Hedge Fund Links ~ 8/5/16

Excerpts from Raging Capital's latest letter [ValueWalk]

Thoughts from Lee Cooperman in his Q2 letter [Business Insider]

Carlson Capital Q2 letter excerpts [Business Insider]

Steve Cohen's performance coach on the trait of successful traders [Yahoo Finance]

Jim Simons: computer trading is good for markets [CNBC]

Howard Marks says hedge fund 'geniuses' spawned too many firms [Bloomberg]

Howard Marks' Addendum to 'Economic Reality' Memo

Howard Marks of Oaktree Capital released his most recent memo entitled 'Economic Reality' a few months ago.  However, we forgot to post the addendum he added to it.  The original piece is insightful so definitely check it out if if you haven't already via the link above.

Here's what he added:

"There’s been a lot of response since the memo that follows was originally published on May 26.  In the discussions that have ensued, I realized that I should have led with something like this:  

Ultimately, economics is the study of choice.  Because choices range over every imaginable aspect of human experience, so does economics. . . .  

How do individuals make choices:  Would you like better grades?  More time to relax?  More time watching movies?  Getting better grades probably requires more time studying, and perhaps less relaxation and entertainment.  Not only must we make choices as individuals, we must make choices as a society.  Do we want a cleaner environment?  Faster economic growth?  Both may be desirable, but efforts to clean up the environment may conflict with faster economic growth.  Society must make choices. . . .  

We would always like more and better housing, more and better education – more and better of practically everything.  

If our resources were . . . unlimited, we could say yes to each of our wants – and there would be no economics.  Because our resources are limited, we cannot say yes to everything.  To say yes to one thing requires that we say no to another.  Whether we like it or not, we must make choices.  

Our unlimited wants are continually colliding with the limits of our resources, forcing us to pick some activities and to reject others.  Scarcity is the condition of having to choose among alternatives.  (Macroeconomics Principles, Libby Rittenberg and Tim Tregarthen.  Emphasis added)  

Because of the above, we make economic choices every day.  Everyone knows choices like these are inescapable.   

Everyone, that is, except for politicians.  The politician promises better grades and more leisure time.  A cleaner environment and faster economic growth.  That’s what caused me to write the memo: in politics and government – unlike the real world – the word “or” often goes out the window, replaced by “and.”  No choices are necessary.   

A few months ago I saw a cartoon featuring caricatures of two primary opponents.  Under one it said “bulls**t” and under the other it said “free s**t.”  There’s bound to be a lot of the former in any election season, but economics tells us the latter is unrealistic.  I wrote this memo to help readers understand why."

You can read the rest of Howard Marks' memo 'Economic Reality' here.


For more on this investor, check out Howard Marks' presentation at the London Value Investor Conference.

ValueAct Capital Buys More CBRE Group

Jeff Ubben's activist firm ValueAct Capital has filed a Form 4 with the SEC regarding their position in CBRE Group (CBG).

Per the filing, ValueAct was buying shares on August 1st, 2nd, and 3rd at prices around $28.40.  In total, they bought 1,502,200 shares.  After these purchases, they now own over 34.43 million shares of CBG.

You can view other recent portfolio activity from ValueAct here.

Per Google Finance, CBRE Group is "a holding company that conducts all of its operations through its subsidiaries. The Company is a commercial real estate services and investment company. The Company operates through the segments: The Americas; Europe, Middle East and Africa (EMEA); Asia Pacific; Global Investment Management, and Development Services. It offers services to occupiers, owners, lenders and investors in office, retail, industrial, multifamily and other types of commercial real estate. It offers commercial real estate services under the CBRE brand name, investment management services under the CBRE Global Investors brand name and development services under the Trammell Crow Company brand name. It is focused on several competencies, including commercial property, corporate facilities, project and transaction management, tenant/occupier and property/agency leasing, capital markets solutions, real estate investment management, valuation, development services and proprietary research."

Pershing Square To Sell Entire Canadian Pacific Stake

Bill Ackman's Pershing Square has announced with Canadian Pacific (CP) that the hedge fund will be selling the rest of its remaining CP stake with a public offering of just over 9.84 million shares.

Apparently Ackman will be using the proceeds to deploy into one or more new positions.  He will also stay on CP's board until the next annual meeting.

