Bill Miller Thinks We're in a Secular Bull Market, Talks Stocks He Likes

Value investor Bill Miller of LMM Investments appeared on CNBC today and thinks we're in a secular bull market that began in March 2009.

"Bonds are unattractive in my view.  I believe we hit a double bottom in bonds in the summertime... 35 year bull market in bonds is over."

"As long as stocks yield more than bonds, stocks are attractive."

Miller is fully invested and says, "Cash earns zero, why do I want something that earns zero?"

He likes One Main Financial (OMF), bought in the spring, still thinks it's 'crazy cheap.'  Thinks smaller financials are attractive, mentioned MGIC (MTG) and Radian (RDN), mortgage insurers. 

Miller also likes big financials as well: Bank of America (BAC), Citigroup (C), JPMorgan (JPM).  Value investor Rich Pzena also likes financials, as he mentioned in his interview last week.

Bill Miller has owned Amazon (AMZN) since the IPO and still owns it today.  He says that was one of the best decisions he's ever made, and one of the worst has been selling any shares of it.  It's his largest position and says people have misunderstood AMZN's valuation from the beginning.  "Amazon's total addressable market is just so much bigger than any other company on earth."

He also talked about Twitter (TWTR), saying he sold half of his call options when it was in the $20s, and thinks it's a unique asset as a 'network of interests.'  He thinks they need a fulltime CEO and suggested they could perhaps switch to a paid monthly platform.  "We own Twitter because of the optionality."  He think it has a floor of $15-16.

Miller also owns various homebuilders such as Lennar (LEN) and TriPointe (TPH).  Feels builders will grow double-digits for the next few years.

On airlines, Miller still owns them and says Delta (DAL) is trading at a 15% free cash flow yield and will generate $5 billion in free cash and return 75% of that to shareholders.  He likes United (UAL) with more upside as the margins are depressed and they've got new management there.

Miller also commented on former hedge fund hotel Valeant Pharmaceuticals (VRX):  "It's probably the most toxic stock in the overall market.  It's blown a hole in Ackman's portfolio, it cost Bob Goldfarb, one of the best investors in our generation his job.  Our cost is from $20-35, we just bought more last week." 

He says they have 2 issues: the legacy issue of transitioning new leadership and then the debt load.  He thinks it doubles in 3 years as the company has a lot of cashflow and will look to sell non-core assets.

He also talked about Netflix (NFLX), noting it's an incredible company and he's owned it twice before, but thinks it's expensive now.  Also thinks Tesla (TSLA) is expensive and most energy plays are as well, especially the integrated players.

For more from prominent investors, check out David Tepper's recent interview, as well as Keith Meister's thesis on YUM China. 

Rich Pzena Likes Banks, Hilton, Seagate

Rich Pzena of Pzena Investment Management appeared on CNBC yesterday and said the market has divided into 2 groups: those that are in sync with the 'lower for longer' philosophy and those aren't cheap stocks, and those that are out of sync like financials/energy/materials that are selling for attractive valuations.

"Any stable, low volatility cash flowing stock" is basically overpriced he feels.

He argued financials were intriguing: "If interest rates go up, you make a fortune, but if they don't you make 10% a year." These companies are paying out their earnings.  He owns Citigroup (C) and Bank of America (BAC), among others.

On the market in general, he says that, "The steady decline in the 10-year is what's caused this whole market situation. And now, maybe it's bottoming."

He thinks interest rates will rise this year and then will go gradually higher.  He thinks his stocks are positioned well to weather downturns in the market or rising rates.

"As this interest rate bubble ends, I think we'll see a re-emergence of active management.  There's lot of interesting opportunities that's not in touch with where the money has flowed."

Pzena also preached what he thinks is instrumental to success:  "Volatility is the opportunity for every real investor.  What we do for a living is exploit other people's fear of volatility to be able to buy stocks at a low price.  Volatility has nothing to do with risk.  Volatility is just stuff going up and down.  And risk is losing money."


Pzena's New Pick: Hilton (HLT)

Pzena has also bought Hilton (HLT) and says that apartment REITs sell for twice as much as lodging REITs.  Hilton is splitting into 3 companies by year-end: a fee based management co, a lodging REIT, and a timeshare business.

"The company's depressed because it's in lodging and people are fearful that we're near the end of the upcycle in lodging."

He feels that it's not a spectacular value like the banks are, but for what it is (a leading franchise) it looks good. He notes HLT has 20% share of all hotel rooms under construction.

He thinks the spin-off in the near-term leads to 20% upside.  Post-spin, he hopes the management company would get a higher multiple than the REIT.  But he thinks that may take time to play out as the cashflow evolves.


On Seagate (STX)

This is one of Pzena's larger positions.  Seagate is in the middle of correcting the overcapacity it had.   They've had strong volumes on the enterprise side and he says that's the whole story:  "It's a replacement of storage in the cloud rather than in the device."


For more from prominent investors, head to David Tepper's recent interview, as well as Keith Meister's thesis on YUM and Barry Rosenstein's thoughts on the market.

Barry Rosenstein on the Market, Active vs Passive, & More

Barry Rosenstein of hedge fund JANA Partners was interviewed on CNBC yesterday and he said stockpicking isn't dead and the push to passive investing is just a 'bubble' of a trend. He noted: "Wall Street has a great ability to overdo a good thing."

On the market: "I think the market's fairly valued; I don't think it's cheap, I don't think it's expensive; there's pockets of value.  It's hard to get excited about corporate earnings growth right now."

On hedge funds: "I think the fact that we're no longer in a one directional market is going to remind people why they want to be in hedge funds again.  I believe this is the kind of market where a fund like ours can find interesting situations and take advantage of the volatility."

On activism, Rosenstein said "as long as human beings are running public companies and as long as the current board dynamic exists, there's always going to be a need for activism.  Sometimes boards lose sight of what needs to happen."  He thinks activism has a long and bright future. 

On ConAgra: He's trimmed his position in ConAgra a bit, but commended management on turning the business around and making a lot of changes (spinoffs, cost savings, etc) and Rosenstein thinks this one has "years to go" with a collection of attractive brands that can grow at double digit earnings growth and the potential for pruning its portfolio and making attractive acquisitions.

He doesn't think they need to increase their dividend as they're already buying back stock.

JANA also reduced its stake in Walgreen's (WBA) and he thinks it's a great company.  He was on the board for a while but stepped off.  He thinks they've accomplished a 'tremendous' amount.


For more from prominent investors, head to David Tepper's recent interview, as well as Keith Meister's thesis on YUM.

Hedge Fund Links ~ 10/21/16

Ray Dalio's remarks at 40th annual central banking seminar [LinkedIn]

Steve Cohen may return to hedge fund industry when ban expires [NYTimes]

Hedge funds struggle to master their miserable new world [Bloomberg]

Hedge fund launches dwindle to 16-year low as returns lag [Bloomberg]

Year-to-date level of hedge fund redemptions highest since 2009 [FINalternatives]

Is Bill Ackman toast? [Vanity Fair]

Paulson's 2016 loss mounts [Bloomberg]

Recruiters give advice for applying for hedge fund jobs [Business Insider]

One venture capitalist is beating hedge fund managers at their own game [CNBC]

So many hedge funds, so little alpha [Bloomberg]

Two big hedge funds unwind bets against Deutsche Bank [Reuters]

Deutsche creats new $50 billion hedge fund and structured products arm [HFM]

What We're Reading ~ 10/20/16

The dying business of picking stocks [WSJ]

Marks, Grantham, Arnott, Gundlach reveal their biggest hits and mistakes [WSJ] 

John Maynard Keynes: courage is the key to investing [WSJ]

Joel Greenblatt's investing secrets revealed [Barrons]

What does Nevada's $35 billion fund manager do all day? Nothing [WSJ]

What I learnt on the sell side [What I Learnt on Wall St]

What's something you strongly believe in that's likely wrong [Collaborative Fund]

How to stay patient for longer [Clear Eyes Investing]

Chipotle (CMG): is the brand intact? [Rational Walk]

A quick look at Liberty Ventures (LVNTA) [Peters Macgregor]

A piece on Atlassian (TEAM) [Fast Company] 

27 charts that will change how you think about the American economy [Vox]

The Jeff Bezos regret minimization framework [A Wealth of Common Sense]

Preparing for the future of artificial intelligence [The White House]

An integrated perspective on the future of mobility [McKinsey]

The best performing CEOs in the world [Harvard Business Review]

Liquid assets: how the business of bottled water went mad [The Guardian]

Sam Zell sees limited investment opportunities in the future [NREI]

Deutsche Bank: a Greek tragedy at a German institution? [Aswath Damodaran]

Imagining a cashless world [New Yorker]

Sohn London 2016 Investment Conference Speakers Revealed

We've got an exclusive preview of the speakers list for the upcoming Sohn London 2016 Investment Conference.  The Sohn Conference Foundation, in partnership with CNBC, has prepared the 5th annual conference, bringing together influential investors to hear their strongest ideas for navigating the unprecedented and complex challenges Europe now faces.

