stake

Keith Meister's activist hedge fund Corvex Management has filed an amended 13D with the SEC regarding its position in Signet Jewelers (SIG).  Per the filing, Corvex now owns 7.2% of SIG with over 5.74 million shares.

They've increased their position size by 235,000 shares.  They were buying sporadically in January, February and early March at prices between $117.40 and $121.68.

Corvex's filing says they commend Signet "for its new capital allocation policy and look forward to continuing to engage in constructive and collaborative conversations."

You can view additional portfolio activity from Corvex here.

Per Google Finance, Signet Jewelers is "a Bermuda-based specialty retail jeweler by sales in the United States and United Kingdom. The Company also has stores in the Republic of Ireland and Channel Islands. It is engaged in the retailing of jewelry, watches and associated services. The business is managed as two geographical operating divisions: the US division and the UK division."

Hedge Fund Links ~ 3/27/15

How the smart money is set up for a Fed rate hike [CNBC]

New funds blast off with best year since 2004 [HF Intelligence]

Omega Advisors receives federal subpoena [CNBC]

Hedge fund manager: it's a 'truly scary time' [CNBC]

Here are the billionaire hedge fund babies of 2014 [CNBC]

Startups are not hot in the rich hedge fund industry [Forbes]

TigerShark to close down [Bloomberg]

For the Clintons, a hedge fund in the family [NYTimes]

Paul Tudor Jones at TED [TED]

Showtime orders new series 'Billions' about a hedge fund manager [CBS]

Notes From Charlie Munger's Daily Journal Meeting 2015

Charlie Munger's Daily Journal (DJCO) 2015 meeting recently took place.  Alex Rubalcava (@AlexRubalcava) attended and we've aggregated/posted his notes below with permission.


Notes From Charlie Munger's Daily Journal (DJCO) Meeting 2015

Munger on venture capital versus what he does for a living: "It's a really difficult honest way to make a living.  It's not like shooting fish in a barrel, which is how I've made my living."

Software is now a bigger revenue line for DJCO than print and Munger "thinks of it like Jeff Bezos" with its operating losses as it grows.

On the switch from pompous boards to activist investors: "I like the new system even less ... Carl Icahn is a very able man but that doesn't mean he should be running the world."

"I did not succeed in life by intelligence.  I succeeded because I have a long attention span."

"I think that someone my age has lived through the best and easiest period in the history of the world."

Munger referenced The Better Angels of Our Nature by Steven Pinker

"When things are damn near impossible, maybe you should stop trying."

Munger sang the praises of Posco at the meeting and also said that he thinks the moat of American Express (AXP) is less than it once was.

"I think it's very difficult to be a value investor with $200B AUM."

"Other people are trying to act smarter.  I'm just trying to be non-idiotic."

"If the incentives are wrong, the behavior will be wrong.  I guarantee it."

On 3G Capital: "They're teaching us something about reality."

"I don't spend too much time thinking about what is almost certain never to happen."

"The finance industry is 5% rational people and 95% shamans and faith healers."

"A lot of our respected financial institutions are just casinos in drag."

"I don't think anything that any average person can do easily is likely to be worthwhile."

"Before marriage, keep your eyes wide open.  After marriage, keep them half shut."

On how to compete in a service oriented biz: identify things that annoy customers and go down the list and get rid of them

Question about if there are parallels between what's happening in TV with what's happened with newspapers: "I've been a little surprised at how well television has survived, but I'm a little suspicious about the local incumbents."

Munger talked about the Chinese air pollution documentary, "Under the Dome."  He says the ability of P2P communication like that documentary is a cautionary tale for old media.

"Nobody survives open heart surgery better than the guy who didn't need the procedure in the first place."

"Index funds will be permanent owners who can never sell.  That will give them power they are not likely to use well."

If you put a gun to his head and told him he had to buy a tech stock, Munger would pick Google (GOOG)

"Valeant (VRX) is like ITT and Harold Geneen come back to life, only the guy is worse this time."

Munger talked about how Singleton was born smarter than Buffett but Buffett worked harder to learn about investing.

"The way to get rich is to keep $10 million in your checking account in case a good deal comes along."


If you missed it, you can also check out notes from Charlie Munger's Daily Journal meeting last year as well for more wisdom.  Be sure to also read Charlie's letter in the most recent Berkshire Hathaway annual report.

Howard Marks' New Memo on Liquidity

Oaktree Capital's Chairman Howard Marks is out with his latest memo entitled "Liquidity."

Marks outlines the definition of liquidity as the ability to sell something at a price equal or close to the last price.  He also argues that an asset's liquidity can come and go with what's going on in the market. 

He profoundly writes, "In other words, the liquidity of an asset depends on which way you want to go ... and which way everyone else wants to go."

Oaktree's Chairman goes on to write, "The bottom line is unambiguous.  Liquidity can be transient and paradoxical.  It's plentiful when you don't care about it and scarce when you need it most.  Given the way it waxes and wanes, it's dangerous to assume the liquidity that's available in good times will be there when the tide goes out."

Marks also opines about exchange traded funds (ETFs) and liquid alternatives, in an interesting take on how they should be viewed.

Embedded below is Howard Marks' memo on Liquidity:



You can download a .pdf copy here.

If you haven't already, be sure to check out Marks' acclaimed book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor.

Bill Ackman's Pershing Square Annual Report 2014

Bill Ackman's Pershing Square Holdings has released its annual report for 2014.  In it, Ackman highlights how his firm has evolved.  Additionally, he pulls anecdotes from past Pershing Square letters (from inception to the present) to outline their business model, investment strategy, approach to risk management and more.

Embedded below is Pershing Square's 2014 annual report:



You can download a .pdf copy here.

For more on this hedge fund, we posted up some recent portfolio activity from Pershing Square here.

Tiger Global Reduces Bitauto Stake

Chase Coleman and Feroz Dewan's Tiger Global filed an amended 13G with the SEC regarding its position in Bitauto (BITA).  Per the filing, Tiger Global now owns 9.6% of the company with around 6 million shares.

They've reduced their stake by 479,978 shares since the end of the first quarter.  The filing was made due to activity on March 23rd.

Per Google Finance, Bitauto is "a China-based provider of Internet content and marketing services. The Company also distributes its dealer customers’ automobile pricing and promotional information through approximately 600 Internet service provider partners, including Tencent, Netease and Qihoo 360. It operates in four segments bitauto.com advertising business, which offers automakers and dealers a range of advertising services through its Website, and mobile applications; EP platform business, which provides Web-based and mobile-based digital marketing and sales assistant solutions and customer relationship management applications to new automobile dealers in China; taoche.com business, whichprovides listing services to used automobile dealers which display used automobile inventory information on the Website, mobile applications and digital marketing solutions business, which provides automakers with digital marketing solutions."

You can view other portfolio activity from Tiger Global here.

What We're Reading ~ 3/25/15

The psychology of sitting in cash [Wealth of Common Sense]

Problems with "the long-term" [Pragmatic Capitalism]

Discounted cashflow valuations: academic exercise, sales pitch or investor tool? [AD]

25 things learned from Joel Greenblatt about investing [25iq]

The changing and unchanging structure of TV [Stratechery]

Peak cable [Asymco]

The March Madness theory of investing [Bloomberg View]

The world reshaped [The Economist]

Household debt service ratio near record low [Calculated Risk]

The changing state of American fast food [Quartz]

Inside Pinterest, the coming ad colossus that could dwarf Facebook & Twitter [Forbes]

Why this tech bubble is worse than the tech bubble of 2000 [Mark Cuban]

Glenview Capital Q4 Letter on McDonald's, T-Mobile, Auto Dealers & More

Larry Robbins' hedge fund firm, Glenview Capital, is out with its fourth quarter letter to investors. Glenview's Opportunity Fund returned 25.25% net in 2014. 

In the letter, Robbins outlines his thesis on auto dealers (Group 1 Automotive ~ GPI), Flextronics (FLEX), McDonald's (MCD), PHH (PHH), T-Mobile (TMUS), and pharma roll-up plays like Actavis (ACT) and Endo (ENDP).


Glenview's Q4 Letter Takeaways

On McDonald's (MCD):  This is a new stake for Glenview and they feel there's basically 5 ways to make a 'happy meal' to help the company: operational turnaround, SGA rationalization, refranchising, additional leverage, and real estate.  They feel this could trade as high as $169 (currently trades around $99.)

On MCD, Robbins writes, "Fundamentally, McDonald’s has a number of characteristics that we look for in good businesses. Approximately 75% of EBITDA is driven by royalties and rent, which is a secure, stable earnings stream free of operating leverage. Food, in general, is a defensive end market, and McDonald’s positioning at the value end of the spectrum provides further insulation from material cyclicality as evidenced by positive same store sales in the U.S. and positive consolidated EPS growth in every year throughout the last recession."


On T-Mobile (TMUS): Glenview has owned this company since 2013 but bought more shares in December 2014.  They feel the company has a few positive things going for it to continue its growth: aggressively going after new subscribers, deploying spectrum to address new customers, and seeing positive FCF generation this year. 

They also like that the company is a "key strategic asset" and that their parent company Deutsche Telekom is looking to sell.  Glenview feels TMUS could either: try to tie-up with Dish Network and their spectrum, seek a sale to a foreign buyer, or again try to merge with Sprint once a new political administration takes office in 2016.


Embedded below is Glenview's Q4 letter:



For more from this hedge fund, yesterday we posted up some more of Glenview's recent portfolio activity.

Pershing Square Reveals Size of Valeant Investment

Bill Ackman's hedge fund firm Pershing Square Capital Management has filed a 13D with the SEC regarding shares of Valeant Pharmaceuticals (VRX).  Per the filing, Pershing now owns 5.7% of the company with over 19.47 million shares.  The position was assembled via buying common stock and selling put options between February 9th and March 17th.

This is a brand new position for the hedge fund and the filing was made due to activity on March 17th.  We highlighted yesterday how Pershing Square would be participating in VRX's latest offering.  Their ownership percentage above is based on the post-offering amount of shares outstanding.  You can view all of Pershing's recent VRX-related trading activity here.

Based on the number of shares owned, Pershing would be the second largest holder of VRX, behind Ruane Cunniff & Goldfarb (Sequoia Fund) and would hold just slightly more shares than Jeff Ubben's ValueAct Capital.

Pershing's 13D filing also contained the following statement under 'purpose of transaction':

"The Reporting Persons think highly of the Issuer’s management team, strategy, and track record. While the Reporting Persons hold their stake for investment purposes, representatives of the Reporting Persons may continue to conduct discussions from time to time with management of the Issuer, and may conduct discussions with other stockholders of the Issuer or other relevant parties, in each case, relating to matters that may include the strategic plans, strategy, assets, business, financial condition, operations, and capital structure of the Issuer. The Reporting Persons may engage the Issuer, other stockholders of the Issuer or other relevant parties in discussions that may include one or more of the other actions described in subsections (a) through (j) of Item 4 of Schedule 13D. In addition to the foregoing, the Reporting Persons expect to conduct discussions with the Issuer and other relevant parties regarding strategic acquisitions by or joint ventures with the Issuer, or other similar arrangements. These discussions would be exploratory in nature and there is no assurance that they would lead to a definitive transaction."

Per Google Finance, Valeant Pharmaceuticals is "a multinational, specialty pharmaceutical company that develops, manufactures and markets a range of pharmaceutical products."