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

Per Google Finance, Canadian Pacific "together with its subsidiaries, operates a transcontinental railway in Canada and the United States. The Company operates in rail transportation segment. The Company's business mix includes bulk commodities, merchandise freight and intermodal traffic over a network of approximately 12,500 miles, serving the principal business centers of Canada from Montreal, Quebec, to Vancouver, British Columbia, and the United States Northeast and Midwest regions. The Company transports bulk commodities, merchandise freight and intermodal traffic. Bulk commodities include Canadian grain, U.S. grain, coal, potash, and fertilizers and sulfur. Merchandise freight consists of finished vehicles and automotive parts, as well as forest and industrial and consumer products. Intermodal traffic consists of retail goods in overseas containers that can be transported by train, ship and truck and in domestic containers and trailers that can be moved by train and truck.."

What We're Reading ~ 8/3/16

Ego is the enemy [Ryan Holiday]

Is active management dead? Not even close [CFA Institute]

When is a 'value' company not a value? [Investing Research]

Interview with Time Warner CEO Jeff Bewkes [Bloomberg]

On Tiger Global's bet on Flipkart [LiveMint]

Amazon's ascent in India shows that price isn't everything [Nikkei]

On capital light compounders [Base Hit Investing]

Why is the stock market so high? Ask the bond market [NYTimes]

US homeownership rate falls to five-decade low [WSJ]

How China became the world's e-commerce king [TheDrum]

Didi schools Uber on doing business in cutthroat China [Bloomberg]

Uber finds passage to India blocked by Ola [Bloomberg]

What happened to Yahoo? [Waiters Pad]

Google plots cheaper wireless future to expand fiber project [Bloomberg]

Here comes 5G wireless, but first a reality check [Recode]

Big US brokerages chase the rich [Reuters]

App coins and the dawn of the decentralized business model [Medium]

How free mobile games are designed to make money [Vox]

Corvex Management Trims Fidelity National Financial Position

Keith Meister's activist firm Corvex Management has filed an amended 13D regarding their position in Fidelity National Financial (FNF).  Per the filing, Corvex now owns 4.8% of FNF with over 13.19 million shares.

This is a decrease of over 5.93 million shares from the end of the first quarter.  They were selling at various points in June, July, and as late as August 2nd.  The bulk of their sale came at a price of $36.58.

You can view other recent activity from Corvex here.

Per Google Finance, Fidelity National Financial is "is a provider of title insurance, technology and transaction services to the real estate and mortgage industries. The Company's segments include Title, Black Knight, FNF Core Corporate and Other, Restaurant Group, and FNFV Corporate and Other. Its business is organized into groups, including FNF Core Operations and FNF Ventures (FNFV). The Company offers title insurance through its title insurance underwriters: Fidelity National Title Insurance Company, Chicago Title Insurance Company, Commonwealth Land Title Insurance Company, Alamo Title Insurance and National Title Insurance of New York Inc., which collectively issue more title insurance policies than any other title company in the United States. The Company, through its subsidiary, ServiceLink Holdings, LLC (ServiceLink), provides mortgage transaction services, including title-related services and facilitation of production and management of mortgage loans."

Pennant Capital Discloses Gores Holdings Stake

Alan Fournier's hedge fund firm Pennant Capital has filed a 13G with the SEC regarding Gores Holdings (GRSHU).  Per the filing, Pennant now owns 5.87% of Gores Holdings with 2.2 million shares. 

This is a newly disclosed stake and the filing was made due to activity on July 19th.

Per Google Finance, Gores Holdings is "a blank check company. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. The Company focuses to effect its business combination using the proceeds held in the Trust Account from its Public Offering and the sale of the Private Placement Warrants, its capital stock, debt or a combination of these as the consideration. The Company has no operations. The Company has not generated any revenue."

Soros Fund Ups Quantum Corp Position

George Soros' family office Soros Fund Management has filed a 13G with the SEC regarding its stake in Quantum Corp (QTM).  Per the filing, Soros now owns 5.27% of Quantum with over 14 million shares.

This is up significantly from the 1.66 million shares they owned at the end of the first quarter.  The filing was made due to activity on July 22nd.