With the backing of the UK investment community, they've raised more than £55 million to date for the fight against pediatric cancer.  This year looks to continue to build on that momentum.  

All proceeds from this year's conference will support The Royal Marsden Cancer Charity, providing crucial funding to support medical research and cancer treatment for children across the UK.

You can learn more and register for the event at www.sohnconference.com/london/


Sohn London 2016 Speakers List

- Christopher Hohn, TCI Fund Management Limited
- Robert Bishop, Impala Asset Management
- Adrian Croxson, Och-Ziff Management Europe Limited
- Ashish Goyal, Citadel Investment Group
- Masroor Siddiqui, Naya Capital Management UK Limited
- Elif Aktug, Agora Fund Manager, Pictet Asset Management
- Iván Martin Aranguez, Magallanes Value Investors
- Bo Börtemark, Carve Capital AB
- Dureka Carrasquillo, Canadian Pension Plan Investment Board
- Marc Chatin, Parus Fund
- Anne-Sophie D'Andlau, CIAM
- David Jones, You & Mr. Jones
- Erik Karlsson, Bodenholm Capital AB
- Mans Larsson, Makuria Investment Management
- Michel Massoud, Melqart Asset Management
- Nicolas Walewski, Alken Asset Management

As you can see, it's quite a list!


Event Details

When: December 8, 2016

Where: Marriott Hotel in Grosvenor Square London W1K6JP United Kingdom


Save the date on your calendar or you can register for the conference by clicking here.

Keith Meister's Thesis on YUM Brands China Spin-Off; Talks Pandora & Williams

Keith Meister of activist firm Corvex Capital was just interviewed by CNBC where he talked about YUM Brands (YUM), Pandora (P), shareholder activism and more.  On the market in general, he said he's bullish on his individual positions but not necessarily the market in general.  He notes, "I'm not a buyer of the market here, per se.  My guess is we're more near a top than a bottom."

Meister on YUM Brands Spin-Off

Corvex is the largest shareholder of YUM and will spin-off its China business to shareholders on November 1st and he believes it's "1 plus 1 equals more than 2."

He notes that the remaining HoldCo will be a 98% franchised, asset light business in the quick service food industry.

Meister says the China co is a different story as 7,500 restaurants (KFC, Pizza Hut) in China gives them a huge advantage as they were first to move and have become the dominant player there in the QSR space and they can now go into tier 2 and tier 3 cities.  He acknowledges that it will be a volatile ride, but says it can be an 'up and to the right' chart over time.

He argues it should trade at 10-12x EBITDA after spin-off, but acknowledged it could start trading around 8x which would basically be trough earnings.  "The market's not gonna make it easy to own YUM China, but that's where I think the best return will be."

He feels the remaining HoldCo will trade more like an annuity, with smoother returns. 

On shareholder activism, Meister says that these types of investors are simply trying to buy good businesses, help make positive changes, and acting like an owner in the public markets.


Meister on Pandora (P)

Meister still owns Pandora (P).  When asked if they're going to sell themselves, he said he didn't know.  He compared the company to competitor Spotify and notes the gap in valuation as one is private and one is public.   He argues that music is so core to many tech players these days (Apple, Amazon, etc) and he says "so it's a hugely valuable piece of property for someone who wants to win."

He concedes the streaming business is a commodity business, but argues that Pandora isn't due to the built up userbase as an asset.


Meister on Williams (WMB)

The Corvex founder also talked about Williams (WMB) and has left the board and commended the company on the work done.  He personally feels that the company has "undermaximized the opportunity set" over the past 5 years.

He thinks it could probably be worth more as part of another entity.  He thinks consolidation is happening and you don't want to be left out.  "It's hard to build new pipeline, so it makes existing pipeline more valuable." 

We'll post up the video of the interview once it's released.  Be sure to also check out CNBC's interview with David Tepper from yesterday, as well as their conversation with Carl Icahn.

Nelson Peltz Not As Cautious As Others, Talks General Electric

Nelson Peltz of Trian Partners appeared on CNBC today and gave his view on the market and his holding General Electric (GE).

Peltz said that "I think Wall Street is talking themselves into a negative environment, and I think they're almost doing it unnecessarily."  He says earnings have been pretty good but revenue's been hard to get, but companies are realizing how much cost they can take out.


"I'm not a macro guy, but I think my portfolio's cheap.  I think you're gonna see a little growth in Europe this year for the first time."  He says Latin America is a problem, Europe is getting better, but 'who knows' on China.

On General Electric (GE), his largest holding, Peltz noted that GE has been a good performer since last year and he thinks "it's the best set of industrial assets on the planet.  85-90% of their revenue today is service revenue and if you look at the business peak to trough through the great recession and if you look at the businesses in there today, earnings were down 5%."

He doesn't know what the quarter's earnings are gonna be but he doesn't seem to care as he's "in this thing for a longtime."

Peltz also touched on Pepsi (PEP), which he's now out of.  They took $1 billion a year in costs out for 3 years in a row. 

On shareholder activism, Peltz floated an idea of 'private equity in public markets' where long-term owners hold stocks for longer periods of time while enacting positive change and helping a business grow.

He thinks Hillary Clinton wins the election and the market could stay where it is, unless she takes both Houses and then it'd go down.

We'll post up the video of the interview once it's released.  Be sure to also check out CNBC's interview with David Tepper from yesterday, as well as their conversation with Carl Icahn.

Jim Chanos Still Short Tesla & Caterpillar

Noted short seller Jim Chanos of hedge fund Kynikos Associates just spoke with CNBC about

Chanos confirmed he's still short Tesla (TSLA) amid rumors that the Model 3 is delayed with production/deliveries.  "Never a dull moment in Tesla land," Chanos said.

"I'm dumbfounded that the board would go ahead with this deal (with SolarCity (SCTY)).  They're growing into a business they don't need to grow into. They're going to pretty much double their cash burn by taking it on, it just makes no sense." Chanos's firm believes SolarCity is an insolvency ex-the deal. 

He also mentioned how Caterpillar's (CAT) CEO was departing.  When asked if he's still short, Chanos said, "Yeah, the fundamentals in our view have not yet changed, we haven't seen any evidence of it."

Chanos also pointed out that the China real estate bubble still hasn't happened yet (popped) so that's still ahead of us, he says. 

We'll post up the video of the interview once it's released.  Be sure to also check out CNBC's interview with David Tepper from yesterday, as well as their conversation with Carl Icahn.

David Tepper Cautious But Not Outright Bearish

David Tepper of hedge fund Appaloosa Management made a rare media appearance on CNBC and gave his thoughts on the market.

Tepper noted that "We're pretty light in the stock market right now and we have a lot of cash.  We're probably more positioned in the bond market right now.  I just don't see the market having the ability to move up that much.  I think the upside/downside is not the most favorable I've seen.  It's not a great environment."

