Marcato Capital Takes Terex & Buffalo Wild Wings Stakes

Mick McGuire's activist firm Marcato Capital Management has recently taken stakes in two companies.


Marcato Discloses Terex (TEX) Stake

First, Marcato just filed a 13D with the SEC regarding shares of Terex (TEX).  They now own 5.1% of the company.  CNBC reported that the firm will urge a spinoff and restructuring but support the CEO.

Per Google Finance, Terex is "a lifting and material handling solutions company. The Company is focused on providing its operations and delivering solutions for a range of commercial applications, including the construction, infrastructure, mining, manufacturing, transportation, energy and utility industries. It operates through five segments: Aerial Work Platforms (AWP), Construction, Cranes, Material Handling & Port Solutions (MHPS), and Materials Processing (MP). The AWP segment designs, manufactures, services and markets aerial work platform equipment, telehandlers and light towers. The Construction segment designs, manufactures and markets over two primary categories of construction equipment and their related components, and replacement parts. The Cranes segment designs, manufactures, services, refurbishes and markets mobile cranes. MHPS designs, manufactures, services and markets industrial cranes. The MP segment designs, manufactures and markets materials processing equipment."


McGuire Starts Buffalo Wild Wings (BWLD) Position

Second, McGuire has also filed a 13D with the SEC regarding shares of Buffalo Wild Wings (BWLD).  Per the filing, Marcato now owns 5.1% of the company with 950,000 shares.  The stake is comprised of various common stock holdings as well as the purchase/sale of various options which you can view here at the very bottom.

This is a newly disclosed position.  They were active in shares and options as early as June 20th and as late as July 22nd.

The filing notes they've already had discussions with directors and will continue to have discussions.

Per Google Finance, Buffalo Wild Wings is "an owner, operator and franchisor of restaurants featuring various menu items. The Company's restaurants feature a bar, which offers a selection of 20 to 30 domestic, imported and craft beers on tap, as well as bottled beers, wine and liquor. The Buffalo Wild Wings restaurants feature various menu items, including its Buffalo, New York-style chicken wings spun in one of its signature sauces from sweet to screamin' hot, which includes Sweet barbeque (BBQ), Teriyaki, Bourbon Honey Mustard, Mild, Parmesan Garlic, Medium, Honey BBQ, Spicy Garlic, Asian Zing, Caribbean Jerk, Thai Curry, Hot BBQ, Hot, Mango Habanero, Wild and Blazin', or signature seasonings, Buffalo, Desert Heat, Chipotle BBQ, Lemon Pepper, and Salt & Vinegar. Its restaurants include a multi-media system, a bar and an open layout. It operates Buffalo Wild Wings, R Taco and PizzaRev restaurants, as well as sells Buffalo Wild Wings and R Taco restaurant franchises."

Coatue Management Reduces Twilio Position

Philippe Laffont's hedge fund firm Coatue Management has filed an amended 13G with the SEC regarding their position in Twilio (TWLO).

Per the filing, Coatue now owns 3.8% of TWLO with 437,152 shares.  This is down from the 625,000 shares they previously reported owning.  This filing was due to activity on July 25th.

Per Google Finance, Twilio "offers Cloud Communications Platforms. The Company enables developers to build, scale and operate real-time communications within software applications. It Programmable Communications Cloud software enables developers to embed voice, messaging, video and authentication capabilities into their applications via its Application Programming Interfaces. The Super Network is its software layer that allows its customers' software to communicate with connected devices globally. It interconnects with communications networks around the world and continually analyzes data to optimize the quality and cost of communications that flow through its platform. The Programmable Communications Cloud consists of software products that can be used individually or in combination to build rich contextual communications within applications. The Programmable Communications Cloud includes Programmable Voice; Programmable Messaging; Programmable Video; Use Case APIs, and Add-on Marketplace."

Third Point Q2 Letter: Long Didi Chuxing & Energy Credit

Dan Loeb's hedge fund Third Point is out with its Q2 letter.  In it, they talk about their new private investment in Didi Chuxing, a Chinese ridesharing service that currently has more market share than Uber in China.  Apple (AAPL) also recently invested. 

Third Point also updates their stake in Baxter (BAX) and talks about their increased energy credit exposure.

Third Point's Q2 letter is embedded below:



You can download a .pdf copy here.

For other recent hedge fund letters, check out Greenlight Capital's Q2 letter.

Greenlight Capital Q2 Letter: Long Chemours (CC)

David Einhorn's hedge fund Greenlight Capital is out with its Q2 letter.  They feel that the 'Brexit' won't be a significant economic event by itself.

Turning to specific stocks, Greenlight outlines its thesis on Chemours (CC), a recent spin-off from DuPont (DD). 

They note, "CC should benefit from the continued recovery of TiO2 prices.  Further, EU regulations are driving adoption of CC's next generation refrigerant Opteon, which should increase fluoroproduts profits.  Lastly, management can reduce costs and shutter unprofitable businesses now that the company is independent of DuPont.  We expect the stock to appreciate as investors refocus on the earnings power of the business, which we think will approach $2.00 in 2017.  Our overall average purchase price is $6.58."

The hedge fund also exited numerous longs during the quarter: Macy's (M), American Capital Agency (AGNC), Baxter (BAX), Oil States International (OIS).

They also covered short positions after the Brexit volatility, including: Intuitive Surgical (ISRG), Under Armour (UA), and United Rentals (URI).

At the end of Q2, Greenlight's largest disclosed longs (in alphabetical order) were: AerCap, Apple, CONSOL Energy, General Motors and gold.  Average exposure was 96% long and 69% short.

Greenlight's Q2 letter is embedded below:



H/T ValueWalk


For other recent hedge fund letters, we also posted up Third Point's Q2 letter here.

What We're Reading ~ 7/27/16

Find ideas that are good and different [Medium]

The values of value investing [IMAUSA]

The promise of Regrexit [George Soros]

How borrowed shares swing company votes [WSJ]

The downside of past performance [A Wealth of Common Sense]

On Amazon, eBay, and eCommerce arbitraging [Entrepreneur]

The best paid CEOs run some of the worst performing companies [WSJ]

An in-depth look at food chain Chili's [GQ]

India's audacious plan to bring digital banking to 1.2 billion people [Bloomberg]

India's Flipkart has an Amazon problem [Bloomberg]

The new class war [Economist]

China: a transition well underway [ValueWalk]

How one investor approaches valuation [Medium]

Why you should understand what's happening with Italian banks [SNBCHF]

Why ultralow rates are here to stay [WSJ]

Warren Buffett deputy Ted Weschler makes his mark [Institutional Investor]

FCC sets stage for next generation of wireless: 5G [LATimes]

Watching Brazil's rich: a full-time job [NYTimes]

Summer Sale: 50% Off The Wall Street Journal For a Limited Time

From time to time we like to highlight relevant financial deals we come across.  It looks like The Wall Street Journal is now having a summer sale with a 50% discount.

The sale applies to all versions: print, digital, or both.  The offer expires on August 7th so definitely take advantage of the savings and lock-in low prices while you can.

Here's the link to the offer: 50% off The Wall Street Journal

Enjoy!

NYU Stern Evaluation Investment Newsletter: Latest Issue

NYU Stern's student-run investment newsletter eVALUATION is out with their latest issue. 

In it, they interview Ron Cordes of AssetMark, Peter Grubstein of NGEN Partners, Rekha Unnithan of TIAA Global Asset Management, Professor Steve Godeke, David Levine of Odin River, and Sebastian Vanderzeil of Cornerstone Capital Group.

The issue also features investment pitches from students, including: long Harman International (HAR) and long Terraform Global (GLBL). 

Embedded below is the latest issue of NYU Stern's eVALUATION newsletter:



For more like this, check out NYU Stern's interview with Marc Lasry as well as their issue on private market investing.

12 West Capital Discloses Ari Network Services Stake

Joel Ramin's hedge fund firm 12 West Capital has filed a 13G with the SEC regarding shares of Ari Network Services (ARIS).  Per the filing, 12 West now owns 5.9% of the company with 1,020,010 shares.