Per Google Finance, Quantum Corp "focuses on scale-out storage, archive and data protection, providing solutions for capturing, sharing, managing and preserving digital assets over the entire data lifecycle. The Company's end-to-end tiered storage solutions enable users to maximize the value of their data by making it accessible whenever and wherever needed, retaining it indefinitely and reducing total cost and complexity. It works with a network of distributors, value-added resellers (VARs), direct marketing resellers (DMRs), original equipment manufacturers (OEMs) and other suppliers to meet customers' evolving needs. Its scale-out storage portfolio includes StorNext software, appliances and full systems called StorNext Pro Solutions, as well as Xcellis workflow storage, QXS disk storage, Lattus extended online storage and Q-Cloud Archive and Vault services. Its StorNext offerings enable customers to manage large unstructured data sets in an information workflow."

Claire Barnes' Investment Philosophy (Apollo Investment Management)

From time to time we highlight various investment approaches by investors.  Here is the investment philosophy by Claire Barnes, Apollo Investment Management.  H/T thefatmargin for the find.


Claire Barnes Investment Philosophy

1.  We value businesses as would a long-term private buyer, and generally ignore the short term views and price influence of other market participants, except in so far as these create opportunities.  In Benjamin Graham's classic analogy, the investor is in business with a manic depressive partner, Mr. Market, who obligingly sets a two-way price every day.  Most of the time, the investor will listen to Mr Market, politely decline to take action, and get on with real life.  Sometimes however, Mr Market's price is wildly in excess of any intrinsic value, and the investor may take these opportunities to sell, perhaps even to retire.  At other times, Mr Market's price is ludicrously low; we have at times in the past been able to buy good businesses with honest management for less than their net cash balances.  At such times, the sober investor will buy, without worrying unduly about whether Mr Market's price may be even lower tomorrow.


2.  We like value - buying a dollar of assets for 50 cents, for example - but never at the expense of quality.  In developed markets, legal protection may (perhaps) be good enough to base decisions on numbers alone.  In Asia, management integrity is paramount.  We also prefer 'operating assets', which generate cash or will do so in future, rather than 'dead assets' reliant on the price someone else may pay.


3.  We like growth as much as value - but "growth at a reasonable price".  One of the easiest mistakes is to overpay for a good company, or a good story.


4.  Given the impossibility of infinite growth on a finite planet, and a suspicion that growth may in future be harder to find, "sustainable income at a reasonable price" is attractive too.


5.  Sustainability is never absolute.  We value resilience.


6.  We seek good businesses: internal returns are important.  Deep value buys may arise from very cheap to somewhat cheap and remain illiquid.  The managers of our holdings do most of the work for us when they continue to generate good returns internally, and this reduces reinvestment risk.


7.  Free cashflow is good; sensible capital allocation is key.


8.  We like dividends - especially in those parts of Asia where there are no tax disadvantages, but anyway it is generally a good idea that excess cash be returned to the shareholders.  (If companies with a good value-adding record want cash for expansion, investors can be relied upon to stump up enthusiastically for a rights issue.)  We dislike buyback-and-issuance schemes designed to enrich insiders, but buybacks shrinking the capital base at discounts to intrinsic value are sometimes constructive.


9.  We try to know our companies inside out.  We visit the companies, try to read their annual reports and announcements from cover to cover, talk to their competitors, and so on.  The longer we've known them, the better.


10.  We don't worry about missed opportunities.  Most companies are too complicated: we look for businesses we like and think we can understand, and focus on relatively few.


11.  We buy securities on a 3-5 year time horizon.  (Maybe even more - ideally we would like to buy good companies at good prices and hold forever, but in an ever more volatile world, 3-5 years may be as far ahead as one can realistically hope to see, and certainly we need to keep reassessing.)  However, if a security appreciates rapidly to the point where it no longer represents reasonable value in absolute terms or relative to prospective purchases, or if new information comes to light which causes us to reevaluate, we may sell with alacrity.  Restraining fund size helps us to maintain selling discipline.


12.  The emphasis has changed slightly over the years, due to changing market conditions and sometimes-painful experience.  Our style will, we hope, continue to evolve:  in a changing world, we see no point in narrowing options unnecessarily.



For more on the investment process of other successful investors, check out:

- Andreas Halvorsen (Viking Global) on investment process

- Seth Klarman's value investing lessons

- Investing lessons from KKR's Henry Kravis

- Donald Yacktman on viewing stocks as bonds 

ValueAct Takes Trinity Industries Stake, Trims Microsoft

Jeff Ubben's activist firm ValueAct Capital has filed two disclosures with the SEC today.