Tepper also touched on the election, noting that it's a "fairly bad choice at the top."  He also said that, "Depending on the outcome of the election, the market can move different ways.  So, generally speaking, pretty cautious on the market, not outright bearish on the market."

He said this environment would probably be 'ok' returns, but not 'great.'

He particularly focused on the outcome of who wins the White House and who wins Congress, basically saying that different market outcomes will be determined by those results.

Embedded below is the video of David Tepper's CNBC interview:

Video 1


Video 2



You can also view Carl Icahn's interview here as well.

Carl Icahn: Companies Overvalued Considering Risk Premium

Activist investor Carl Icahn made an appearance on CNBC yesterday to share his thoughts about the market.

He emphasized his stance that he's more and more concerned about the stock market.  He pointed to the fact that the middle class isn't seeing incomes they need, there's underfunded pensions, and rates are still too low.


Icahn said that, "A lot of S&P companies are way overvalued considering the risk premium"  He's having a hard time finding opportunities in this market but did note that some are "uniquely undervalued."

On Herbalife (HLF), Icahn continues to think that it's undervalued even after a big rally.  He reiterated that Bill Ackman (who is short HLF) is wrong about the stock and Icahn noted that HLF could still be "the mother of all short squeezes."

Icahn also noted: "If you want to be a successful investor, you look for things that are obvious but not apparent.  You have companies that there's some unique quality that aren't apparent that you buy.  Sometimes it takes years and years and years.  The activism is a catalyst for that obviously.  I think our portfolio is made up of those."

Embedded below are videos of Icahn's CNBC interview:

Video 1


Video 2



Video 3



You can view recent portfolio activity from Icahn here. And you can also check out David Tepper's interview here.

Jeff Gundlach: Watch 2,130 Level of S&P 500

DoubleLine Capital's Jeff Gundlach was interviewed on CNBC yesterday and here's his thoughts:


And although he's a fixed income manager, Gundlach often opines on the stock market and this time was no different.  He said that, "I would turn particularly negative if the S&P closed twice below 2,130."

He notes that the Fed wants to raise rates in December once the election ends.  He also mentioned he's turned negative on most assets since July.

Gundlach said he doesn't think the election is all that important because he feels that both candidates would be 'caught up in the trend' of fiscal stimulus.

Embedded below is video of Gundlach's CNBC interview:

What We're Reading ~ 10/12/16

The Signal and the Noise: Why So Many Predictions Fail - But Some Don't [Nate Silver]

Shiller's powerful market indicator is sending a false signal [WSJ]

The consequences of risk taking [A Wealth of Common Sense]

A look at DaVita Healthcare Partners (DVA) [Rational Walk]

The AI revolution: why you need to learn about deep learning [Fortune]

What does Sam Zell know that Wall St doesn't? [Horizon Kinetics]

Profile of UK fund manager Neil Woodford [Bloomberg]

Interview with T-Mobile's CEO John Legere [Business Insider]

Liberty Media: better than Berkshire [Barrons]

The auto industry's real challenge [Strategy Business]

Mars cashes out Warren Buffett to take control of Wrigley [NYTimes]

Decoding Amazon's fashion ambitions [Business of Fashion]

How eBay's CEO plans to take on Amazon [Bloomberg]

Knowing when to break your own rules [A Wealth of Common Sense]

Why the cost of living is poised to plummet over the next 20 years [Singularity Hub]

Fairholme Capital Adds To Lands End Stake

Bruce Berkowitz's investment firm Fairholme Capital has filed an amended 13G with the SEC regarding its position in Lands End (LE).  Per the filing, Fairholme now owns 10.5% of Lands End with over 3.35 million shares.

This is an increase of 353,200 shares since the end of the second quarter when they owned 2.99 million shares.  The filing was made due to activity on September 30th.

Berkowitz originally received his stake in LE as a spin-off from Sears Holdings (SHLD), which he has been a big holder of for some time.

Per Google Finance, Lands End is "a multi-channel retailer of casual clothing, accessories and footwear, as well as home products. The Company operates through two segments: Direct and Retail. The Company offers products through catalogs, online at www.landsend.com. The Direct segment sells products through the Company's e-commerce Websites, international Websites and direct mail catalogs. The Retail segment sells products and services through Lands' End Shops at Sears across the United States, the Company's standalone Lands' End Inlet stores and international shop-in-shops. The Company's product categories include Apparel and Non-apparel. The Non-apparel category offers accessories, footwear and home goods. The Company provides embroidery, monogramming, gift wrapping, shipping and other services. In addition, the Company offers sheets and pillowcases, duvet covers and comforters, blankets and throws, mattress pads, towels, rugs and mats, school uniforms and shower curtains."

Lone Pine Capital Starts Expedia Position

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding shares of Expedia (EXPE).  Per the filing, Lone Pine now owns 5.21% of EXPE with over 7.14 million shares.

This is a newly disclosed position for the fund as they did not show a stake back at the end of the second quarter.  The filing was made due to activity on September 29th.

Lone Pine has also been a longtime holder of fellow online travel agency, Priceline.com (PCLN). They've owned PCLN shares since 2011.

Per Google Finance, Expedia is "an online travel company. The Company makes travel products and services available, on a standalone and package basis, provided by various lodging properties, airlines, car rental companies, destination service providers, cruise lines and other travel product and service companies. Its Core OTA segment provides a range of travel and advertising services, through a range of brands, including Expedia.com and Hotels.com in the United States and localized Expedia and Hotels.com Websites throughout the world, Orbitz.com, Expedia Affiliate Network, Hotwire.com, Travelocity, Venere, Wotif Group, CarRentals.com, and Classic Vacations. Its trivago segment sends referrals to online travel companies and travel service providers from its hotel metasearch Websites. Its Egencia segment, which also includes Orbitz for Business, provides managed travel services to corporate customers. Its HomeAway segment operates an online marketplace for the vacation rental industry."

Baupost Group Exits SunEdison Semiconductor Shares

Seth Klarman's investment firm Baupost Group has filed a 13G with the SEC regarding shares of SunEdison Semiconductor (SEMI).  Per the filing, Baupost now owns 0% of SEMI with 0 shares.

This is down from the previous 8.37 million SEMI shares Baupost owned at the end of the second quarter.  They no longer hold common stock and the filing was made due to activity on September 30th.

We've also highlighted other recent portfolio activity from Baupost Group here.

Per Google Finance, SunEdison Semiconductor is "engaged in the development, manufacture and sale of silicon wafers to the semiconductor industry. The Company also develops advanced substrates, such as epitaxial (EPI) wafers and wafers for the silicon-on-insulator (SOI) market, which enable computing and communications applications. Its products include polished wafers, EPI wafers and SOI wafers. The Company sells its products to the semiconductor manufacturers around the world, including integrated device manufacturers, pure-play semiconductor foundries and companies that specialize in wafer customization. It operates facilities in semiconductor manufacturing regions throughout the world, including Taiwan, Malaysia, South Korea, Italy, Japan, and the United States. Its wafers are used as the base substrate for the manufacture of various types of semiconductor devices, including microprocessors, memory, analog, mixed-signal and radio frequency (RF) integrated circuits, discrete and image sensors."

Kingstown Capital Trims Aerojet Rocketdyne Stake

Michael Blitzer and Guy Shanon's investment firm Kingstown Capital has filed a 13G with the SEC regarding its position in Aerojet Rocketdyne (AJRD).  Per the filing, Kingstown now owns 4.3% of AJRD with 3 million shares.

This is a decrease compared to the 3.5 million shares they owned at the end of the second quarter.

We've previously highlighted recent portfolio activity from Kingstown here.

Per Yahoo Finance, Aerojet Rocketdyne "designs, develops, manufactures, and sells aerospace and defense products and systems in the United States. The company operates in two segments, Aerospace and Defense, and Real Estate. "

Jeff Saut's Latest Market Commentary: Darvas Discipline

Market strategist Jeff Saut is out with his latest commentary entitled "Darvas Discipline."  He titles it so because he references Nicolas Darvas in a passage from his book, How I Made $2,000,000 in the Stock Market.

Darvas wrote,

"I knew that I had to adopt a cold, unemotional attitude towards stocks; that I must not fall in love with them when they rose and I must not get angry when they fell; that there are no such animals as good or bad stocks.  There are only rising and falling stocks - and I should hold the rising ones and sell those that fall.  I knew that to do this I had to achieve something much more difficult than anything before.  I had to bring my emotions - fear, hope and greed - under complete control ... I started to see that stocks have characters just like people.  This is not so illogical, because they faithfully reflect the character of the people who buy and sell them."

He then touches on the concept of tracking stocks with favorable technical setups but then only buying when they give a fundamental reason for doing so: improving earnings power.


Embedded below is Jeff Saut's latest market commentary: Darvas Discipline



For more, check out Saut's other recent commentary where he noted Steve Eisman thinks the US is destined for slow growth.

Paulson & Co Trims Extended Stay America Stake

John Paulson's hedge fund firm Paulson & Co has filed a couple of SEC filings regarding its paired shares in Extended Stay America (STAY) and ESH Hospitality.

The Form 4 filed indicates that Paulson & Co sold 4,983,333 paired shares in total, at a price of $14.16 per share on October 4th.

After these sales, Paulson still owned 37.67 million shares of STAY, or 19% of the company.

A press release from Extended Stay America indicates that they recently announced a secondary offering of paired shares, each paired share consisting of a share of common stock of STAY and a share of class B stock of ESH Hospitality.  Paulson & Co, Centerbridge Partners, and Blackstone Group were the selling stockholders. 

The company also announced a share repurchase agreement where they repurchased 1.95 million paired shares from the sellers.

We've also posted other recent portfolio activity from Paulson & Co here.

Per Google Finance, Extended Stay America is "an integrated owner/operator of company-branded hotels in North America. The Company operates in hotel operations segment. Its business operates in the extended stay lodging industry. It owns and operates approximately 630 hotels comprising over 69,400 rooms located in approximately 40 states across the United States and in Canada. It owns and operates its hotels under its core brand, Extended Stay America, which serves the mid-price extended stay segment. In addition, it owns and operates over three Extended Stay Canada hotels. It operates its hotels owned by ESH Hospitality, Inc. (ESH REIT). The hotels are operated by the Operating Lessees, subsidiaries of the Company and are managed by ESA Management LLC (ESA Management), a subsidiary of the Company. ESH Strategies, a subsidiary of the Company, owns the brands related to its business. The Company's extended stay hotels are designed to provide lodging or apartment accommodations."

SPO Advisory Reduces Oasis Petroleum Position

John Scully's investment firm SPO Advisory has filed a Form 4 with the SEC regarding its position in Oasis Petroleum (OAS).  Per the filing, SPO now owns 16.97 million shares of OAS.

They sold over 2.97 million shares in total on October 4th and 5th, with the bulk of the transaction coming at $11.65 per share.

We've highlighted previous SPO Advisory portfolio activity here.

Per Google Finance, Oasis Petroleum is "an independent exploration and production company. The Company is focused on the acquisition and development of unconventional oil and natural gas resources in the North Dakota and Montana regions of the Williston Basin. Its segments include Exploration and Production, which is engaged in the acquisition and development of oil and natural gas properties; Well Services, which performs completion services for the Company's oil and natural gas wells operated by Oasis Petroleum North America LLC (OPNA), and Midstream Services, which performs salt water gathering and disposal and other midstream services for the Company's oil and natural gas wells operated by OPNA. The Company's projects include Williston Basin, West Williston and East Nesson. It also operates a well services business through Oasis Well Services LLC (OWS) and a midstream services business through Oasis Midstream Services LLC (OMS)."

Hedge Fund Links ~ 10/7/16

How to improve the alternative asset management industry [A Wealth of Common Sense]

Hedge fund marketing tips for the initial sales meeting [FINalternatives]

Largest hedge funds bleed assets [Reuters]

The Smithsonian is not giving up on hedge funds [ii alpha]

Dan Och's $37 billion question: will investors stand by him? [Bloomberg]

Hedge funds' ballooning bet on sugar [Bloomberg]

Deutsche Bank: hedge funds back away [Bloomberg]

Elliott said to be in talks to invest $3 billion into Brazil's Oi [Bloomberg]

Activists restore Sotheby's splendor [Forager Funds]

Notes From Sohn San Francisco 2016: Morfit, McGuire, Palihapitiya & More

Below are notes from the 2016 Sohn San Francisco investment conference where investment managers presented their latest ideas to benefit charities.  We also posted up notes from the Next Wave Sohn San Francisco conference as well that featured emerging managers.

Notes From Sohn San Francisco 2016 Conference


Mason Morfit, ValueAct Capital

• Idea: Long Morgan Stanley (MS)
• Try to find businesses with enduring franchise value
• 3 defined business units
• 7 defined revenue types
• Did a lot of work to understand the unit economics
• 75% of the revenue and 85% of the profit come from asset light fee based businesses (not capital intensive businesses)
• Long term trend is very positive
• MS has maintained and in some cases grown its share in wealth management and investment banking advisory 
• Risk factors: earnings decline, principal loss, liquidity/access to capital

Mick McGuire, Marcato Capital Management

• Idea: Long Buffalo Wild Wings (BWLD)
• Owns 5% of the company
• Differentiated concept focused on wings, beers, sports
• ~1,200 units with potential to grow to 1,700 units
• Long history of industry leading same store sales (SSS) growth
• Central component of investment thesis:
• Differentiated concept with long runway for growth
• SSS declines and capital allocation missteps have hurt shares
• Opportunity to create shareholder value by: transitioning to a 90%+ franchised model by 2020, improve 4 wall margins (several hundred bps opportunity), and optimize capital structure
• Multiple has compressed as traffic has slowed and costs continue to rise
• When growth slowed, BWLD acquired franchised stores for high multiples
• Average replacement cost is ~$2.3mm per unit but in 2015, spent $3.5mm per unit - overpaid; bad use of capital
• Incentives are weighted singularly towards growth, not ROI
• While unit volumes have increased significantly since IPO, ROI has decreased because the cost to build a unit has increased
• Franchised businesses command higher multiples; higher franchise mix correlated with higher multiples
• BWLD is 50/50 today but recommending that they go to 90% franchised model by refranchising units at multiple of 6.0x EBITDA
• Valuation: if they can move to a higher franchised model range of value from $218 to $311 (versus ~$141 today)

Chamath Palihapitiya, Social Capital

•  Primarily invests in fast growing private tech companies
• Multi-trillion dollar opportunity hiding in plain sight
• Retail will be a $1T business by 2025
• Every company succeeds based on three factors: build a great product with great market fit, develops adjacent products in deep verticals, invests in features to drive ARPU
• Amazon (AMZN) thesis based on AWS and outsourcing infrastructure spending and moving it to the cloud; reshaping economics by taking out costs
• Similar concept for software that will move to the cloud

• Idea: Long Workday (WDAY) 
• $100bn opportunity in 10 years; 20% IRR
• Workday is the system of record for HR and is viewed as the best in class product among CIOs
• Leading market share supporting the largest global employee bases including Samsung, McDonalds, IBM
• HCM product manages 19mm employees on behalf of its employers
• Adjacent products in deep verticals: Workday Financials - system of record to manage financials; now manages financials for global companies
• Invest in features to drive ARPU (payroll and many other features)
• Rapid pace of innovation
• Workday competes against Oracle (ORCL) and SAP (SAP)
• Lowest spend on M7A over the last 5 years
• "M&A is what you do when what you do doesn't work anymore."
• Done< $0.3bn over last 5 years, SAP and Oracle have had a lot of M&A
• Netflix ability to close the books and file with the SEC went down significantly with Workday versus Oracle
• Workday is an enterprise product company
• Best management team in software
• Fully aligned, long term oriented
• 97% customer satisfaction; very high consistent with consumer tech like Facebook, Google, Apple but this is enterprise tech
• Following the Salesforce playbook but doing it better
• $100bn company in 10 years

Carson Block, Muddy Waters Capital

• Idea: Short Tutor Perini (TPC)
• Construction company
• Nearly all analysts have the stock as a buy
• FCF is the Achilles heel - the company bleeds cash in working capital driven by growing accounts receivable
• Loan agreement has been amended 6 times in 5 years and there is a chance that banks could pull RC facility; Business has $94mm of cash on BS but 79% of cash sits in JV so it could run into a major liquidity problem
• 4 CFOs over 9 years
• Summary: business can't consistently generate cash, projected earnings growth highly questionable, lack of management credibility, and liquidity could become challenged

Mihir Wohra, PIMCO

• Idea #1: Rates trade - Hawkish Fed
• Market is currently underpricing the possibility of a Fed hike or that there will just be one hike
• Buy a pair: buy a put on the 1 year rate

• Idea #2: Dovish Fed - Buy REITs
• REIT prices tend to be correlated to equities over the short-term but underlying economic factors prevail over the long term
• Will do well if Fed doesn't raise rates or cuts

• Idea #3: Commodities trade: Long call options on 2018 Natural Gas - No Fed correlation
• In the midst of global price convergence that will pull US natural gas prices higher while lowering global prices; US is opening new LNG export terminals and US nat gas is the cheapest in the world so there are buyers
• Buying 2018 at a discount to 2017 is attractive given US LNG exports are only increasing over the next few years

• Idea #4: Bonus trade: sell puts / buy calls on October VIX Futures
• Volatility should rise towards long term averages if election stays close
• Volatility could rise more if Trump probability of winning increases

• Idea #5: Bonus trade: Currencies - works if Trump win probability decreases
• Mexican peso has significantly underperformed other EM and commodity currencies in 2016 due to possibility of Trump victory and tougher US policies toward Mexico

Jeff Osher, Harvest Capital Strategies

• Idea: Long Echostar (SATS)
• Global provider of satellite services, video, delivery solutions and broadband satellite technologies
• Echostar Technologies: set top box business with $1.3bn revenue; $100mm EBITDA, 7.6% EBITDA margins
• Satellite services: $445mm revenue; 84% EBITDA margins; very good business with long dated contracts
• HughesNet: $1/4bn revenue; provide consumer broadband for households that can't get wired broadband
• Duopoly: Hughes and Viasat
• Hughes has 1mm subscribers with 30% EBITDA margin
• Business is capacity constrained
• 2016 launches will drive 50% revenue growth for Hughes within 3 years.  Given higher incremental margins, EBITDA should nearly double
• Sum of the parts valuation results in target price of $71.76 (versus today at ~$44)
• Other actions could result in homerun scenarios: Echostar Technologies divestiture, Echo Mobile, Dish Mexico, Sling TV, Brazil orbital slot, Pay TV, positioning for opportunistic M&A

Joseph Lawler MD, JFL Capital Management

• Idea: Short IP Group (IPO.LSE)
• Publicly traded fund that invests in healthcare companies
• Most publicly traded investment firms trade at a discount to NAV but IPO trades at a premium
• Adverse selection process - they seem to invest in companies that other VCs have passed on
• Investments are overvalued especially investment in Oxford Nanopore.  It's a DNA sequencing company; the cost of DNA sequencing has gone down significantly and has become commoditized

Arjun Divecha, Grantham May Van Otterloo & Co

• Idea: Investing in Indian financials (non state-owned banks)
• Never think of an emerging market as a place to permanently put capital
• India from a long term point of view looks pretty good as a place to invest - well positioned for economic growth over next 5 years
• Private sector financials are taking market share away from state owned banks
• Dependency ratio looks pretty good in the future versus other countries like US, Japan, and China.  Dependency ratio = ratio of non-working to working people
• India looks good because of improving fiscal discipline, improving inflation, current account benefiting from oil windfall (big importer of oil), capacity utilization is very low
• India is massively under-urbanized
• Household debt to GDP is 9% versus US where it is ~100%
• Huge scope for increase in consumer loans
• Pitch was about investing in non state-owned banks, like publicly traded ones such as HDFC Bank, Axis Bank, IndusInd Bank and Yes Bank; State owned banks can't make loans anymore due to loan issues
• The private banks are very well run; 3-6-3 banks
• Not easy for foreign investors - must have access to local market
• HDFC Bank (HDB) and ICICI Bank (IBN) are listed on the NYSE 
• 4-5% net interest margins
• Valuations are high but earnings growth has historically justified high valuation
• HDFC trading at 4.5x price to book
• 26.7% earnings growth over 20 years
• Thesis summary: well positioned for economic growth, low penetration of financial sector, well run financials are taking market share from well run banks

Peter Palmedo, Sun Valley Gold

• Idea: Gold: data and dogma
• Discovered Summers-Barsky Gold Thesis: price of gold is driven by the real return in capital markets
• From 2002 to 2015 gold real return was 7.9% versus a blended real return of 4.5%
• China gold demand in excess of domestic supply
• Most PMs hold unsubstantiated beliefs about gold but the algorithmic, data driven models will get it
• Own gold in the simplest form
• Cheap, safe and stable; think about gold in the context of portfolio insurance and risk diversification 
• Buy gold if you think we are in a low real return world

Be sure to also check out the presentations from the Next Wave Sohn San Francisco conference as well, which featured emerging fund managers.

Notes From Next Wave Sohn San Francisco 2016: Rende, Kaufman, Drescher, Melsom

Today we're posting up notes from the Next Wave Sohn San Francisco 2016 investment conference that just took place.  This features emerging fund managers presenting investment ideas to benefit charities.  We've also posted notes from the main Sohn San Francisco 2016 conference as well.


Notes From Next Wave Sohn San Francisco 2016

John Rende, Copernicus Capital Management

• Focused on life sciences and services
• Manages $85mm AUM
• Positive performance 15 out of 16 years

• Idea: Biomarin Pharmaceuticals (BMRN)
• Enzyme replacement therapies for rare diseases 
• $16bn market cap
• 5 commercialized drugs = $1.1bn in product sales in 2016
• Thearpeutics category
• Leader in orphan drugs (affecting less than 200k people in the US)
• Why we like orphan drugs?
• Expedited regulatory path
• Limited competition
• Small sales force needs
• Motivated patient population
• Business model advantage
• 7 year marketing exclusivity 
• Tax credits
• FDA motivated to approve these drugs
• 2014-2020 CAGR of ~17%
• Biomarin makes 5 orphan drugs; Strength in Vimizim and Kuvan - raised revenue guidance recently
• Sustainability of revenues for rare diseases
• Vimizim - treats Morquio A disease - impacts population of 3,000 in the developed world with 20 births/year in the US
• Annual price/patient = ~$350k
• Kuvan - Phenylketonuria - inherited disorder which caused the buildup of the amino acid
• Works in conjunction with a low phe diet
• Annual price/patient =~$150k 
• Three near term pipeline products expected to add $400mm in product revenue by 2020
• Corporate pricing strategy has always been conservative; they've been kept out of the crosshairs because they don't represent a large portion of a given insurance company's costs given low number of patients impacted; also FDA understands that orphan drug companies need a financial incentive to continue to develop orphan drugs
• Over $4bn invested in R&D over past decade
• Base case = $130 price target; Upside case = $170 price target; Downside case = $80 price target

Neal Kaufman, Hillair Capital Management

• From a non-traditional background - formerly operated businesses - CEO of publicly traded small cap company - a supplier to the railroad industry
• Invests in publicly traded small companies

•  Idea: Sysorex (SYRX)
• Value added reseller transitioning into a product company 
• Moving to Saas/recurring revenue business model
• Hillair has $5mm invested in fixed price convertible debenture with preferred share equity kicker 
• Convertible at price significantly above current market
• Technologies
• Airpatrol: Detects cellular, Wifi, RFID, and Bluetooth deices, applications
• Lightminer: World's fastest analytics platform
• VAR business comprises the lionshare of revenue
• Announcement on contract with Top US mall operator and Airpatrol installations
• Valuation
• VAR business worth $14bn based on comps
• Security business is worth $26mm based on comps
• Value per share of $0.89 versus current price of $0.31

Joel Drescher, Drescher Capital

• Focused on TMT and consumer
• BA from Stanford and MBA from Cal Berkeley

• Idea: Signet Jewelers (SIG) 
• 15% ROE, 7 year of double
• Owns Kay, Jared and Pagoda and Zales store brands
• Three divisions
• Market for wedding and engagement rings is very stable
• 15% market share in the mass jewelry category; no competitor has more than 1%
• Zales had 3% operating margin before it was purchased versus Kay and Jared at 17%
• Stock beaten down due to a diamond swap scandal that was published on Buzzfeed, concerns around rising charge-offs
• Credit is an asset not a liability; can be sold off
• 62% of sales done on credit at an average FICO score of 660
• Mid-teens yield on credit portfolio
• Signet could get $1.1bn for the sale of their credit portfolio; could sell it with a minimal impact to EPS, proceeds can be used to buy back stock
• Third party would have more stringent credit standards but would result in minimal loss of sales
• Company announced that it is exploring the sale of its receivables
• $139 per share fair value; 85% increase from current market price based on $7.40 EPS x 10% growth, +1.13 EPS from credit sale portfolio x 15 P/E multiple

John Melsom, Omni Event Fund

• Risk/merger arbitrage fund; 20-25 names in portfolio
• $350mm AUM; launched three years ago
• Investment criteria: hard catalyst, low correlation to equity markets, liquid
• Focused on N. America, Western Europe and Asia
• Beta to the S&P of 0

• Idea: Syngenta (SYT) ~ $40bn market cap 
• One of the big six agro chemical firms
• Focused on crop protection and seeds
• Agricultural input sector facing headwinds; costs are increasing in R&D and crop prices are in decline
• A lot of consolidation in the sector
• ChemChina has a deal to acquire Syngenta
• ChemChina is China's largest chemical company - state owned 
• Terms of the deal: $465 USD + CHF 5/share special dividend
• Expect broad shareholder support for the deal, need Chinese regulatory approvals - but it is a very strategic deal for China given China's desire to increase agriculture output significantly 
• Swiss government has blessed the deal; CFIUS - US body has approved the deal
• Potential 20% return before CFIUS deal; Post CFIUS approval, there is a 7% spread - annualizes to 28% based on closing date
• Spread driven by concerns of antitrust and Chinese buyer.  Market share issues can be easily solved
• Highly confident that the deal will close

Be sure to also check out the presentations from the main Sohn San Francisco 2016 conference as well.

What We're Reading ~ 10/5/16

Michael Lewis' upcoming book on the decision making process [Amazon]

How interest rates affect stock market returns [A Wealth of Common Sense]

The difference between a bubble and a cycle [Collaborative Fund]

Practicing a 'punch card' approach to investing [Base Hit Investing]

Silicon Valley's secrets are hiding in Marc Andreessen's library [Wired]

This is where your smartphone battery begins [Washington Post]

Some big US cities see apartment rents fall for first time in years [WSJ]

Advertising's century of flat-line growth [Bloomberg]

What the next few years looks like for virtual reality [Medium]

Interview with Benchmark's Bill Gurley [Recode]

The scientists who make apps addictive [1843 magazine]

Moleskine turns paper into big profit for private equity [WSJ]

71 million hogs are crushing US meat prices [WSJ]

When going to college becomes a financial risk [Marketplace]

Marcato Capital Sells Some Sotheby's Shares To Company

Mick McGuire's activist firm Marcato Capital Management has filed an amended 13D on its position on Sotheby's (BID).  Per the filing, Marcato now owns 4.9% of BID with 2.62 million shares.

This is a change from the 5.27 million shares they reported on their 13F filing at the end of the second quarter.

The filing notes that Marcato entered into a share repurchase agreement with Sotheby's where BID agreed to purchase 2.05 million shares of BID from Marcato at $36 per share on October 4th.

For more on this fund, we've highlighted other recent portfolio activity from Marcato.

Per Google Finance, Sotheby's is "a global art business company. The Company operates in two segments: Agency and Finance. The Agency segment earns commissions by matching buyers and sellers of authenticated fine art, decorative art, jewelry, wine and collectibles (collectively, art or works of art or artwork or property) through the auction or private sale process. Agency segment activities also include the sale of artworks that are principally acquired incidental to the auction process and the activities of RM Sotheby's. The Finance segment earns interest income through art-related financing activities by making loans that are secured by works of art. Its activities include Sotheby's retail wine operations, Acquavella Modern Art, an equity investee, and sales of the remaining inventory of Noortman Master Paintings, an art dealer that was owned and operated by Sotheby's are reported within all other segment."

Exclusive Branding/Design Package For Investment Firms: Our Readers Save 50%

Our friends at Board Studios have put together a design/branding package with an exclusive 50% discount for MarketFolly readers.  They do fantastic work and we really can't recommend them enough.

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Email Kosta at kosta@boardstudios.com with the subject line "MarketFolly Offer" to lock-in your savings before it's too late.  And even if you don't need the services right away, you can secure the savings for anytime during the rest of 2016.

ValueAct Capital Reduces Baker Hughes Stake

Jeff Ubben's activist firm ValueAct Capital has filed an amended 13D with the SEC regarding its stake in Baker Hughes (BHI).  Per the filing, ValueAct now owns 7% of BHI with over 29.88 million shares.

This is down from the 38.88 million shares they owned at the end of the second quarter.  The filing indicates they sold shares in early August and at the very end of September.  Most of the transactions were at weighted average prices between $49.60 and $50.71.

Ubben's firm has been busy lately and we've highlighted how ValueAct recently filed 13D's on Trinity Industries and CBRE Group as well.

Per Google Finance, Baker Hughes is "engaged in the oilfield services industry. The Company is a supplier of oilfield services, products, technology and systems used in the oil and natural gas industry around the world. The Company also provides industrial products and services for other businesses, including downstream chemicals, and process and pipeline services. It conducts its operations through its subsidiaries, affiliates, ventures and alliances. The Company has four geographical operating segments: North America, Latin America, Europe/Africa/Russia Caspian and Middle East/Asia Pacific. The Company also has an Industrial Services segment, which includes the downstream chemicals business and the process and pipeline services business. The Company's oilfield products and services are of approximately two categories, Drilling and Evaluation or Completion and Production. The Company's Industrial Services consists of its downstream chemicals and process, and pipeline services businesses."

Third Point Files Amended 13D on Enphase Energy Holdings

Dan Loeb's hedge fund firm Third Point has filed an amended 13D with the SEC regarding its stake in Enphase Energy (ENPH).  Per the filing, Dan Loeb now has exposure to 11.2% of ENPH with over 6.7 million shares. 

Per the filing, 6.28 million shares are owned by Third Point funds (including 34,101 shares of common stock issuable upon exercise of warrants). and 423,684 shares are owned directly by Loeb. 

Third Point's last 13F filing detailing positions as of the end of the second quarter had them previously owning 6,248,987 shares.

Per Google Finance, Enphase Energy is "a provider of energy management solutions. The Company is engaged in designing, developing, manufacturing and selling microinverter systems for the solar photovoltaic industry. Its semiconductor-based microinverter system converts direct current (DC) electricity to alternating current (AC) electricity. Its microinverter system consists of three components: Enphase microinverters, an Envoy gateway and Enlighten cloud-based software. Its Enphase microinverters provide power conversion at the individual solar module level by a digital architecture that incorporates custom application specific integrated circuits (ASIC), specialized power electronics devices, and an embedded software subsystem. Envoy bi-directional communications gateway provides collecting and sending data to Enlighten software. Enlighten cloud-based software provides the capabilities to remotely monitor, manage, and maintain an individual system or a fleet of systems."

Paulson & Co Trims Trilogy Metals & Synergy Pharma Positions

John Paulson's hedge fund firm Paulson & Co has filed two Form 4's with the SEC.

First, Paulson has reduced his stake in Trilogy Metals (TMQ), formerly known as NovaCopper.  On September 27th and 28th, Paulson sold 11,173 shares at prices of $0.5594 and $0.5503.  After these sales, Paulson still owns over 11.61 million shares.

Per Google Finance, Trilogy Metals is "a Canada-based metals exploration company. The Company is engaged in exploring and developing the Ambler mining district located in northwestern Alaska. The Company's segments are Alaska, USA; Antioquia, Colombia, and Corporate and other. The Company focuses on the Arctic deposit, which is a volcanogenic massive sulfide deposit located approximately 470 kilometers northwest of the City of Fairbanks, Alaska. The Company's Arctic deposit focuses on engineering and environmental site investigation studies. The Company's Bornite deposit is a carbonate-hosted copper deposit located approximately 25 Kilometers southwest of the Company’s Arctic project. The Company's Bornite deposit focuses on exploration, with mineralization and opens to the north, northeast and south."


Second, Paulson & Co also filed another Form 4 regarding its stake in Synergy Pharmaceuticals (SGYP).  On September 27th and 28th, Paulson sold 54,300 shares in total at prices of $5.7458 and $5.6041.  After these transactions, Paulson still owned 24.22 million shares.  We've highlighted how Paulson has been selling SGYP shares recently.

Per Google Finance, Synergy Pharmaceuticals is "a biopharmaceutical company focused on the development and commercialization of gastrointestinal (GI) therapies. The Company's GI platform includes two lead product candidates: plecanatide and dolcanatide. It is engaged in the discovery, research and development involving uroguanylin analogs for the treatment of functional GI disorders and inflammatory bowel disease. Plecanatide is the Company's uroguanylin analog being evaluated for use as a once-daily tablet for two functional GI disorders, chronic idiopathic constipation (CIC) and irritable bowel syndrome with constipation (IBS-C). Plecanatide is a 16-amino acid peptide that is structurally identical to uroguanylin with the exception of a single amino acid change. Dolcanatide is also its uroguanylin analog being explored for inflammatory bowel disease (IBD). Dolcanatide is designed to be an analog of uroguanylin with resistance to standard digestive breakdown by proteases in the intestine." 

Invest For Kids Chicago 2016: Brosens, Zell, Grant & More

The eighth annual Invest For Kids Chicago conference is coming up soon on October 26th, 2016.  It will feature presentations from elite investment managers in concise 15 minute presentations in order to benefit underprivileged kids in the Chicago area.  You can register for the conference here.


Speakers List: Invest For Kids 2016

- Frank Brosens, Taconic Capital
- Ed Garden, Trian Partners
- Jim Grant, Grant's Interest Rate Observer
- Sam Zell, Equity Group Investments
- Jonathan Gray, Blackstone
- John Lykouretzos, Hoplite Capital
- Matt Halbower, Pentwater Capital
- Michael Sacks, GCM Grosvenor
- Debra Cafaro, Ventas
- Josh Wolfe, Lux Capital
- Leah Joy Zell, Lizard Investors
- William Heard, Heard Capital
- Arthur Kaz, Greenbriar Asset Management


Event Details

When: October 26th, 2016 from 1:30pm to 5:30pm

Where: Chicago, Illinois at the Harris Theater

Registration:  https://investforkidschicago.org


The 2016 conference's beneficiaries include: College Possible, Urban Initiatives, The People's Music School, The Posse Foundation, North Chicago Community Partners, Perspectives Charter Schools, and Chicago Children's Advocacy Center.


This is always an excellent event so we highly recommend attending, especially if you're in the Midwest. Click here to register for the event.

Hedge Fund Links ~ 9/30/16

Perry Capital closing flagship fund [Bloomberg]

A highly anticipated hedge fund launch that might not actually happen? [ii alpha]

John Thaler considers hedge fund return [Reuters]

Chris Hohn's TCI targets excessive executive pay [FINalternatives]

Steve Eisman assails 'clueless' Silicon Valley over online lending [Chicago Tribune]

The hedge fund fee structure just took another blow [CNBC]

Tom Russo's Q2 letter [Gurufocus]

Carl Icahn Reduces Transocean Stake

Activist investor Carl Icahn has filed an amended 13D with the SEC regarding shares of Transocean (RIG).  Per the filing, Icahn now owns 1.5% of RIG with over 5.47 million shares.

This is way down from the previous 21.47 million shares he owned at the end of the second quarter.  The 13D notes that he was selling on September 23rd and 28th at prices of $9.92 and $9.26.

Icahn has been quite busy drastically reducing his energy exposure.  We highlighted how he also dumped over half of his Chesapeake Energy position recently as well.

Per Google Finance, Transocean is "an international provider of offshore contract drilling services for oil and gas wells. The Company's primary business is to contract its drilling rigs, related equipment and work crews primarily on a day rate basis to drill oil and gas wells. The Company operates through the contract drilling services segment. The Company specializes in technically demanding regions of the global offshore drilling business with a particular focus on deepwater and harsh environment drilling services. Its mobile offshore drilling fleet consists of floaters and high-specification jackups used in support of offshore drilling activities and offshore support services across the world. The Company owns or has partial ownership interests in and operates over 60 mobile offshore drilling , including approximately 30 ultra‑deepwater floaters, over seven harsh environment floaters, over five deepwater floaters, over 10 midwater floaters and approximately 10 high-specification jackups."

Julian Robertson: Stocks & Bonds in Bubble, Especially Bonds

Julian Robertson of legendary hedge fund Tiger Management appeared on Bloomberg late yesterday in an interview with Tom Keene.  In it, they touched on a myriad of topics, including the hedge fund industry, which Robertson said was facing the most challenging time ever.  He also said a bubble is brewing in financial assets.


Here's a quick summary with the video below:


- While interest rates aren't negative in the US yet, thinks it's tragic they're down this far

- Says Janet Yellen's not willing to see the American public take pain

- Robertson said negative and near-zero rates from central banks have sped up borrowing at low costs and money is flowing into financial assets.  Thinks bubble in equities and when it bursts, will spread to real estate. 

- "I would tell them (investors) in my opinion, there's going to be chaos created by the negative and low interest rates."

- Thinks investors should have at least some money allocated to hedge funds, so that they can truly be hedged and have some protection

- That said, thinks some great companies are undervalued, cited healthcare, biotech, and technology stocks specifically.  "A company like Celgene is very reasonably priced.  The Google's, those type things, Microsoft.  They're available at very reasonable multiples."

- Invests his own money but the rest is allocated to Tiger Cub hedge funds, or funds founded by managers that used to work for him (you can see many of those funds' portfolios in our quarterly newsletter).

- Specifically called out bonds as stretched with all the bond-buying programs.  Yields at record lows has forced prices to levels that aren't sustainable

- Thinks China will come out with a strong program against hydrocarbons

- Feels there's already a lot of regulation in the hedge fund industry, especially compared to what it used to be.  But says that's normal as an industry grows.

- "It's the most difficult time I've ever seen in the (hedge fund) business.  Because there are a lot of people who are squeezing shorts and they make a business of doing that.  Furthermore, I don't quite know how the quants work, but I think they have a way of squeezing shorts that is very tough too.  At any rate, I think it's tougher to be a hedge fund investor than ever before.  Hedge funds ordinarily don't outperform the markets except when the markets go down.  But right now it's a very difficult time for them."

- "There's a distinct drift occurring in the fee structure." (2% management fee and 20% performance fee)

- Says you make every effort to avoid any areas where insider trading could be possible:  "It's very difficult to determine whether something is an excellent job of research or is in fact inside information."

- On the UK: "I think London is gonna be durable, but this gonna be tough on the UK.  I think it's gonna be very tough."

- On Europe: "I'm reasonably pessimistic on Europe.  But I think the immediate problem is probably rougher in the UK.  George Soros has written a lot about this and I have a lot of respect for him."

- On America: "I'm extremely optimistic because I think we have really great young people and I've always worked with young people."


Embedded below is the video of Robertson's interview:




You can view somewhat recent portfolio activity from Tiger Management here.

What We're Reading ~ 9/28/16

Investing to avoid the consequences of being wrong [aaii]

Comments on investment philosophy [Bronte Capital]

9 ways to improve investing performance [Livewire Markets]

The traits and processes that lead to better forecasts [aaii]

Cognitive bias cheat sheet [Better Humans]

How to build a business that lasts 100 years [TED]

KLX shares could lift off [Barrons]

Why the great divide is growing between affordable and expensive US cities [WSJ]

Amazon's latest ambition: competing with UPS and FedEx [WSJ]

Why video games could be causing a big problem in America [Washington Post]

Jack Ma's grand ambitions [Fortune]

Negative rates nails savers [Mauldin Economics]

When restaurants ditch the dining room [Eater]

Darsana Capital Ups Spirit Aerosystems Stake

Anand Desai's hedge fund firm Darsana Capital Partners has filed a 13G with the SEC regarding its stake in Spirit Aerosystems (SPR).  Per the filing, Darsana now owns 5.4% of SPR with 7 million shares.

This is up from the 5.25 million shares they owned at the end of the second quarter.  The filing was made due to activity on September 16th.

SPR has been a favorite among a few other hedge funds we cover as well: Hound Partners, Marble Arch Investments, Aravt Global, and Newtyn Management, among others.

About Darsana Capital

Prior to founding Darsana, Desai worked with Eric Mindich at Eton Park Capital.  Darsana's most recent 13F filing showed $1.9 billion in assets but keep in mind that doesn't include international positions, or cash.

About Spirit Aerosystems

Per Google Finance, Spirit Aerosystems is "a non-original equipment manufacturer (OEM) aircraft parts designer and manufacturer of commercial aero-structures. The Company is a supplier of aero-structures to The Boeing Company (Boeing) and Airbus S.A.S (Airbus). The Company operates through three segments: Fuselage Systems, Propulsion Systems and Wing Systems. It is engaged in production, including the majority of the airframe content for the Boeing B737. It is also a content supplier of wing systems for the Airbus A320 family. It is a supplier for the Airbus A380 and Airbus A350 XWB (Xtra Wide-Body). Its products include Fuselage Systems, Propulsion Systems and Wing Systems. The Company offers spares and replacement parts for B737 Classic, B737NG, B747, B757, B767, B777, Rolls-Royce BR725, A320, A330, A340 and A380. Its Maintenance, Repair and Overhaul at repair stations provide complete on-site repair and overhaul to support MRO services for B747, B767, B777, B787 and Rolls-Royce BR725.."

Complimentary Equity Reports From Boyar Research

Boyar Research has generously offered to give Market Folly readers complimentary in-depth equity research on three stocks they feel have multi-bagger potential.

You can receive your free reports by clicking here.

Since 2009, over 25% of the companies featured in Boyar Research's Asset Analysis Focus have achieved multi-bagger status within 3 years of publication.  Over the same period, the average stock Boyar profiled increased 73% compared to the S&P 500's 45% gain.*

Average 3 Year Performance of Companies Profiled by Boyar Research

Some of Boyar Research's multi-baggers include:

Find out what companies Boyar Research believes could be next by requesting complimentary reports on three companies, exclusively for Market Folly readers.  Click here to receive the reports.


Since 1975 Boyar Research has been providing independent research utilizing a business person's approach to stock market investing.  They take a company's financial statement and tear it apart, and then reconstruct it in accordance with economic reality - as opposed to generally accepted accounting principles.  Their various publications provide in-depth reports on companies they believe to be selling below their estimate of intrinsic or private market value.


To learn more about Boyar Research visit www.boyarresearch.com


Past performance is no guarantee of future results.  These results are unaudited.  The results represent the 3 year performance from the date of publication and takes into account spinouts and special dividends but not regular dividends.  These are the results of companies profiled in all issues of Asset Analysis Focus excluding The Forgotten Forty.

Steve Eisman Thinks US Destined For Slow Growth: Jeff Saut Market Commentary

Market strategist Jeff Saut of Raymond James has put out his latest piece entitled, "Schadenfreude."  In it, he talks about his recent meeting with Steve Eisman.

Here's what Eisman is thinking these days, according to Saut:  "Steve concluded that Europe is currently sick, the U.S. is likely destined for slow growth because there is not a big enough mortgage refi pipeline to boost the economy, and that Italy is in big trouble.  Steve said to bea short seller you need to embrace 'Schadenfreude.'"

Eisman, of course, was famously profiled in the book The Big Short that subsequently was turned into a movie where he was played by Steve Carrell.

Eisman also walked Saut through the financial crisis, noting that for a crisis like that to happen, you need 3 things: too much leverage, a big asset class that blows up, and then large institutions holding most of the asset class that blows up.

Embedded below is Jeff Saut's latest market commentary, Schadenfreude:



You can view Saut's previous market commentary here.

Senator Investment Group Takes Comstock Resources Stake

Alex Klabin and Doug Silverman's hedge fund Senator Investment Group has filed a 13G with the SEC regarding shares of Comstock Resources (CRK).  Per the filing, Senator now owns 7.32% of the company with 922,754 shares (including 93,500 shares issuable upon exercise of warrants).

This is a newly disclosed equity position for the firm as they did not own any at the end of the second quarter.  The filing was made due to activity on September 13th.

For more from this fund, check out Alex Klabin on the intangibles of building a great hedge fund.

Per Google Finance, Comstock Resources is "an energy company engaged in the acquisition, exploration, development and production of oil and natural gas in the United States. The Company operates in the segment of exploration and production of oil and natural gas. The Company's oil and gas operations are concentrated in Texas and Louisiana. Its operations are focused in two operating areas: East Texas/North Louisiana and South Texas. The Company's properties in the East Texas/North Louisiana region include approximately 80,660 acres in the Haynesville or Bossier shale formations. The Company's Eagleville field includes approximately 30,220 acres located in the oil window of the Eagle Ford shale in South Texas. The Company owns interests in over 1,575 producing oil and natural gas wells, and operates over 950 of these wells. The Company owns interests in over 20 wells in the Rosita field, located in Duval County, Texas."

Paulson & Co Trims Synergy Pharmaceuticals Position

John Paulson's hedge fund firm Paulson & Co has filed a Form 4 with the SEC regarding its stake in Synergy Pharmaceuticals (SGYP).  Per the filing, Paulson sold over 3.47 million shares in total on September 16th and 19th at prices around $5.61. 

After these transactions, Paulson & Co is left with exposure to SGYP of over 24.28 million shares.

A previously filed Form 3 with the SEC indicates that they had notional principal amount derivative agreements in place as well in the form of cash settled swaps representing share equivalents of 2.21 million shares with strikes ranging from $3.31 to $6.347 and expiration dates ranging from November 4th, 2016 to October 5th, 2017.

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

Per Google Finance, Synergy Pharmaceuticals is "a biopharmaceutical company focused on the development and commercialization of gastrointestinal (GI) therapies. The Company's GI platform includes two lead product candidates: plecanatide and dolcanatide. It is engaged in the discovery, research and development involving uroguanylin analogs for the treatment of functional GI disorders and inflammatory bowel disease. Plecanatide is the Company's uroguanylin analog being evaluated for use as a once-daily tablet for two functional GI disorders, chronic idiopathic constipation (CIC) and irritable bowel syndrome with constipation (IBS-C). Plecanatide is a 16-amino acid peptide that is structurally identical to uroguanylin with the exception of a single amino acid change. Dolcanatide is also its uroguanylin analog being explored for inflammatory bowel disease (IBD). Dolcanatide is designed to be an analog of uroguanylin with resistance to standard digestive breakdown by proteases in the intestine."