This is a newly disclosed equity stake for the firm and the filing was made due to activity on July 1st.

Per Google Finance, Ari Network Services is "creates software-as-a-service (SaaS) and data-as-a-service (DaaS) solutions that help equipment manufacturers, distributors and dealers in selected vertical markets Sell More Stuff!- online and in-store. The Company’s solutions include Web Platform Solutions, eCatalog Platform Solutions and Lead Management Product. The Company’s SaaS and DaaS solutions include eCommerce-enabled websites, which provide a Web presence for dealers and serve as a platform for driving leads and eCommerce sales; eCatalogs, which drive sales of inventory and PG&A both online and within the dealership; and lead management software designed to increase sales for dealers through management and closure of leads."

Coatue Management Files 13G on Twilio

Philippe Laffont's hedge fund firm Coatue Management has just filed a 13G with the SEC regarding shares of Twilio (TWLO).  Per the filing, they now own 6.25% of the company with 625,000 shares.

Twilio recently went public in late June.  However, Coatue previously invested when Twilio was still private.  The company's blog notes that Coatue participated in its Series E round back in July 2015.

Per Google Finance, Twilio "offers Cloud Communications Platforms. The Company enables developers to build, scale and operate real-time communications within software applications. It Programmable Communications Cloud software enables developers to embed voice, messaging, video and authentication capabilities into their applications via its Application Programming Interfaces. The Super Network is its software layer that allows its customers' software to communicate with connected devices globally. It interconnects with communications networks around the world and continually analyzes data to optimize the quality and cost of communications that flow through its platform. The Programmable Communications Cloud consists of software products that can be used individually or in combination to build rich contextual communications within applications. The Programmable Communications Cloud includes Programmable Voice; Programmable Messaging; Programmable Video; Use Case APIs, and Add-on Marketplace."

ValueAct Capital Files 13D on Alliance Data Systems

Jeff Ubben's activist investment firm ValueAct Capital has filed a 13D with the SEC regarding their stake in Alliance Data Systems (ADS).  Per the filing, ValueAct now owns 6.8% of the company with 4 million shares.

The filing indicates ValueAct was buying in mid-to-late June and early July at prices from $186.66 to $200.99.  ADS currently trades around $211.

This is up a sizeable amount from the 541,115 ADS shares they owned at the end of the first quarter.  Our Hedge Fund Wisdom newsletter flagged ValueAct's new purchase back in May.

The 13D notes that ValueAct intends to have discussions with management and the board about ways to enhance shareholder value.

Per Google Finance, Alliance Data Systems is "a provider of data-driven marketing and loyalty solutions serving consumer-based businesses in a range of industries. The Company offers a portfolio of integrated outsourced marketing solutions, including customer loyalty programs, database marketing services, end-to-end marketing services, analytics and creative services, direct marketing services, and private label and co-brand retail credit card programs. The Company operates through three segments: LoyaltyOne, which provides coalition and short-term loyalty programs through the Company's Canadian AIR MILES Reward Program and BrandLoyalty; Epsilon, which provides end-to-end, integrated marketing solutions, and Card Services, which provides risk management solutions, account origination, funding, transaction processing, customer care, collections and marketing services for the Company's private label and co-brand retail credit card programs."

Tiger Management Increases T2 Biosystems Stake, Reduces Enzymotec Stake

Julian Robertson's hedge fund firm Tiger Management has recently submitted two filings to the SEC.


Tiger Files 13G on T2 Biosystems

First, Tiger Management has filed a 13G on T2 Biosystems (TTOO).  Per the filing, Tiger now owns 5.17% of the company with over 1.25 million shares.

This is up from the 552,255 shares they owned at the end of the first quarter.  The filing was made due to activity on June 29th.

To see the rest of Tiger Management's portfolio, head to the latest issue of our Hedge Fund Wisdom newsletter.

Per Google FInance, T2 Biosystems is an "in vitro diagnostics company engaged in developing a technology platform offering an alternative to diagnostic methodologies. The Company's T2 Magnetic Resonance platform (T2MR) enables detection of pathogens, biomarkers and other abnormalities in a range of unpurified patient sample types, including whole blood, plasma, serum, saliva, sputum and urine, and can detect cellular targets at limits of detection as one colony forming unit per milliliter (CFU/mL). The Company's initial development efforts target sepsis, hemostasis and Lyme disease. T2MR is a miniaturized, magnetic resonance-based approach that measures how water molecules react in the presence of magnetic fields. Its platform detects a range of targets, including molecular targets, such as deoxyribonucleic acid (DNA), immunodiagnostics, such as proteins, and a range of hemostasis measurements. The Company offers T2Dx Instrument (T2Dx) and the T2Candida Panel."


Tiger Reduces Enzymotec Position

Secondly, in a separate 13G filed with the SEC, the hedge fund firm also shows a 2.5% stake in Enzymotec (ENZY) with 577,407 shares. 

This is down from the 1.14 million shares they owned at the end of the first quarter.  The filing was made due to activity on July 1st.

Per Google Finance, Enzymotec is "a nutritional ingredients and medical foods company. The Company's technologies, research expertise and clinical validation process enables it to develop solutions across a range of products. The Company operates in two segments: Nutrition segment and VAYA Pharma segment. Both of the Company's segments offer a range of products that leverage its lipid-related offerings. Its product suite addresses the entire human life-cycle, from infancy to old age, and comprises ingredients in products ranging from infant formula to nutritional supplements, as well as branded medical foods, sold only under a doctor's supervision. It markets its product portfolio to established global consumer companies and physicians and target large and growing consumer health and wellness markets. The Company's clinically-validated products include bio-functional lipid-based compounds designed to address dietary needs, medical disorders and common diseases."

Pershing Square Updates Zoetis Position

Bill Ackman's hedge fund firm Pershing Square Capital has filed a 13D with the SEC regarding its position in Zoetis (ZTS).  Previously, we highlighted that Pershing was offering ZTS shares for sale.  Now, we get a sense as to how much of their position they've offloaded.

The 13D indicates Pershing now owns 3.8% of the company with 18.89 million shares.  This means they've sold 22.93 million ZTS shares since the end of the first quarter.

They were out selling Zoetis shares throughout June and into early July at prices $45.57 and $48.18.  ZTS currently trades around $48.47.

We've also highlighted some other recent Pershing Square portfolio moves.

Per Google Finance, Zoetis is "in the discovery, development, manufacture and commercialization of animal health medicines and vaccines, with a focus on both livestock and companion animals. The Company has a diversified business, marketing products across over eight core species: cattle, swine, poultry, sheep and fish (collectively, livestock), and dogs, cats and horses (collectively, companion animals), and within over five product categories: anti-infectives, vaccines, parasiticides, medicated feed additives and other pharmaceuticals. It operates through two segments: the United States and International. Within each of these segments, it offers a diversified product portfolio for both livestock and companion animal customers. In addition, its Client Supply Services (CSS) organization provides contract manufacturing services to third parties. It also offers other product categories, such as nutritionals and agribusiness."

What We're Reading ~ 7/6/16

Decision Quality: Value Creation from Better Business Decisions [Carl Spetzler]

An interview with Berkshire's Ted Weschler [Business Insider]

Interview with Disney's Bob Iger [Hollywood Reporter]

Brexit and the future of Europe [George Soros]

Things you can't care about when managing other people's money [A Wealth of Common Sense]

The truths and myths of buybacks [Fat Pitch]

How your brain picks and sticks with winning decisions [Singularity Hub]

Mark Cuban on CEO pay [Blog Maverick]

Exor SpA: buying a reinsurance co doesn't mean you're the 'next Berkshire' [Value & Opportunity]

The CFA exam's toughest question: what's the payoff? [Bloomberg]

The cure for decision fatigue [WSJ]

Soaring childcare costs squeeze families [WSJ]

The rise of self learning software [Recode]

As self driving cars hit the road, innovation is outpacing insurance [NYTimes]

A look at Nextdoor, a local neighborhood social network [The Verge]

Inside a robot run warehouse [BBC]

What's the most important financial advice you'd give to your children? [Castlebar]

Viking Global Boosts Calpine Stake

Andreas Halvorsen's hedge fund firm Viking Global has filed a 13G regarding its position in Calpine (CPN). Per the filing, Viking now owns 5.7% of Calpine with over 20.5 million shares.

This marks an increase of over 10 million shares since the end of the first quarter when Viking owned 10.49 million shares.  The latest filing was made due to activity on June 23rd.

For more on this manager, be sure to check out Andreas Halvorsen on investment process.

Per Google Finance, Calpine is "a power generation company. The Company is engaged in the ownership and operation of primarily natural gas-fired and geothermal power plants in North America. The Company's segments include West (including geothermal), Texas and East (including Canada). In the Northeast and Mid-Atlantic regions, the Company has generating units capable of burning either natural gas or fuel oil. The Company operates its business through various divisions and subsidiaries. The Company's portfolio consists of various types of power generation technologies, including natural gas-fired combustion turbines, which include combined-cycle plants and renewable geothermal conventional steam turbines. Its Geysers Assets located in northern California represent the geothermal power generation portfolio in the United States, as well as the producing power generation asset of all renewable energy in the state of California."

Keith Meister & Eric Mandelblatt Step Down From Williams Board

Keith Meister's activist hedge fund firm Corvex Management has filed an amended 13D regarding its stake in Williams Companies (WMB) jointly along with Soroban Capital's Eric Mandelblatt.

Per the filing, the two gentlemen have stepped down from Williams' board of directors since the company was unwilling to replace Alan Armstrong as CEO.

You can view Meister's resignation letter here and Mandelblatt's here.

The 13D notes that their respective stakes in the company remain unchanged.

Per Google Finance, Williams is "an energy infrastructure company focused on connecting North America's hydrocarbon resource plays to markets for natural gas, natural gas liquids and olefins. The Company's segments include Williams Partners, Williams NGL & Petchem Services, and Other. Its Williams Partners segment consists of its consolidated partnership in Williams Partners L.P., including gas pipeline, which consists of interstate natural gas pipelines and pipeline joint project investments, and midstream business, which provides natural gas gathering, treating, processing and compression services. Its Canadian midstream operations include an oilsands off gas processing plant, NGL/olefin fractionation facility and the Boreal Pipeline. The Williams NGL & Petchem Services segment consists of Texas Belle pipeline, domestic olefins pipeline assets and Canadian growth projects under development. Its Other segment includes corporate operations and Canadian construction services company."

12 West Capital Discloses Research Solutions Position

Joel Ramin's hedge fund firm 12 West Capital has filed a 13D with the SEC regarding shares of Research Solutions (RSSS).  Per the filing, 12 West now owns 32.9% of the company with over 8.32 million shares.

This is a newly disclosed equity stake and the filing was made due to activity on June 23rd. 

The company recently announced a private placement with "an institutional investor" where each unit consisted of 1 share of common stock and one warrant to purchase three-tenths of one share of common stock at an exercise price of $1.25 per share. 

You can view additional portfolio activity from 12 West Capital here. 

Per Google Finance, Research Solutions "subsidiaries include Reprints Desk, Inc. and Reprints Desk Latin America S. de R.L. de C.V. The Company, through its subsidiaries, provides on-demand access to scientific, technical, and medical (STM) information for life science companies, academic institutions, and other research-intensive organizations. It provides two types of services: Article Galaxy journal article platform (Article Galaxy), and Reprints and ePrints. Article Galaxy is its cloud-based software-as-a-service solution, which provides its customers with a single source to the universe of published STM content that includes over seventy million existing STM articles and over one million newly published STM articles each year. Reprints and ePrints services are charged on a transactional basis and order volume typically fluctuates from month to month based on customer marketing budgets and the existence of STM journal articles that fit customer requirements."

Hedge Fund Links ~ 6/24/16

2016 hedge fund rising stars [Institutional Investor]

48% of hedge funds in the red year-to-date through May [ValueWalk]

In defense of hedge funds [Sizemore]

Compliance is a growing problem at hedge funds [Above the Law]

Time to trim your hedge funds exposure? [FT]

Steve Cohen's deputy quits to run boss's new fund [WSJ]

Fewer MBAs want to work for hedge funds [Bloomberg]

Women still struggle to break into hedge funds [Institutional Investor]

The hedge fund fee structure consumes 80% of alpha [FT]

Hedge fund managers work to stanch loss of investors [NYTimes]

Visium manager charged with insider trading found dead [NYTimes]

What We're Reading ~ 6/22/16

Ev Williams became a billionaire creating the open web, now he's betting against it [The Atlantic]

The perilous task of forecasting [WSJ]

On Uber's battle for China [FT]

Why LaCroix sparkling water is suddenly everywhere [Vox]

TV advertising's surprising strength and inevitable fall [Stratechery]

Can Netflix survive in the new world it created? [NYTimes]

The business of too much TV [Vulture]

It's 'terrifying' competing with Netflix and Amazon [CNBC]

Spending money to make money, a.k.a. stock based compensation [Chamath Palihapitiya]

All money is made at points of friction [Alex Danco]

An example of an investment checklist [Covenant Lite]

Ideas are not cheap [Daniel Tillett]

Valuation online class [NYU Stern]

Mary Meeker's 2016 internet trends report [Recode]

China Connect: key mobile market trends in China [Slideshare]

The state of digital media 2016 [Slideshare]

A look at the event ticket industry [The Ringer]

The future of agriculture [Economist]

Hot air millionaires: how Drybar became a $100 million business [BuzzFeed]

Simple financial advice for new grads [Morgan Housel]

Dear Chairman Book Review: Boardroom Battles and the Rise of Shareholder Activism By Jeff Gramm

Jeff Gramm runs hedge fund Bandera Partners and is an adjunct professor at Columbia Business School.  He has written an intriguing book entitled Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism.



Dear Chairman Book Review

When asked why he wrote it, Gramm told us he had an idea to collect original activist letters into a book, but what really got the ball rolling is when he asked Warren Buffett for his 1964 letter to American Express (AXP).  When that arrived in the mail one day, he began chronicling what has now become the archive of activism.

(And speaking of Buffett, value investors might have already noticed that at this year's Berkshire Hathaway annual meeting, Carol Loomis asked Buffett about Dear Chairman.)

Basically, the book is a series of case studies on activist investor situations over the years.  Chapters feature the likes of Benjamin Graham, Robert Young, Warren Buffett, Carl Icahn, Ross Perot, Karla Scherer, Dan Loeb, and BKF Capital.

Many of these managers have been featured countless times on Market Folly, but this account gives a behind the scenes look at many specific situations and underscores the struggle between shareholders and management.

While the first few chapters of the book are admittedly slower and perhaps not as intriguing, it definitely pays off to keep reading as the back half of Dear Chairman is full of interesting anecdotes.  Additionally, the appendix of some never-before-published activist letters offers a rare look into the minds of some of history's great activist investors.

Our favorite was probably Chapter 7 on Dan Loeb of Third Point because he's the most modern incarnation of an activist profiled.  Not to mention, his exploits make for a great story, as the book examines his journey from 'Mr. Pink' on an online message board to the scathing letters he's penned to companies.

Another Chapter later in the book also features Carlo Cannell of Cannell Capital.  He has become more known in recent years as well for his, shall we say, 'choice' words for public company executives (he famously blasted Jim Cramer and TheStreet.com recently).

The book is around 250 pages (including all the activist letters), so not a terribly huge ask in terms of time commitment, and it's easy to stop and pick back up after each Chapter given they all detail independent situations. 

So who should read this book?  Well, aspiring activist investors certainly would benefit.  But so too would any investor looking for more insight on the 'behind the scenes' of board rooms.  If you don't like historical situations or aren't terribly interested in activism in general, then this isn't really the book for you.  But realistically, what aspiring investor doesn't like to learn from others?

The book excels at framing the activist situations with specific details and background color.  Rather than merely reading as a boring timeline of historical events, it transports you from the black and white pages into recreations of the sagas themselves.  The stories are actually quite entertaining, but lessons are embedded as well.

Jeff Gramm's Dear Chairman offers a unique entry into a previously underrepresented niche in the library of finance.

To read the book, click here to pick up a copy (physical or digital).

Seth Klarman's Value Investing Lessons

Back in 2009, Baupost Group's Seth Klarman talked with the Ben Graham Center for Value Investing and the Richard Ivey School of Business.  In it, Klarman talks about his approach to investing and the timing of the talk (right after the financial crisis) leads to a few interesting tidbits.


Seth Klarman's Value Investing Lessons


Klarman says that, "All people are risk averse, it's a human tendency to be risk averse." He focuses on how the pain people feel from losing money is so much worse than the joy they receive from gaining money.

He gives the example of flipping a coin where heads you double your money, tails you lose everything you have.  Klarman argues almost everyone wouldn't take that trade for the fear of losing everything is so big.

Klarman then outlines Baupost's approach:

"What can go wrong?  How much can you lose?  We don't think of risk in an academic sense of beta, which doesn't make any sense to us at all.  Volatility's not risk, volatility is volatility.  Volatility creates opportunities and isn't necessarily risk at all, unless you absolutely needed to sell the day that prices are really low.  Rather, risk is the probability of losing and how much you can lose if you lose.  So we focus on risk before we focus on return."

He also notes that, "Long term orientation is critically important."

Klarman then goes on to focus on an aspect of the business that's not talked about as much but is just as important:

"Relationships are incredibly important.  In the buyside part of Wall Street, we work really hard to have the best brokers and be really good clients for them.  We don't want to be somebody's 50th biggest client.  Because we'll never get a phone call that says 'we've got a big block of this for sale, are you interested?'  But if we're somebody's first or second client, they're going to call."

On where Baupost looks for ideas:

"We think there are a lot of smart people out there.  We don't think we're the world's best analysts of businesses, we think we're good at that.  We think we're very good at complicated situations, the messier, the better.  We like situations with a catalyst where there's some reason that a pricing irregularity will correct.  But at a discount and something will cause it to correct.  That leads us into interesting places.  One of our favorite areas is distressed debt."

and

"Spinoffs are an interesting place to look because there's a natural constituency of sellers and there's not a natural constituency of buyers."

On the mental approach needed:

"This business is largely about psychology.  If you're down a huge amount, you're not thinking straight.  If the markets do something that completely surprises you, you can be a deer in the headlights.  It's a huge benefit to not have your own psychology get interrupted."

Lastly, Klarman had an excellent quote on trying to figure out who you'd be buying from and why they're selling:

"Inevitably, you want to buy from people that don't know what they're doing.  Warren Buffett has this saying that if you're playing poker and you look to your left and look to your right and you can't figure out who the patsy is, it's you.  Investing is the same way.  If you are buying something and there's a chance that the person knows more than you, there's a chance you're a sucker.  If you're buying and management is selling, you might want to think twice if you can figure that out.  If you're buying and Steve Mandel at Lone Pine Capital is selling, that's a really bad thing, because Steve Mandel does great analysis and probably knows more than you do."

Klarman is also the author of Margin of Safety, a hard to find book that's no longer in print.  It's revered by many value investors as a prime source of wisdom.

Embedded below is the video of Seth Klarman's talk:



For more from this respected investor, head to Seth Klarman's recommended reading list.

Surprising Habits of Original Thinkers: Adam Grant's TED Talk

Organizational psychologist Adam Grant gave a TED Talk on the surprising habits of original thinkers.  He's also recently written a new book, Originals: How Non-Conformists Move the World.

While this has a wide variety of applications, it can be applied to investing as well.  When evaluating securities, investors typically have to distinguish between the consensus view and their variant perception.  The difference between perception and reality is where opportunities lie.

While some investors are more comfortable in the herd, others will stray from the herd with their investments.

As Adam Grant notes, "The greatest originals are the ones who fail the most, because they're the ones who try the most ... you need a lot of bad ideas in order to get a few good ones."

And in investing, often times all it takes is a few really good ideas to generate the bulk of the returns.  You just have to sift through all the bad ideas first. 

Grant also touches on the notion of procrastination and how some people's most creative ideas come from that. 

He also dives into the concept of first mover advantage and how 'improvers' (companies that come into the market later) had a lower failure rate than first movers.  He says, "To be original, you don't have to be first.  You just have to be different and better."

While this TED talk doesn't frame original thinking in the context of financial markets, it's a useful exercise of thought.

"If we want to be original, we have to generate more ideas."  This principle was basically applied to investing in a post we've previously linked to:  the concept of idea velocity. 

Embedded below is the video of Adam Grant's TED talk on the surprising habits of original thinkers:



Be sure to also check out both of Adam Grant's books: Give and Take: Why Helping Others Drives Our Success as well as his other title, Originals: How Non-Conformists Move the World.

What We're Reading ~ 6/15/16

Calculating the return on incremental capital investments [Base Hit Investing]

The history of the online travel industry [Skift]

A conversation with Alphabet's Eric Schmidt [Charlie Rose]

Armstrong Flooring: a spinoff with big upside [StockSpinoffInvesting]

Time Warner's Jeff Bewkes fights the industry's urge to merge [Variety]

Why housing is about to eat the US economy [CSen]

Student loans as economic depressant [Across the Curve]

The college debt crisis is worse than you think [Boston Globe]

Thoughts from a recent trip to China [Going Long]

The future of banking is in China [WSJ] 

China's credit card clearing market now open for competition [SCMP]

China is close to having its own Silicon Valley [Business Insider]

Are we in a mattress store bubble? [Freakonomics]

The U.S. is richer than ever [Calafia Beach Pundit]

Welcome to Larry Page's secret flying car factories [Bloomberg]

What's the best management advice you've ever received [Alan Murray]

What's one thing you've learned at Harvard Business School [Medium]

Profile of Nike's CEO Mark Parker [SurfaceMag]

Struggling Ralph Lauren tries to fashion a comeback [WSJ]

Interview With Glenview Capital's Larry Robbins: Capitalize For Kids Investor Series

The Capitalize For Kids Conference has recently started an Investor Series of interviews.  Their first issue (Volume 1) features conversations with Larry Robbins of Glenview Capital, Pierre Lavellée of CPPIB as well as the team at Cambridge Associates.  The full document is available here, but we've pulled some select quotes from Robbins:


On how he invests:

"I think one of the challenges that many people have is that, in their pursuit of highly diversified investment strategies, they end up investing their own capital – or capital that they are the fiduciary for – on things that, due to time constraints, they have no contact with. Or of which they don’t have a capacity to develop a deep understanding. The theory, when we started Glenview – and that perpetuates today – is to invest in businesses that we believe we can adequately describe in a matter of minutes. Businesses where we can look at past and present fundamentals and try to predict future fundamentals – including future earnings growth, cash flow growth, shareholder returns, and where we can invest capital at valuations – absolute valuations – that we find reasonable. And the final thing is that, all along the way, we wanted to think and act like owners – which the business has allowed us to do."


On incentives in the hedge fund industry:

"I believe that the reason that hedge funds work over time is because the owner/operator hedge fund has a tremendous and complete alignment of interest between the fund manager and the client – because the fund manager is the largest non-diversified client. And because of that, I am not only well-motivated to drive returns over time, but I’m also extremely well motivated to manage risk. Unfortunately, most people gauge risk based upon the mark-to-market stock price movements or security price movements of the day, whereas in reality those risks are more appropriately measured through a cycle – based upon the certainty of outcomes and the hit rate in which one invests long and short with success. I think that alignment of interest is exactly fair and appropriate, and is the motivating factor by which hedge funds have delivered risk-adjusted returns and alpha over time."


On the unfortunate truth of the business:

"The unfortunate truth of our business is we’re trying to do something that’s very hard, and very unnatural. We were created in order to take advantage of market anomalies, and yet we are also expected to prevent market anomalies from negatively impacting capital balances. I’m not complaining about that dichotomy. We’re not crying about it, but we do recognize that there’s a natural tension between the times that opportunity sets are created and the times that the opportunity sets are harvested. And it is likely, over decades, that occasionally opportunity starts to get created on your watch while you’re holding that security. In order to encourage opportunistic investor behavior, I think you’re accurate in saying that we will go to great lengths to encourage opportunistic investor behavior – because we want to make sure that the clients know that we will do anything we can to support their objectives."


Update on Glenview's Thermo Fisher (TMO) stake:

"Thermo Fisher is an example of a company which is well run and well-managed – from top to bottom. So much of the popular press talks about hedge funds engaging underperforming companies, or entrenched managements, or dysfunctional boards. And yet, if you look at Thermo Fisher Scientific which is the aggregation of four different companies: Thermo Electron, Fisher Scientific, and Life Technologies – itself two different companies, it’s an example of a board and management operating on all cylinders. Number one, their business continues to exhibit the defensive growth characteristics that attracted us to want to invest in the life sciences industry. In the fourth quarter of 2015, they posted their strongest organic revenue growth quarter in five years, posting seven percent organic revenue growth. For a firm like ours, whose average portfolio earnings multiple is 12 times this year’s and 10 times next year’s earnings, it’s hard to find businesses that grow organically more than seven percent, so certainly we’re gratified that the business does that. Thermo has allocated capital extremely well. They repurchased shares and made meaningful acquisitions – the most significant of which in the last several years was their acquisition of Life Technologies, which was also a Glenview holding. At the time we pitched Thermo to your conference [October 2014], our thesis was that Thermo’s organic revenue growth would accelerate not only because Life Technologies was a financially accretive tuck in that offered significant cost savings, but because the platform that Life Technologies owned would actually accelerate organic revenue growth. That certainly has come to pass in 2015, and is reflected in increased optimism with respect to organic revenue growth in 2016 and beyond. Finally, Thermo is an example of what we would call the ‘wash-rinse-repeat trade’. There is much discussion in the market of companies that either employ financial engineering or have a too great reliance on leverage in order to drive financial returns. And yet Thermo, as an investment grade company, has developed enormous credibility with the credit markets and with the rating agencies, as well as with its shareholders, by identifying attractive acquisition candidates and financing them mostly with debt securities – but then using their prodigious free cash flow and the underlying EBITDA growth of the combined company in order to have the balance sheet self-repair over an 18 to 24 month period. As we sit here today, Thermo has de-levered to below three times debt to EBITDA, which puts them in a position in 2016 to again be a significant capital deployer. To date, they have bought back $500 million of stock and have announced the accretive acquisition of Affymetrix. We believe that the company has additional firepower to augment their strong organic top-line growth – and a strong margin expansion with additional accretive repurchases or M&A that'll further shareholder returns."


To read the rest of Robbins' in-depth interview, definitely check out the Capitalize For Kids Investor Series here.

Investing Lessons From KKR's Henry Kravis

Bloomberg has an excellent interview out with Henry Kravis, founder of the well-known private equity firm Kohlberg Kravis Roberts, better known as KKR.

Here are some interesting quotes on investing and hedge funds:


On the difference between hedge funds and private equity:

"So I imagine there will be many more private equity firms than there are today. It’s very hard to kill a private equity firm. You can kill a hedge fund overnight; people pull their money out as fast as they put it in. You can’t pull your money out of a private equity firm as easily. If a firm is bad, all that can really happen is that it won’t be able to raise another fund. Eventually it’ll go out of business. But that can take years."


On who make good investors:

"Because to me, people who are curious are going to be better investors and better stewards of others' money.  If there's no curiosity, you're basically doing something that's already been done by someone else."


On focusing on the downside & learning from mistakes:

"When I was in my early 30s at Bear Stearns, I’d have drinks after work with a friend of my father’s who was an entrepreneur and owned a bunch of companies. “Never worry about what you might earn on the upside,” he’d say. “Always worry about what you might lose on the downside.” And it was a great lesson for me, because I was young. All I worried about was trying to get a deal done, for my investors and hopefully for myself. But you know, when you’re young, oftentimes you don’t worry about something going wrong. I guess as you get older you worry about that, because you’ve had a lot of things go wrong."


On what he looks for in an investment:

"We focus a lot on disrupters.  What they're doing, what they could do..  When we're making an investment in a nonstartup-type company, we ask ourselves, "Who's going to disrupt this company or industry?"


On the birth of the industry-standard 20% fee:

"George’s father and my father were in the oil-and-gas business, and in those days there was something called “a third for a quarter.” If I had a lease and wanted to drill a well, I would go to the money person and say, “I’ll put up 25 percent of the cost, you put up 75 percent, and you’re going to get a two-thirds interest and I’m going to get a one-third interest for my 25 percent.” We thought 20 is close enough to 25. I’m often asked, “Why didn’t you pick 25 percent because that would have stuck and carried interest?” We were just trying to get started, so that was literally what we started from." 


On data that's interested him recently:

"Our most recent (FirstData ~ FDC) SpendTrend reports have shown that consumers’ largest expenditure, by far, has been on health care. It’s funny, you had a big dividend for the consumer with the advent of lower gasoline prices. You would think they’d go out and spend on things, go shopping at Macy’s or whatever. But they have not spent on things, except on essentials. A lot of people are saying, I want to spend my money on experiences. And we can pick that up."


Be sure to read the full interview here.

Jim Grant's Talk at Google

Jim Grant of Grant's Interest Rate Observer recently held a talk at Google.  His presentation focused on his book entitled, The Forgotten Depression of 1921: The Crash That Cured Itself.

He looks at high unemployment, a collapse in commodity prices, surge in bankruptcies and a sharp decline in stock prices.  His talk recreates the scene and deconstructs the situation.

Grant talks about how all of his Wall Street brethren spend every heartbeat focused on accumulating as much money as possible, but very few of them think much about the actual thing they're constantly amassing.

Embedded below is Jim Grant's talk at Google:



You can pick up a copy of James Grant's book here.


For other investors' presentations at Google, we've also highlighted Howard Marks' talk, as well as Michael Maubboussin's talk at Google.

Pershing Square Rolls Valeant Options Exposure From 2017 to 2019

Bill Ackman's hedge fund firm Pershing Square Capital Management has filed an amended 13D with the SEC regarding its position in Valeant Pharmaceuticals (VRX).  Per the filing, Pershing now owns 9.0% of VRX with 30.71 million shares.

The filing also notes that Pershing has closed its January 2017 options positions and opened similar positions in options expiring January 2019.  Basically, they've rolled their exposure back 2 years.

Pershing bought call options and sold put options and you can view the entire list of transactions here.

Other investors have also been active in this stock, as we highlighted how Ruane Cunniff sold half of its VRX stake recently.

For more on Bill Ackman's firm, we detailed how Pershing Square sold some Zoetis as well.

Per Google Finance, Valeant is "a specialty pharmaceutical and medical device company. The Company is engaged in developing, manufacturing, and marketing a range of branded, generic and branded generic pharmaceuticals, over-the-counter (OTC) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices), which are marketed directly or indirectly in over 100 countries. The Company operates through two segments: developed markets and emerging markets. The Company's developed markets segment consists of sales in the United States of pharmaceutical products, OTC products, and medical device products. The Company's Emerging Markets segment consists of branded generic pharmaceutical products and branded pharmaceuticals, OTC products, and medical device products."

Elliott Management Writes Letter to CDK Global; Sachem Head Trims CDK Stake

Two activist investors have been active regarding their positions in CDK Global (CDK) recently:


Elliott Management Sends Letter to CDK Global

First, Paul Singer's Elliott Management has sent a letter to CDK Global.  In it, Senior Portfolio Manager Jesse Cohn outlines how they want the company to adopt the steps in the Value-Maximizing Plan 'without delay.' 

Elliott notes they've had discussions with shareholders that represent more than half of CDK's shares outstanding and many of these investors want the company to improve CDK's business operations and capital return program.

The hedge fund believes that, "Reducing product complexity will shorten product implementation times.  Enhanced leveraging of technology and automation will reduce customer response times.  Improved software version discipline will free up funds for higher overall product quality and a better customer experience as a greater proportion of R&D spend would be committed to new features rather than simply maintaining older products.  Implementing an automated contracting system will deliver a simplified, more transparent set of invoices for customers."

Elliott feels that CDK's share price should reach $81 or higher in 14 months if these steps are implemented.

You can read the full letter here.



Sachem Head Capital Trims CDK Stake

Second, Scott Ferguson's activist firm Sachem Head Capital has filed an amended 13D with the SEC regarding their CDK Global (CDK) stake.  Per the filing, Sachem now owns 6.8% of the company with 10.49 million shares. 

The filing also notes they have additional economic exposure to approximately 3.15 million shares under cash-settled total return swaps.  So their total aggregate exposure is actually 8.8% of the company with 13.65 million shares.

This means they've trimmed their position by a little over 1 million shares since the end of the first quarter.  Their trading data indicates they were selling in mid-to-late April, early May, and early June at prices ranging from $47.50 to $57.74.

Per Google Finance, CDK Global is "a provider of integrated information technology and digital marketing/advertising solutions to the automotive retail industry. The Company's segments are Automotive Retail North America (ARNA), Automotive Retail International (ARI) and Digital Marketing (DM). The Company's solutions automate workflow processes from pre-sale targeted advertising and marketing campaigns to the sale, financing, insurance, parts supply, and repair and maintenance of vehicles. Its automotive retail solutions offer technology that helps supply side of the retail value chain. It offers digital marketing solutions to enable its clients to create demand for their products by designing and managing complete digital marketing and advertising strategies for their businesses. The Company, through its DM segment, provides a suite of digital marketing solutions for original equipment manufacturers and automotive retailers, including Websites and management of their digital advertising spend.."

Wally Weitz's Wealthtrack Interview

A few months ago, value investor Wally Weitz of Weitz Investment Management sat down with Consuelo Mack in an episode of Wealthtrack.

In the interview, Weitz touches on the concept of valuable losses, or finding opportunities where others are seeing losses.


He says, "Selling begets more selling; people scare themselves and each other and almost always overshoot."

He has an 'on deck' list of stocks they've researched and are just waiting for the right price to buy.  That said, he says it's easier for him to buy stocks he's already involved with during downswings rather than jump on new names because he's more comfortable/familiar with management and how they will act during downturns, etc.

Weitz says that the fund he particularly runs is long/short but not designed to be market neutral or anything like that.  He noted he's typically 90% long and 30% short, running around 60% net long.  He mentioned they'd been short Sears (SHLD) in the past.

During the interview, Weitz talks about why he likes Liberty Global (LBTYA/K) and why he sold Valeant Pharmaceuticals (VRX).

Other investments Weitz mentions include Liberty Broadband (LBRDA), Charter Communications (CHTR), Berkshire Hathaway (BRK.A/B), Wells Fargo (WFC).

Embedded below is the video of Weitz's interview on Wealthtrack:

Hedge Fund Links ~ 6/10/16

A bearish George Soros is trading again [WSJ]

Activist investor heavyweights form new lobbying arm [Reuters]

These 14 stocks are hedge funds' new favorites [CNBC]

Goldman says hedge funds wedded to top picks [Bloomberg]

The economics and finance of hedge funds [ValueWalk]

Big insurers send wake up call to hedge funds [NYTimes]

Why I don't want to run a hedge fund anymore [eFinancialCareers]

Why the hedge fund industry should welcome the pain [Yahoo Finance]

12 best things Paul Tudor Jones ever said [NewTraderU]

Women still struggle to break into hedge funds [Institutional Investor]

Why a track record is not enough for a hedge fund launch [eFinancialNews]

Hedge funds look for hard hats in a year of collapsing mergers [NYTimes]

Hedge funds: there are too many and most stink [Yahoo Finance]

Trian Fund Updates Stakes in Sysco & Bank of New York Mellon

Nelson Peltz's activist firm Trian Fund Management has made some SEC filings recently.

Peltz Acquires Acquires Sysco Shares

First, in an amended 13D with the SEC regarding their position in Sysco (SYY), Trian disclosed it now owns 7.8% of Sysco with 43.95 million shares. 

Per a Form 4 filed with the SEC, Trian acquired 520,000 shares on June 3rd at a weighted average price of $48.7874 and 173,000 more shares on June 6th at $48.8295 (weighted average).

Per Google Finance, Sysco "along with its subsidiaries and divisions, is a North American distributor of food and related products primarily to the foodservice or food-away-from-home industry. The Company provides products and related services to approximately 425,000 customers, including restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Sysco provides food and related products to the foodservice or food-away-from-home industry. The Company has aggregated its operating companies into a number of segments, of which only Broadline and SYGMA are the main segments. Broadline operating companies distribute a line of food products and a variety of non-food products to their customers. SYGMA operating companies distribute a line of food products and a variety of non-food products to chain restaurant customer locations. The Company’s other segments include its specialty produce, custom-cut meat and lodging industry products segments."


Trian Buys More Bank of New York Mellon

Second, Peltz's firm also filed a separate Form 4 with the SEC regarding its stake in Bank of New York Mellon (BK).  They acquired 370,000 shares on June 6th at a weighted average price of $42.3905. 

After this buy, they now own over 32.21 million shares.

Per Google Finance, Bank of New York Mellon is "an investments company. The Company operates businesses through two segments: Investment Management and Investment Services. The Company also has an Other segment, which includes credit-related services; the leasing portfolio; corporate treasury activities, including its investment securities portfolio; its equity interest in ConvergEx Group; business exits, and corporate overhead. The Company has over $1.6 trillion in assets under management. BNY Mellon's subsidiaries include The Bank of New York Mellon and BNY Mellon, National Association (BNY Mellon, N.A.). The Bank of New York Mellon is a New York state-chartered bank, which houses its Investment Services businesses, including Asset Servicing, Issuer Services, Treasury Services, Broker-Dealer and Advisor Services, as well as the bank-advised business of Asset Management."

Berkshire Hathaway Buys More Phillips 66 (PSX)

Warren Buffett's Berkshire Hathaway has filed another Form 4 with the SEC regarding its stake in Phillips 66 (PSX).  Per the filing, Berkshire was buying PSX shares on June 3rd, 6th, and 7th at prices ranging from $80.085 to $80.76.  In total, Berkshire bought 469,604 shares.

We highlighted how Berkshire Hathaway bought PSX shares last month as well, as this has been an ongoing purchase for some time.

After the most recent transactions, Berkshire now owns over 78 million PSX shares.

Per Google Finance, Phillips 66 is "an energy manufacturing and logistics company with midstream, chemicals, refining and marketing and specialties businesses. The Company operates its business through four segments: midstream, chemicals, refining and marketing and specialties. It gathers, processes, transports and markets natural gas, and transports, fractionates and markets natural gas liquids (NGL) in the United States. The Chemical segment manufactures and markets petrochemicals and plastics. The Chemicals segment consists of its 50% equity investment in Chevron Phillips Chemical Company LLC (CPChem). The refining segment buys, sells and refines crude oil and other feedstocks into petroleum products (such as gasolines, distillates and aviation fuels) at 14 refineries, mainly in the United States and Europe. The Marketing and Specialties segment purchases for resale and markets refined petroleum products (such as gasolines, distillates and aviation fuels), mainly in the United States and Europe." 

Bruce Berkowitz Acquires More Sears Shares

Bruce Berkowitz's Fairholme Capital has filed another Form 4 with the SEC regarding its position in Sears Holdings (SHLD).  Per the filing, Fairholme bought SHLD on June 3rd, 6th, and 7th at prices of $13 and $13.5. 

Berkowitz acquired 260,600 shares in total.  After these buys, he now owns over 27.5 million shares.

This is the second time he's filed a Form 4 recently as we highlighted Fairholme's other recent buy of SHLD.

Per Google Finance, Sears Holdings is "an integrated retailer. The Company is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). It operates through two segments: Kmart and Sears Domestic. It operates approximately 940 Kmart stores across over 50 states, Guam, Puerto Rico and the United States Virgin Islands. Kmart stores carry an array of products across various merchandise categories, including seasonal merchandise, toys, lawn and garden equipment, food and consumables and apparel, including products sold under labels, such as Jaclyn Smith, Joe Boxer and Alphaline and certain Sears brand products (such as Kenmore, Craftsman and DieHard) and services. Its Sears Domestic segment's operations consist of full-line stores, specialty stores, commercial sales and home services. Full-line stores offer an array of products and service offerings across various merchandise categories, including appliances, consumer electronics/connected solutions and tools."

Marc Andreessen on Hedge Funds Versus Venture Capital & Investing

Tim Ferriss (well-known author of The 4-Hour Workweek) recently interviewed Marc Andreessen, one of the founders of venture capital firm Andreessen Horowitz.

In the very interesting podcast, Andreessen wasn't directly asked about it but he basically touched on the similarities and differences between public market investing versus investing in private companies.

Here are some interesting quotes and takeaways from the interview:
 
On hedge fund managers:

“In investing and other things, people just hate changing their mind … If you talk to the world’s best hedge fund managers, they’re the exact opposite.  They love changing their mind.  I’m one of the few people who will openly admit I love spending time with hedge fund managers, I think they’re awesome.  They’re fantastic people and they’re the most open minded people I know.  They love when you tell them that they’re wrong.  They get all excited.  Their eyes light up.  They’re like, “Why? Why do you think that?”  And they’re genuinely interested.  Because if you’re right and they’re wrong, they will change their minds.  And they’re hedge fund managers, so they’ll literally reverse the trade.  If they were long a company, they’ll flip around and go short.“

This highlights one of the main benefits of liquidity.  While it can be a tricky task to pull a mental 180 and reverse your thinking on an investment, it's even more difficult to flip your position if there's no liquidity.  This is undoubtedly one of the biggest advantages in public investing versus private.

If you're wrong in the markets, you can simply sell the position as soon as the market opens.  But if you make a mistake with a private investment, you'll either be waiting much longer to offload the stake and/or doing so at potentially less than favorable prices.  Mistakes can easily be magnified.  


On conviction:

Andreessen also touched on the concept of 'strong opinions, loosely held' which ties into the point above about the ability to change one's mind.  He summed it up succinctly by illustrating a progressive thought process: "Conviction.  Conviction.  Conviction.  New facts.  Change."

Going back historically, this is basically an adaptation of John Maynard Keynes' oft quoted words: "When the facts change, I change my mind.  What do you do?"


On the hedge fund industry versus venture capital:

"A hedge fund manager can reverse himself.  The next day he can turn around and take the opposite trade.  We don’t get to do that.  When we invest, it’s knowing we’re in for 10+ years.  It’s a commitment of dollars but it’s also a commitment of somebody’s time and the organization’s time and bandwidth, and there’s only so much of that.  When we make a decision, we then become committed to that company in that category, and so we can’t invest in their competitors, including competitors that don’t even exist yet ... Our decisions are big decisions and they have huge consequences for the firm."

This underscores how difficult it can be to think so far into the future and to try and accurately predict it.  He gives a good example about how investors in Friendster couldn't invest in Facebook because it didn't exist at the time, but by time it came around, they were already tied to Friendster and thus they missed out on a much better opportunity.
    

On good versus great investments:

"One of our theories of venture capital: Everybody thinks in investing you either make a good investment or a bad investment.  I actually think that's not the big issue.  The issue in venture capital is you either make a good investment or a great investment.  Good is the enemy of great.  We see many companies that are just fine ... founders are good, market seems good, product seems good, customers kinda like it, and they got a little revenue and it's all fine, but those companies tend to never go anywhere.  Every once in a while we'll see these companies that have some extremely strong strength, some extremely special wonderful thing going on, that by the way may have all kinds of problems and issues, but there's something at the core of what it is that's really special and magical.  And those are the ones that we want to do.  We're trying to stock our portfolio with just investments like that."

This is similar to the notion that only a few great investments in a stock portfolio drive the majority of the returns and so investors are on a continual quest to find the holy grail.  But it's not just finding them.  You have to be able to buy them at a decent price.  As Warren Buffett says, "Price is what you pay; value is what you get."

Many great fund managers keep a watchlist of great companies they'd love to own at the right price (companies with huge moats, competitive advantages, great management teams, etc).  And if volatility presents an opportunity, they strike, often selling 'good' companies to replace them with 'great' ones.


On the importance of arguing the other side:

Andreessen then goes on to discuss his firm's investment process and the importance of arguing the other side.  There are pros and cons to doing this as he warns at first that, "It'd be very easy in a conversation about the weaknesses of something to beat the idea to death and you never invest."

At the same time, he says they can create a 'red team' or people designated to argue the other side (why they shouldn't invest, i.e. the bear case in public market investing).  Andreessen says, "Whenever (a partner) brings in a new idea, I just beat the shit out of it ... and he does the same to me.  It's the torture test."

Two quotes from Charlie Munger highlight just that:

"Invert, always invert."

and

"I never allow myself to have an opinion on anything that I don't know the other side's argument better than they do." 

Andreessen notes they're trying to take contrarian, non-consensus views to guide their investments.  This is quite similar to public market value investors, or other managers who identify the consensus view and then outline their variant perception.  Risk & mitigant lists are also pretty commonplace in investment pitches these days.


Books Recommended by Marc Andreessen:

During the interview, Tim Ferriss mentioned The Four Steps to the Epiphany.

He also singled out High Output Management, which Andreessen then called "the best book on management ever written."

Andreessen also recommended Only The Paranoid Survive, written by the same author.

He also highlighted Peter Thiel's book Zero To One as a great option.

Shifting gears a bit, the venture capitalist also noted that, "Where I got a lot of my education from was reading history.  I'd go back and read about Edison, Ford, Rockefeller, J.P. Morgan.  The period between 1870-1920 is really interesting."

He singled out The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World.

He also mentioned a book on Walt Disney as well as Schulz and Peanuts.

And while he didn't specifically name these books, here are some of the top rated biographies on the historical luminaries he mentioned above:

Titan: The Life of John D. Rockefeller, Sr.

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance


On other investors he studies:

"I study the people we compete with and collaborate with very closely.  I (also) particularly study value investors, on the completely other side of the spectrum.  Warren Buffett is the archetype but Seth Klarman, and others."

"Value investing is the only other place in the market where you can actually find long term investors."


On Warren Buffett:

"On the one hand, there's no overlap between the worlds.  Anything Warren Buffett's willing to invest in we run screaming in the other direction and vice versa.  He invests in Heinz Ketchup and the reason he invests in Heinz Ketchup is that people have been eating Ketchup on hamburgers for 100 years and therefore the best guess would be that they're going to continue to eat Heinz Ketchup for the next 100 years.  We're wired completely opposite.  He's betting against change and we're betting for change.  When he makes a mistake it's because something changes that he didn't expect.  When we make a mistake it's because something doesn't change that we thought would.  They could not be more different in that way.  But what both schools have in common is an orientation towards original thinking, willing to view things as they are as opposed to what everybody says about them or what they've believed to be."



While these are just some takeaways from the interview, Andreessen and Ferriss also touch on a myriad of other subjects and we'd definitely recommending listening to the full podcast here.

Ruane Cunniff Dumps Half of Valeant Pharmaceuticals Stake

Ruane Cunniff & Goldfarb, managers of the Sequoia Fund and one of the longstanding holders of Valeant Pharmaceuticals (VRX) reported they've sold almost half of their stake, per a just filed 13G with the SEC.

They now own 4.72% of the company with only 16.11 million shares.  This is down from the 30.30 million VRX shares they owned at the end of the first quarter.

The filing was made due to activity on May 31st.

We've highlighted this ongoing saga and other investors involved include Jeff Ubben's ValueAct Capital, and much more recently Bill Ackman's Pershing Square.

Per Google Finance, Valeant is "a specialty pharmaceutical and medical device company. The Company is engaged in developing, manufacturing, and marketing a range of branded, generic and branded generic pharmaceuticals, over-the-counter (OTC) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices), which are marketed directly or indirectly in over 100 countries. The Company operates through two segments: developed markets and emerging markets. The Company's developed markets segment consists of sales in the United States of pharmaceutical products, OTC products, and medical device products. The Company's Emerging Markets segment consists of branded generic pharmaceutical products and branded pharmaceuticals, OTC products, and medical device products.."

Carl Icahn Increases Hertz Position

Activist investor Carl Icahn has submitted some recent SEC filings regarding his position in Hertz (HTZ).  Per an amended 13D filing, Icahn now owns 15.24% of Hertz with over 64.69 million shares.

This means he's boosted his stake by just shy of 1 million shares.  The Form 4 Icahn filed with the SEC indicates he bought on June 2nd and 3rd at prices of $9.96 and $9.88.

For more on this investor, we recently highlighted how Icahn has taken a stake in Allergan.

Per Google Finance, Hertz is "engaged principally in the business of renting and leasing of cars through its Hertz, Dollar, Thrifty and Firefly brands, and equipment through its Hertz Equipment Rental brand. The Company operates through four segments: U.S. Car Rental, International Car Rental, Worldwide Equipment Rental and All Other Operations. It operates over 9,980 corporate and franchisee locations in North America, Europe, Latin America, Africa, Asia, Australia, the Middle East and New Zealand. Its brands maintain separate airport counters, reservations and reservation systems, marketing and all other customer contact activities. Its Hertz brand has approximately 8,510 corporate and franchisee locations in over 150 countries. Its Dollar and Thrifty brands combined have approximately 1,345 corporate and franchisee locations in over 75 countries and its Firefly brand has approximately 100 corporate and franchisee locations in over 20 countries.."

JANA Partners Slightly Trims ConAgra Foods Stake

Barry Rosenstein's activist hedge fund firm JANA Partners recently filed an amended 13D with the SEC regarding its position in ConAgra Foods (CAG).  Per the filing, JANA now owns 6.3% of CAG with over 27.38 million shares of exposure (including call options to purchase 6 million shares).

If you back out the 6 million shares via call options (which JANA disclosed as a new position in the first quarter), you're left with 21.38 million shares. 

Compare this with the 21.53 million shares JANA owned at the end of the first quarter, and this means they've slightly reduced their net exposure to the name. 

The filing was made due to activity on May 27th and the purpose of transaction notes that they "entered into an agreement with the Issuer that amends and restates the Cooperation Agreement (the "Amended and Restated Cooperation Agreement"). The full text of the Amended and Restated Cooperation Agreement is included as Exhibit D to this Amendment No. 2 by reference to Exhibit 99.1 of the Issuer's Current Report on Form 8-K filed with the SEC on May 31, 2016 (the "Form 8-K") and is incorporated by reference herein.

For more on this fund, we recently highlighted that JANA reduced its Walgreens Boots Alliance position.

Per Google Finance, ConAgra Foods "operates as a packaged food company. The Company offers branded and private branded food to households, as well as commercial foods, which serves various restaurants and foodservice operations. The Company operates in three segments: Consumer Foods, Commercial Foods and Private Brands. Its brands include Banquet, Chef Boyardee, Egg Beaters, Healthy Choice, Hebrew National, Hunt's, Marie Callender's, Orville Redenbacher's, PAM, Peter Pan, Reddi-wip, Slim Jim and Snack Pack, among others. The Company sells its products under private brand labels in grocery, convenience, mass merchandise, club and drug stores. Additionally, ConAgra Foods supplies frozen potato and sweet potato products, as well as other vegetable, spice, bakery, and grain products, to restaurants, commercial and foodservice customers. It has international manufacturing facilities in Argentina, Mexico and interests in ownership of international manufacturing facilities in India and Mexico.."

ValueAct Capital Sells More MSCI

Jeff Ubben's activist investment firm ValueAct Capital has filed a Form 4 with the SEC regarding its position in MSCI (MSCI).  Per the filing, ValueAct sold 1.8 million shares on June 1st, 2nd, and 3rd at prices of $78.96, $78.69, and $76.21.

As we've highlighted previously, ValueAct has been trimming its MSCI stake throughout the year.

After these transactions, ValueAct now owns 1.87 million shares.

Per Google Finance, MSCI "together with its wholly owned subsidiaries, is a provider of investment decision support tools, including indexes, portfolio risk and performance analytics and multi-asset class market risk analytics products and services. The Company’s products include global equity indexes and environmental, social and governance (ESG) products marketed under the MSCI and MSCI ESG Research brands, its private real estate benchmarks marketed under the IPD brand, its portfolio risk and performance analytics covering global equity markets marketed under the Barra brand, its multi-asset class, market and credit risk analytics marketed under the RiskMetrics and Barra brands and its performance reporting products and services offered to the investment consultant community marketed under the InvestorForce brand."  

SRS Investment Management Reduces Avis Budget Stake

Karthik Sarma's hedge fund firm SRS Investment Management has filed an amended 13D with the SEC regarding its position in Avis Budget Group (CAR).  Per the filing, SRS now owns 9.5% of CAR with 9 million shares.

The filing indicates they sold 500,000 shares on May 5th at $25.40.  SRS previously owned 9.5 million shares at the end of the first quarter of 2016.

About SRS Investment Management  

Prior to founding SRS, Karthik Sarma worked at Tiger Global.  He started SRS in 2007 and has a large focus on international markets (particularly in India, China, etc) and typically invests in technology, media and other high-growth industries.  SRS's latest 13F filing indicates they manage in excess of $2.7 billion and that doesn't include their foreign positions.

About Avis Budget Group  

Per Google Finance, Avis Budget Group is "a provider of vehicle rental and car sharing services. The Company operates three brands, which include Avis, Budget and Zipcar. Avis is a rental car supplier and Budget is a rental vehicle supplier. It also owns Payless, which a car rental brand, and Apex, which is a car rental brand in New Zealand and Australia. It operates in two segments: Americas and International. The Americas segment provides and licenses the Company's brands to third parties for vehicle rentals and ancillary products and services in North America, South America, Central America and the Caribbean, and operates its car sharing business in certain of these markets. The International segment provides and licenses the Company's brands to third parties for vehicle rentals and ancillary products and services in Europe, the Middle East, Africa, Asia, South America, Central America, the Caribbean, Australia and New Zealand, and operates its car sharing business in certain of these markets.."

Paulson & Co Trims NovaCopper Position

John Paulson's hedge fund firm Paulson & Co has filed a Form 4 with the SEC regarding its stake in NovaCopper (NCQ).  Per the filing, Paulson sold 70,618 shares combined on May 27th and May 31st at prices of $0.5456 and $0.51.

After these transactions, Paulson now owns 11.73 million shares of NCQ.  Paulson had also previously done some other selling in late May.  The firm owned 11.82 million NCQ shares at the end of the first quarter this year.

Per Google Finance, NovaCopper is "a Canada-based company engaged in the exploration and development of its Upper Kobuk Mineral Projects located in the Ambler mining district in Northwest Alaska, the United States. The Company's segments are Alaska, USA; Antioquia, Colombia, and Corporate and other. Its Upper Kobuk Mineral Projects consist of Arctic Project, which contains a polymetallic volcanogenic massive sulfide (VMS) deposit, and Bornite Project, which contains a carbonate-hosted copper deposit. The Company also owns interest in the Titiribi gold-copper exploration project located approximately 70 kilometers southwest of the city of Medellin, in Antioquia Department, Colombia. The Arctic Project is located in the Ambler mining district of the southern Brooks Range, in the Northwest Arctic Borough (NWAB) of Alaska. The Bornite Project is located in the Ambler mining district of the southern Brooks Range, in the NWAB of Alaska. The Bornite Project is located within the Arctic Alaska Terrane."