ValueAct Shows New Trinity Industries Stake

First, the investment firm has filed a 13D with the SEC regarding shares of Trinity Industries (TRN).  Per the filing, ValueAct now owns 6.8% of the company with over 10.39 million shares.

The filing shows ValueAct was out buying July at prices between $18.69 and $21.50.  Also, in June they entered into Equity Forward Transactions with Societe Generale.

The 13D also notes that ValueAct intends to have conversations with members of the company's management and board of directors to enhance shareholder value.

Per Google Finance, Trinity Industries is "a diversified industrial company that owns a range of businesses providing products and services to the energy, transportation, chemical and construction sectors. The Company's products and services include railcars and railcar parts; parts and steel components; the leasing, management and maintenance of railcars; highway products; aggregates; inland barges; structural wind towers; steel utility structures; storage and distribution containers, and trench shields and shoring products. The Company's segments include the Rail Group, Railcar Leasing and Management Services Group, Construction Products Group, Energy Equipment Group, Inland Barge Group and All Other Groups. Its Rail Group is a manufacturer of freight and tank railcars in North America used for transporting a range of liquids, gases and dry cargo, through Trinity Rail Group. The Company's Railcar Leasing and Management Services Group is a provider of rail industry services in North America."


Ubben's Firm Trims Microsoft Stake

Second, in a Form 4 filed with the SEC, ValueAct has sold shares of Microsoft (MSFT).  Per the filing, ValueAct sold 18 million shares in total on July 27th and 28th at prices of $56.38 and $55.95.

After these sales, they still own over 38.62 million shares.

Per Google Finance, Microsoft is "is engaged in developing, licensing and supporting a range of software products and services. The Company also designs and sells hardware, and delivers online advertising to the customers. The Company operates in five segments: Devices and Consumer (D&C) Licensing, D&C Hardware, D&C Other, Commercial Licensing, and Commercial Other. The Company’s products include operating systems for computing devices, servers, phones, and other intelligent devices; server applications for distributed computing environments; productivity applications; business solution applications; desktop and server management tools; software development tools; video games; and online advertising. It also offers cloud-based solutions that provide customers with software, services and content over the Internet by way of shared computing resources located in centralized data centers. It provides consulting and product and solution support services."

For more from this investor, we've also highlighted another position they've been buying recently.

Hedge Fund Links ~ 7/29/16

At world's largest hedge fund, sex, fear and video surveillance [NYTimes]

Investors say stop paying fund of hedge funds [NYPost]

How solo fund managers stack up against the team players [FT]

The strategy of hedge fund selection [Global Investor Magazine]

Profile of Bronte Capital's John Hempton [Bloomberg]

The optimal size of hedge funds [Harvard Law]

Inside McKinsey's private hedge fund [FT]

The hedge fund industry needs a makeover [FT]

ValueAct to pay record $11 million to settle antitrust lawsuit [WSJ]

After Brexit, Steve Cohen doubles down [NYTimes]

10 tips for new Wall Street interns from Citadel [Business Insider]

A hedge fund or a fraud? [Bloomberg]

Corsair Capital Q2 Letter: Quintiles Transnational / IMS Health Thesis

Jay Petschek and Steven Major's hedge fund Corsair Capital is out with its second quarter letter. 

In it, they touch on the unique world of negative interest rates we now live in and how investors are reacting:

"The U.S. stock market is currently trading at approximately 16x-17x next year’s earnings. This equates to an earning’s yield of approximately 6% after-tax and 8% on a pre-tax basis - a big gap to 10-year treasury bonds yielding just 1.5%. As long as investors believe that stocks will generally continue to earn what they currently do (even with zero growth), equities will seem to be mathematically quite cheap compared to bonds. Of course, just because bonds are expensive doesn't mean investors have to invest in stocks. However, if not stocks, where will investors turn? It just seems the answer is TINA – there is no alternative – as all assets are historically expensive and stocks may prove to be the proverbial 'best house in a lousy neighborhood.'"

They also provide updates on numerous positions, including Diamond Resorts International (DRII), Olin Corp (OLN), Clearwater Paper (CLW), Voya Financial (VOYA), Countrywide plc (CWD),  and IAC/InterActive (IAC).


Lastly, they feature a write-up on Quintiles Transnational (Q) which is set to merge with IMS Health (IMS).


Embedded below is Corsair's Q2 letter:



For more recent hedge fund letters, we've also posted:

- Third Point's Q2 letter

- Greenlight Capital's Q2 letter

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: