Howard Marks' Latest Memo: Implications of the Election

Oaktree Capital's Chairman Howard Marks has just penned another memo entitled "Implications of the Election."

Embedded below is Howard Marks' latest memo:



You can download a .pdf copy here.

For more recent hedge fund commentary, we've also posted up Third Point's Q3 letter.

ValueAct Capital Files Amended 13D on CBRE Group

Jeff Ubben's activist firm ValueAct Capital has filed an amended 13D with the SEC regarding its position in CBRE Group (CBG).  We've previously highlighted how ValueAct has been buying CBRE Group shares.  And it appears that continued further in early November.

Per the latest filing, ValueAct now owns 12.1% of CBG with over 40.67 million shares.  This is up from the most recent 36.83 million shares we reported.  The filing notes they were buying on November 2nd through fourth at prices between $25.48 and $26.49.

For more from this firm, check out Mason Morfit's presentation at Sohn San Francisco.

Per Google Finance, CBRE Group is "a commercial real estate services and investment company.  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." 

Empyrean Capital Increases Enova International Stake

Michael Price and Amos Meron's hedge fund Empyrean Capital has filed a 13G with the SEC regarding its position in Enova International (ENVA).  Per the filing, they now own 7.1% of the company with over 2.37 million shares.

This means they've boosted their position size by over 2.11 million shares since the end of the second quarter when they owned only 264,185 shares.  The filing was made due to activity on October 25th.

About Empyrean Capital

Empyrean is an event-driven hedge fund based in California.  As of their last 13F filing, they reported assets under management of $2.21 billion, but keep in mind that doesn't include international stock positions, cash, etc.

About Enova International

Per Google Finance, Enova International is "a provider of online financial services to non-prime consumers and small businesses, providing access to credit powered by its advanced analytics, technology, and online platform and services. Enova has provided over four million customers around the globe access to more than $17 billion in loans and financing. The financial technology company has a portfolio of trusted brands serving consumers, including CashNetUSA, DollarsDirect, NetCredit, On Stride Financial, Pounds to Pocket, QuickQuid and Simplic; two brands serving small businesses, Headway Capital and The Business Backer, and offers online lending platform services to lenders. Through its Enova Decisions brand, it also delivers on-demand decision-making technology and real-time predictive analytics services to clients."

Carl Icahn Buys $100 Million Worth of Herbalife (HLF)

Activist investor Carl Icahn has filed a 13D and Form 4 with the SEC regarding his investment in Herbalife (HLF).  Per the filing, Icahn now owns 23.05% of HLF with over 21.44 million shares.

The filing notes that on November 3rd specifically, Icahn bought over 1.83 million HLF shares at a price of $54.7, or over $100 million worth of stock.

For more on this investor, last month we highlighted that Icahn said companies are overvalued considering the risk premium.

Per Google Finance, Herbalife is "a global nutrition company. The Company develops and sells weight management, healthy meals and snacks, sports and fitness, energy and targeted nutritional products, as well as personal care products. The Company's segments include North America; Mexico; South & Central America; Europe, Middle East, and Africa (EMEA); Asia Pacific, and China. The Company markets and sells over 140 products, encompassing approximately 5,000 stock keeping units (SKUs) globally. Its product categories include Weight Management; Targeted Nutrition; Energy, Sports and Fitness; Outer Nutrition, and Literature, Promotional and Other. The Company's representative products include Formula 1 Healthy Meal, Herbal Tea Concentrate, Protein Drink Mix, Personalized Protein Powder, Total Control, Prolessa Duo, Protein Bars, Aloe Concentrate, Niteworks, Garden 7 phytonutrient supplement, Best Defense for improved immune system, COQ10 Plus and Herbalife SKIN line."

Trian Fund Management Sells Some Mondelez

Nelson Peltz's activist firm Trian Fund Management has filed a Form 4 with the SEC regarding its stake in Mondelez (MDLZ). 

Per the filing, Trian sold 3.8 million MDLZ shares on November 1st, 2nd, and 3rd at prices ranging from $43.29 to $45.22.  After these transactions, Trian still owns 44.21 million shares of Mondelez.

If you missed it, we also posted a recent interview with Nelson Peltz who isn't as cautious as others about the market.

Per Google Finance, Mondelez is "a snack company. The Company manufactures and markets snack food and beverage products for consumers in approximately 165 countries around the world. The Company operates through five segments: Latin America; Asia Pacific; Eastern Europe, Middle East, and Africa (EEMEA); Europe, and North America. Its portfolio includes over seven brands, including Nabisco, Oreo and LU biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolates, and Trident gum, as well as over 50 brands. The Company's brands span five product categories: biscuits (including cookies, crackers and salted snacks); chocolate; gum and candy; beverages (including coffee and powdered beverages), and cheese and grocery. The Company's other brands include Oreo, Chips Ahoy!, Ritz, TUC/Club Social and belVita biscuits; Cadbury Dairy Milk, Milka and Lacta chocolate; Trident gum; Hall's candy, and Tang powdered beverages."

Hedge Fund Links ~ 11/4/16

Pershing Square shakes up fees amid losses [Reuters]

Big hit on drug stocks caps big decline for John Paulson [WSJ]

Lansdowne: no excuses for poor hedge fund performance [Reuters]

Hedge fund clients dump humans for computers and still lose [Bloomberg]

Harvard called 'lazy, fat, stupid' in Endowment report last year [Bloomberg]

Connect with the World's Wealthiest Family Offices This Month - Exclusive Discount

We wanted to remind our readers that at the end of this month the largest family office association in the world is hosting its annual Family Office Super Summit in Miami, Florida. This event features the biggest names in the family office industry from November 28th-30th.  As a Market Folly reader, you can attend for the incredibly low discounted price of just $299. 

To register simply enter “Save400” on the form at the bottom of this event page: http://FamilyOffices.com/Super


What will you receive with your $299 admission?

•    Access to the Early Arrivals Welcome Reception on November 28th so you can get a head start meeting with family offices, investors, and financial executives over cocktails and hors d'oeuvres.

•    Two packed days of networking, investor-led presentations, and family office panel discussions on direct investments, family office wealth management, and managing portfolios for HNWI’s and ultra-wealthy families.

•    Fully catered meals, multiple cocktail hours over 3 days, and a Bloody Mary bar mixer to give you even more chances to meet with fellow attendees and investors.

•    A chance to mingle with family offices and potential investment partners in Miami who are in town for the conference and the country's biggest private art festival, Art Basel, taking place in South Florida the same week.  This festival attracts high-net-worth individuals, celebrities, family offices, and business leaders to the various art exhibits, gallery showings, and premium networking events throughout Miami.

•    Real insights directly from family offices responsible for investing some of the world’s largest fortunes on how they make portfolio decisions, what they look for in a prospective investment, and how you can do business together. 


This is the premier family office conference and for just $299 as a Market Folly reader you cannot find a better deal to attend a multi-day investor event.  Remember, use code “Save400” to lock in this incredible deal using the form on this page: http://FamilyOffices.com/Super or call (305) 503-9077 and tell the Family Office Club that you're a Market Folly reader.

Summaries of Recent Investment Conferences

We've covered a ton of big investment conferences recently that have featured prominent hedge fund managers sharing investment ideas.  If you missed any of them, just click each link below to go to notes from that event.  Enjoy!


- Capitalize For Kids / Sohn Canada Notes: Cliff Asness (AQR Capital), Jeff Smith (Starboard Value), Tom Russo (Gardner Russo Gardner), Alex Roepers (Atlantic Investment) & more


- Invest For Kids Chicago Notes: Jim Grant (Grant's Interest Rate Observer), Sam Zell (Equity Gruop), Frank Brosens (Taconic Capital), John Lykouretzos (Hoplite Capital) & more


- Great Investors Best Ideas Dallas Notes: David Einhorn (Greenlight Capital), Boone Pickens (BP Capital), Mario Gabelli (GAMCO) & more


- Sohn San Francisco Notes: Mason Morfit (ValueAct Capital), Mick McGuire (Marcato Capital), Chamath Palihapitiya (Social Capital) & more

What We're Reading ~ 11/3/16

The rule of 72 [Mohnish Pabrai]

David Rubenstein speaks with JPMorgan's Jamie Dimon [YouTube]

Charlie Rose interviews Amazon's Jeff Bezos [Charlie Rose]

When do you give up on a stock? [Oddball Stocks]

Pitch on Discovery Communications (DISCK) trading at 12x free cash [ContrarianEdge]

A framework for shorting the VIX [EconompicData]

The competitive advantage of an owner-operator [Base Hit Investing]

Winning at trading by being different [Brett Steenbarger]

China can resist a crash but can't prevent one [Bloomberg View]

Beware of the low stock price illusion [ETF]

Buy the housing dips [Dead Companies Walking]

The science of why you should spend money on experiences, not things [FastCoexist]

Third Point's Q3 Letter: Macro Areas They're Focused On

Dan Loeb's hedge fund firm Third Point is out with its third quarter letter.  In it, they talk about what macro areas they're focused on now, some credit investments, and their Third Point Ventures private portfolio.

Third Point says they're focused on a few key areas:

- "Understanding the global shift from monetary to fiscal policy"

- "Will fiscal expansion become the new world order?"

- Still see "reasons for concern" in China

- Note we're in the "late stages of a business cycle"

- Earnings estimates "may be inflated at these levels"


They touch on their credit positions in Dell and Sprint and also talk about private investments such as Apigee and Akarna Therapeutics, which was acquired by Allergan (AGN). 


Embedded below is Third Point's Q3 letter:

ValueAct Capital Buys More CBRE Group & Trinity Industries, Trims Allison Transmission

Jeff Ubben's activist firm ValueAct Capital has submitted three filings to the SEC regarding some of their portfolio positions.

ValueAct Buys More CBRE Group (CBG)

First, Ubben's investment firm has been out acquiring more shares of CBRE Group (CBG) per a Form 4 filed with the SEC.

On October 28th and 31st, as well as November 1st, ValueAct acquired over 2.21 million shares in total at prices of around $25.8x.  After all these buys, they now own over 36.83 million shares.  The filing also notes that a little over 600,000 of these shares were made as part of a 10b5-1 plan.  We've highlighted recently how ValueAct has been acquiring CBG shares.

For more on this firm, be sure to also check out Mason Morfit's presentation (he's a ValueAct partner) at the Sohn San Francisco conference.

Per Google Finance, CBRE Group is "a commercial real estate services and investment company.  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."


Acquired More Trinity Industries (TRN) Shares

Second, ValueAct has also filed an amended 13D on their position in Trinity Industries (TRN).  They were out buying TRN shares in August and September and that continued in October.

Per the filing, they acquired 2.9 million shares in October at prices ranging from $21.09 to $23.68.  ValueAct now owns 9.8% of Trinity Industries with over 14.92 million shares.

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."


Trimmed Allison Transmission (ALSN) Stake

Lastly, in an amended 13D regarding its position in Allison Transmission (ALSN), ValueAct has trimmed their stake in the company and now own 9% of ALSN with 14.82 million shares.

This is down from the 19.12 million shares they owned at the end of the second quarter.  The filing was made due to activity on October 27th and notes they sold 4.3 million shares at $28.20 per share.

For more on this firm, we posted up some other recent portfolio activity from ValueAct here.

Per Google Finance, Allison Transmission is "design and manufacture commercial and defense fully-automatic transmissions. The Company manufactures fully-automatic transmissions for medium- and heavy-duty commercial vehicles and medium-and heavy-tactical the United States defense vehicles. The Company operates through manufacture and distribution of fully-automatic transmissions segment. The Company's transmissions are used in a range of applications, including on-highway trucks (distribution, refuse, construction, fire and emergency), buses (primarily school, transit and hybrid-transit), motorhomes, off-highway vehicles and equipment (energy, mining and construction) and defense vehicles (wheeled and tracked). The Company's transmissions are sold under the Allison Transmission brand name and remanufactured transmissions are sold under the ReTran brand name. The Company has developed over 100 different models that are used in over 2,500 different vehicle configurations."

JANA Partners To Vote Team Health Shares in Favor of Buyout

Barry Rosenstein's hedge fund firm JANA Partners has filed an amended 13D with the SEC regarding its position in Team Health Holdings (TMH).  Per the filing, JANA's ownership stake remains unchanged at 7.91% of the company with 5.89 million shares.

Their 13D was filed to note that on October 30th, they entered into a "voting and support agreement" relating to the merger where JANA has agreed to vote its shares in favor of Team Health's proposed acquisition by Blackstone Group for $6.1 billion.

Per Google Finance, Team Health Holdings is "a provider of outsourced healthcare professional staffing and administrative services to hospitals and other healthcare providers. The Company operates through four segments: Hospital Based Services, IPC Healthcare, Specialty Services and Other Services. The Hospital Based Services segment provides healthcare service programs to users of healthcare services on a fee for service, as well as a cost plus or contract basis. The IPC Healthcare segment consists of IPC and provides acute hospital medicine and post-acute provider service programs to users of healthcare services. The Specialty Services segment provides healthcare service programs to users of healthcare services in an outpatient setting or in a non-hospital-based environment. The Other Services segment is an aggregation of locums staffing, scribes, and billing, collection and consulting services that provides a range of other healthcare services."

Complimentary Copy of Boyar Research's "Forgotten Forty" Stock Picks

Each year, Boyar Research publishes their Forgotten Forty Report featuring the forty stocks in their universe that they believe have the greatest potential for capital appreciation in the year ahead due to a catalyst they see on the horizon. 

Their 2017 report will be released towards the end of December, but in the meantime Boyar has been kind enough to provide our readers with last year’s report (which still contains many actionable ideas) for free.  You can get your free report here.

Some of the names featured include PayPal, Bank of America, Interval Leisure Group, Liberty Broadband, The Madison Square Garden Company, Harley-Davidson, MRC Global, Scotts Miracle-Gro, Sotheby’s plus 31 others.


Click here to download the free report 


Every stock profiled in The Forgotten Forty has a one page write-up highlighting Boyar's investment thesis (including the company’s valuation and potential catalysts for value realization). While the Forgotten Forty contains one page reports on each stock, readers should be comforted to know that Boyar Research has previously published a full-blown research report on every company featured.

The Forgotten Forty has significantly outperformed the major indices on a 3, 5, 10 and 15 year basis.*

*Past performance is no guarantee of future results.  These results are not audited.


To download Boyar's Forgotten Forty, please click here

Notes From Capitalize For Kids Conference 2016: Asness, Russo, Smith & More

The Capitalize For Kids / Sohn Canada Conference just ended in Toronto.  Below are notes from the event and you can click each link for a summary of that speaker's presentation.

Notes From Capitalize For Kids Conference 2016 

- Cliff Asness (AQR Capital): Fireside chat

- Jeff Smith (Starboard Value): Long Stewart Information (STC)

- Tom Russo (Gardner Russo & Gardner): Long MasterCard (MA)

- Alex Roepers (Atlantic Investment Management): Three long ideas 

- Dan Farb (Highfields Capital): Long Franklin Resources (BEN)

- Anna Nikolayevsky (Axel Capital): On lower oil forever

- Brad Dunkley (Waratah Capital): Long Linamar

- Michael Gentile (Formula Growth): Long Gamestop (GME), short WD-40 (WDFC)

- Satish Rai (OMERS): Fireside chat

- Aaron Cowen (Suvretta Capital): Two long ideas

- Credit Panel (KKR, Centerbridge Partners, former Apollo):  Discussion

- Emerging Manager Panel (Fidalgo, D'Costa, Brimm): Notes will be posted soon

- Clint Carlson (Carlson Capital): Notes will be posted soon 

- Tom Wagner (Knighthead Capital):  Notes will be posted soon



For more recent investment conference coverage, we've also posted notes from:

- Invest For Kids Chicago (Grant, Zell, Brosens, Lykouretzos)

- Great Investors Best Ideas Dallas (Einhorn, Pickens, Gabelli)

- Sohn San Francisco (Morfit, McGuire, Palihapitiya)

Cliff Asness' Talk at Capitalize For Kids Conference 2016

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Cliff Asness of AQR Capital who had a fireside chat on various finance topics.


Cliff Asness' Talk at Capitalize For Kids Conference 2016

•    Believes the role of hedge funds for a long time was to provide alpha and systematic strategies. Now there is generally not much value in the “hedge” aspect since many funds are correlated with the market

•    Regarding fees, thinks 2/20 is appropriate if you are able to isolate alpha (by hedging out beta using derivatives), essentially to make sure it is real market outperformance – however, true alpha is hard to find. Says the current fee structure is not sustainable for everyone.

•    Suggested two ideas for investment firms/allocators: have lower fees due to longer lockups periods which should better align all stakeholders. Secondly, with zero beta strategies management and performance fees that move inverse of correlation to the markets.

•    Sharpe Ratio: It a decent measure but not perfect. Believes it can generally add value to a portfolio if they are not correlated with markets.

•    Founded in late 1998 following tenure with Goldman Sachs. Initial focus was on systematic value however ran into difficulties as firm was essentially short expensive and long value. For AQR, capacity is a problem since liquidity is very important. They have closed strategies in the past.

•    Believes machine learning (AI) can disrupt anyone doing something with high frequency, generally thinks fundamental stock picking will continue to work.

•    Return distribution is quite “visible” in bonds. Limited returns since rates are so low.

•    Same with stocks since they are expensive. It’s tough to “buy at the 90th percentile and sell at the 99th”. Key is to find lots of uncorrelated assets


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Jeff Smith Long Stewart Information: Capitalize For Kids Conference

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Jeff Smith of activist firm Starboard Value who pitched long Stewart Information (STC).


Jeff Smith's Presentation at Capitalize For Kids Conference 2016

•    LONG Stewart Information Services (STC).  Leading title insurance company, providing title insurance of home owners for both residential (90% of business) and commercial (10% of business)

•    $1 billion market cap, trades at 15x earnings

•    Title insurance is generally required by mortgage underwriter for buying a house and an refi. Needed for buyers’ safety to make sure no outstanding loans on the company.

•    Different than typical insurance business. Most traditional insurance business insure customers of losses for something they are trying to predict. Title insurance does not predict but essentially performs due diligence and therefore less risky, lower losses.

•    Very strong network build over many decades, with 12% market share. STC is one of the four clear leaders in this market.

•    Approximately 50% of sales are sold through direct (utilize own employees, higher margin business) and the remaining is agency business.

•    Opportunity for Starboard is: STC is currently underearning, pre-tax margins are 5% vs. industry peers of 11%. Believes margins can reach its peers based on additional cost cutting initiatives.

•    Since GFC, believes mortgage industry is less susceptible to fraud. Loss rates for title insurers has come down since 2009.

•    Balance Sheet is very strong (strongest relative to peers) and can return capital to shareholders •    Believes the company trades at a discount to peers due to years of underperformance, historical governance issues and no sell-side attention.

•    Recently dual class structure has been removed. •    Currently, Starboard has influenced the board and is adding two members (already made one change by placing the Steward CEO on the board).


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Tom Russo Long MasterCard: Capitalize For Kids Conference

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Tom Russo of Gardner Russo Gardner who pitched a long of MasterCard (MA).


Tom Russo's Presentation at Capitalize For Kids 2016

•    Wells Fargo currently trades at 10x earnings and almost 4% yield and certainly looks like a cheap stock relative to historical levels and the index. It currently has uncertainty due to its reputational crisis.

•    However, low capacity to reinvest. Currently own 10% of U.S. deposits and cannot grow further. Now are looking to reinvest in their different lines of business. Believes you can generate a good return

•    With MasterCard, while it trades at 20x earnings, approximately 85% of the world still uses cash. Believes there are numerous reasons why this should change over time. MasterCard continues to invest in operating expenses and therefore earnings are currently depressed hence, believes 20x earnings is overstated.

•    Overall, believes that while at 10x earnings Wells Fargo is attractive but has no capacity to reinvest, he would argue MasterCard has the capacity to reinvest and therefore MasterCard (even at 20x earnings) represents better value.


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Dan Farb Long Franklin Resources: Capitalize For Kids Conference

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Dan Farb of hedge fund Highfields Capital who pitched a long of Franklin Resources (BEN).


Dan Farb's Presentation at Capitalize For Kids Conference 2016

•    LONG Franklin Resources (BEN).  Has 2x the exposure to commodities and emerging markets relative to other asset managers.

•    An asset manager with $700 billion in assets.

•    Recently, stock and earnings have declined due to this exposure and currently trades at a discount.

•    Since 1987, has compounded capital over 16% per year (vs. 10% in S&P). Made two strong acquisitions, Templeton in early 90s and Mutual Shares in the mid-90s

•    Average U.S asset manager currently trades at 14x earnings, BEN trades at 12.7x earnings.

•    Expects AUM and fund performance to stabilize which should help grow earnings and potentially multiple expands.

•    Currently trades at $34/share but has $18/share in net cash and real estate (90% of cash is held offshore).

•    Johnson family owns 37% of the shares, aligning well with shareholders’ interests.


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Alex Roepers Long Owens-Illinois, Eastman, Harman: Capitalize For Kids Conference

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Alex Roepers of Atlantic Investment Management who pitched three longs: Owens-Illinois (OI), Eastman (EMN - spin-off from Kodak), and Harman (HAR).


Alex Roepers' Presentation at Capitalize For Kids Conference 2016

•    LONG Owens-Illinois (OI), largest maker of glass in the world. Wine, beer, liqueur.

•    Overall, industry has suffered from substitution from plastic and cans. But it is relatively stable.

•    This is the winning consolidator, has 80 plants with each plant having a $200 million investment. They operate local duopolies since it is uneconomic to ship glass far distances.

•    Has great customers (Heineken, Pernod Ricard, etc), no technological obsolescence, no foreign competition.

•    Believes stock price dropped as earnings has been impacted from strong USD (70% of sales outside of US).



•    LONG Eastman (EMN). Spinoff from Eastman Kodak.

•    Over 75% of the business is now speciality chemicals with sold margins and growth.

•    Believes it can earn $8 to $9 cash earnings per share. Currently trades at $66.

•    Have recently paid off debt and now are focusing on repurchasing shares and could be a takeout candidate.



•    LONG Harman (HAR). Manufacture entertainment systems for cars and do professional services (for concerts, stadium, etc). Top 12 out of 15 car companies are their customers.

•    Has followed the company since the 1990s. The company transitioned from audio to consumer to audio for business (car companies, professional services, etc).

•    KKR has previously bid on the company in 2007 but deal fell apart leading into GFC. Has recently sold off due to china slowdown, peak auto sales, etc.

•    Believes it has strong end-markets and the company has recently posted solid results.


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Michael Gentile Long Gamestop, Short WD-40: Capitalize For Kids Conference

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Michael Gentile of Formula Growth who pitched long Gamestop (GME) and short WD-40 (WDFC).


Michael Gentile's Presentation at Capitalize For Kids 2016

•    Long Idea is Gamestop (GME), largest video game seller in North America and globally.

•    Stock hasn’t done much over the past few years despite general increase in market indices.

•    Currently, 29% of float is short, 5.9x earnings, 3.5x EV/EBITDA, 19% FCF yield and 5.9% div yield.

•    Market belief: believes digital sales (currently 25% of all sales) will replace physical sales in the next few years. Also, GME has had poor Aug and Sept months.

•    Believes GameStop is the only retailer that does used business as well as it does. Furthermore, physical sales have an advantage over digital sales due to credits received for selling old games. This is a very important competitive advantage. Also, have a strong loyalty program, with 46 million members.

•    Believes virtual reality is a game changing technology and is all free option at this price.

•    Believes market is too focused on new hardware and video game sales, which will account for ~19% of gross profit in 2019.

•    The rest of their business is used sales, technology (they operate 1600 AT&T stores – very high profitability and non-video game related) and collectables business.

•    Since 2009, they have shrunk shares by 38%.

•    Target is: $50/share not accounting for virtual reality opportunity.



•    Short Idea is WD-40 (WDFC).

•    Currently, 29x P/E, 18.7 EV/EBITDA, 2.4% FCF yield. Believes stock price is priced to perfection.

•    From 2006 to 2012, NTM P/E has averaged 19x but over the last three years has jumped to 29x earnings.

•    Believes low interest rate environment has caused valuations to become extreme. The company has also benefited from lower oil (key input cost) and therefore has achieved higher margins.

•    Believes gross margins are primed to fall and multiple contraction given lower growth expectations.

•    Target is: $75/share and would cover short position.


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Aaron Cowen Long QSR & Adobe: Capitalize For Kids Conference

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Aaron Cowen of Suvretta Capital who pitched two long ideas: Restaurant Brands (QSR) and Adobe (ADBE)


Aaron Cowen's Presentation at Capitalize For Kids 2016

•    LONG Restaurant Brands (QSR). Franchiser of Burger King and Tim Hortons

•    Believes it can be a $75 stock (currently price of $44). Business model is a franchiser business model, it doesn’t own any stores.

•    3G is the management team behind this and has one of the best track records. Tim Hortons integration has been going very strong.

•    Believes it can do $3.00/sh in FCF going forward. Believes people are missing this because of all the merger accounting.

•    No real e-commerce threat at this point and believes e-commerce is a positive for the business.

•    Almost all of 3G’s platforms have compounded capital at very high rates.

•    They have dropped operating expenses by a significant amount at Tim Hortons (lowered costs by 60%).

•    Believes the company ramps up acquisition machine every 2-3 years and is likely due for one now. Targets could potentially be YUM, Dairy Queen, Popeyes, among others. Believes this is a free call option on management doing something smart.



•    LONG Adobe (ADBE). Largest SaaS business in the world. $50 billion market cap.

•    Adobe services two functions: Creative Cloud – used by 13 million users to create webpages and is growing 15-20% per year and essentially have a monopoly in this product. Second, Adobe does digital marketing. This helps companies place adds on website and measure ROI on marketing effects.

•    It went through a transformation to switch to SaaS from one-time sales in 2013 and believes the street still misunderstands this. Margins were impacted as all the upfront costs associated with SaaS business model. Believes margins will be mid-40s (base case assumption) in 2018 after the company completes its transition.

•    Assuming revenue grows at 20% plus margin expansion deserves a high multiple. Expecting EPS of $7/sh in 2018. Target price between $170-180 in base case scenario.


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Anna Nikolayevsky on Lower Oil Forever: Capitalize For Kids Conference

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Anna Nikolayevsky of Axel Capital who made a presentation about lower oil forever.


Anna Nikolayevsky's Presentation at Capitalize For Kids 2016

•    Current consensus is that current prices (which are in contango) are not sustainable and will increase in 2017, 2018 and 2019. More of these estimates are driven by marginal cost curve and well depletion analysis. However, nobody predicted the fall therefore why should any give value to analyst expectations?

•    Overall, the industry is much more productive now (US shale technology advancement). Anna believes $50 is the current ceiling.

•    Most forecasters focus on supply, but demand is much more important. Over 50% of oil demand is due to transportation. A few things can impact demand: Higher fuel efficiency (since 2007, fuel efficiency has increased by 22%), sharing economy is also a major risk (better it gets, the fewer cars we’ll need on the road), electric cars are also a serious threat.

•    Tesla, has been gaining market share relative to comparable car models.

•    Leading car companies and governments are looking to embrace electric or hybrid models. In fact, large car companies are setting high standards to have meaningful percentage of their overall fleet to be electric vehicles in the mid-2020s.

•    Regarding cost, combustible engines are becoming more expensive in terms of compliance/ regulatory standards while electric ones are only getting cheaper.

•    Interestingly Saudi Arabia is looking to diversify away from oil with long term clean energy targets and announcing it is selling Saudi Aramco.


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Credit Panel at Capitalize For Kids Conference 2016

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is is the credit panel which featured KKR's Nat Zilkha, Centerbridge's Jonathan Lewinsohn, and ex-Apollo's Ted Goldthorpe.


Credit Panel at Capitalize For Kids Conference 2016

•    The asset origination market is very large. It possible to earn good returns in a fixed income environment where solid trading opportunities are more scarce than they were before the crisis, because of lower bank inventories. There is a trend of investors moving towards senior tranches (less risk).

•    Even so, the non-investment grade space is approximately $2 trillion. However, in an expensive market like this one, firms are increasingly focused on exiting investments vs looking for new ones.

•    Unrated products are harder to sell due to specific mandates. PE firms are now bundling numerous products, getting it rated by the agencies and then reselling it.

•    Even after the crisis, there is a notable duration mismatch between assets and liabilities. With rates so low, duration risk is exceptionally high (if you need longer duration assets).

•    Commodity cycles are long because of how much capital is invested and how long it takes to complete projects. Generally Public information on energy companies is not reliable since they choose to present the best wells, etc.

•    Believes places to look for opportunities are Asia, specifically India, but difficult due to poor regulatory structure.

•    Risks to credit investing are numerous (China, higher rates, etc).

•    Believes this environment forces investment firms to look for opportunities on a monthly/quarterly basis since they don’t want to miss out on moves (like the large sell-off in early 2016).


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Brad Dunkley Long Linamar: Capitalize For Kids Conference 2016

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Brad Dunkley of Waratah Capital who pitched a long of Linamar (LNR.TO).


Brad Dunkley's Capitalize For Kids Presentation 2016

•    Linamar makes engine parts, camshafts and transmissions. They have industry leading margins, and ROEs. They also have a construction equipment division, only 14% of sales.

•    Most of it revenues are the power train division which manufactures engine parts. Approximately 70% of revenues from North America and its mainly from the big 3 U.S. OEMs.

•    Linda, who is the daughter of the founder and has been running the company since its IPO and has established a very strong record: since 1986, stock price CAGR of over 16%.

•    Linamar does have a lost cost production, plants are mainly in Canada, lower healthcare costs, no unionized labour and lower CAD currently helps.

•    The alternative for customers is to manufacture these parts internally.

•    Believes market perception that peak SAAR will hurt Linamar is incorrect. Since 1996, SAAR has increased by a CAGR of 1% while Linamar has realized financial performance of 12% CAGR (revenue, EBIT, EPS, etc). Doesn’t believe SAAR will crash like the market is expecting (estimate 8% to 10% from peak levels). Thinks electric vehicle threat is overdone, only 1% of market in 2020.

•    The company has also does a good job of growing content per car (growing in Europe, NA and Asia).

•    Thinks ride-sharing economy will increase miles driven and lower the life of vehicle (current vehicle have an average life of 11yrs). All positives for Linamar going forward.

•    At ~5x earnings, don’t need to be worried of the terminal value of the company.


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Satish Rai's Talk at Capitalize For Kids Conference 2016

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Satish Rai of OMERS who had a fireside chat.


Satish Rai's Talk at Capitalize For Kids Conference 2016

•    Fixed income as an opportunity doesn’t make sense for OMERS as it’s not a good match to its liability stream.

•    Approximately 50% of OMERS balance sheet is outside of traditional public markets (stocks + bonds)

•    Believes opportunity set outside of public markets is very large and growing.

•    Talked about the "if and when" transaction completed with Great Plains Energy. Great Plains was looking for guaranteed equity financing regarding an acquisition. Structured the deal to be a convert.

•    OMERS has also started to provide debt financing to private equity firms. This business has grown from zero to $7 billion in 12 months. The opportunity set had been enormous given that banks aren't able to make some of these loans due to heightened regulation.


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Julian Robertson Likes Microsoft, Air Canada, Celgene

Hedge fund legend Julian Robertson of Tiger Management sat down with CNBC to talk about markets recently and what stocks he's fond of these days.

He really likes Microsoft (MSFT) and thinks its cloud exposure, new management has "brought a revival of Bill Gates' initial strategy."

Robertson also likes Air Canada and says they're doing all the right things, cheap at 3.5x earnings.  Thinks it's well-run at a very cheap price.

Looking at stocks selling at depressed levels, he pointed to biotech and particularly Celgene (CELG).  He noted the fear that Hillary Clinton would put some of these companies out of business.  Robertson says "a lot of them have a lot of promise" and he prefers ones that have sold off a lot.  He was a big holder of Gilead (GILD) but said he's basically 'given up' because the company hasn't put its massive cash pile to work.

Turning to media, he said that, "I have always regrets about selling anything of Reed Hastings."  He regrets not being in Netflix (NFLX) but says "it's not the world's cheapest stock" so he says they 'removed' themselves. 

Turning to currencies, the hedge fund manager thinks the Peso is undervalued as it has largely been a 'Trump trade' recently.

On the hedge fund industry, he said "(The shakeout) is caused by increased competition from more hedge funds."

For young people in finance, he said he'd tell them to go to an industry that's lacking people.

For more from this hedge fund manager, we also posted another recent interview with Julian Robertson as well.

JANA Partners Files 13D on HD Supply Holdings

Barry Rosenstein's activist investment firm JANA Partners has filed a 13D with the SEC regarding shares of HD Supply Holdings (HDS).  Per the filing, JANA now owns 8.1% of the company with 16.25 shares.

This is an increase of over 13.25 million shares since the end of the second quarter when they owned 2.99 million HDS shares.  The filing was made due to activity on October 17th.

The 13D notes they were buying throughout September and into October mostly between $30-32 per share.  HDS currently trades around the $33 level.

JANA has already met with management to discuss strategic alternatives, as well as financial and operational means of maximizing value for shareholders.

For more from this manager, we posted up a recent interview with Barry Rosenstein here.

Per Google Finance, HD Supply Holdings is "an industrial distributor in North America. The Company provides a range of products and value-add services to approximately 500,000 customers in maintenance, repair and operations, water infrastructure and residential and non-residential construction sectors. The Company operates in three segments: Facilities Maintenance, Waterworks, and Construction & Industrial-White Cap. Facilities Maintenance distributes MRO products, provides value-add services and fabricates custom products. Waterworks distributes lines of water and wastewater transmission products, serving contractors and municipalities in the water and wastewater industries for non-residential and residential uses. Construction & Industrial-White Cap distributes specialized hardware, tools, engineered materials and safety products to non-residential and residential contractors."

Hedge Fund Links ~ 10/28/16

Excerpts from Viking Global's Q3 letter [ValueWalk]

Ray Dalio: 'big, bad outcomes' if ECB doesn't keep buying bonds [Business Insider]

Are sports betting hedge funds coming? [ESPN]

Former Corvex exec gets seed money [Reuters]

Tiger Global lifts net long exposure [ii alpha]

How Steve Cohen amassed a $1 billion art collection [Fortune]

Scrutinizing Sequoia Fund: are quality and value back in? [Citywire]

Notes From Invest For Kids Chicago 2016: Grant, Zell, Brosens, Lykouretzous

The 8th annual Invest For Kids Chicago investment conference just ended and below are notes from the event.  Just click each link to go to that presentation.  Enjoy!


Notes From Invest For Kids Chicago Conference 2016

- Jim Grant (Grant's Interest Rate Observer): Bearish on BlackRock (BLK)

- Sam Zell (Equity Group): Fireside chat

- John Lykouretzos (Hoplite Capital): Long Sealed Air (SEE)

- Frank Brosens (Taconic Capital): Long Kaupthing

- Ed Garden (Trian Partners): Long Bank of New York Mellon (BK)

- Jonathan Gray (Blackstone Group): On real estate

- Leah Zell (Lizard Investors): Long BIM, Short Woolworth's

- Josh Wolfe (Lux Capital): Long nVidia (NVDA), Short Intel (INTC)

- Matt Halbower (Pentwater Capital): 2 investment ideas

- William Heard (Heard Capital): Long Fair Isaac (FICO)

- Arthur Kaz (Greenbriar Asset Management): Long Avaya bonds



For more investment conference coverage, be sure to also check out our notes from the recent Sohn San Francisco conference as well as the Great Investors Best Ideas Dallas conference.

Jim Grant Bearish on BlackRock: Invest For Kids Chicago 2016

We're posting up notes from the Invest For Kids 2016 investment conference.  Next up is Jim Grant of Grant's Interest Rate Observer who was bearish on BlackRock (BLK).


Jim Grant's Presentation at Invest For Kids Chicago 2016 

•    So much data – how do we know what is true?

•    Easy to be overwhelmed

•    Narratives as a belief system

•    Active investors accept or reject narratives; passible investors always accept the narrative by default

•    Markets are episodically efficient; they are no more coolly analytical than the people in them or the algorithms they write

•    Interest rates are certainly low – not good for my business model

•    Since 1997, the number of public companies in U.S. has been cut in half

•    Now we have the first nominally negative bond yields in 5,000 years

•    If Fed were late to raise rates it wouldn’t be the first time; likewise wouldn’t be the first time the bond market underestimated the fallibility of human beings



•    Bearish on Blackrock (BLK) 

•    Its motto should be “built for a time of falling rates, rising asset prices, massive inflows…”

•    Tailor-made for the financial moment

•    Hand-in-glove with the Fed – Blackrock is the Federal Reserve’s Wall Street doppelganger

•    BLK took in 18% of all mutual fund and ETF inflows in 2015

•    Assets may come, assets may go

•    Margins? There is a price war in passive. Fees are ~69 bps at BLK versus 15 at Vanguard. Further compression is likely.

•    BLK is at 18x EPS vs. 14x industry average

•    Massive amounts of insider selling at BLK without any buys


Be sure to check out the rest of the presentations from Invest For Kids 2016.

Sam Zell's Presentation at Invest For Kids Chicago 2016

We're posting up notes from the Invest For Kids 2016 investment conference.  Next up is Sam Zell of Equity Group Investments.  He had a fireside chat to talk real estate.


Sam Zell's Presentation at Invest For Kids Chicago 2016

•    70% of what we do is in assets other than real estate

•    We prefer a monopoly, but we’ll settled for an oligopoly; we look at costs to entry and barriers to entry and replacement cost

•    We’ve done a lot of roll-ups over the years, and each begins with the idea that we don’t necessarily believe in synergies

•    Domestic versus international investments: going outside of the U.S. means sacrificing the rule of law; trading growth for rule of law; tricky to weigh those considerations, but emerging markets are where the growth is; fertility and economic growth create demand; biggest challenge we have today is where the demand will come from:

o    International investments also bring the risk of currency volatility, which requires extra patience
o    Prefer inflation-sensitive asses when currency is an issue
o    Mexico, Brazil, Colombia, India are biggest markets for us; very optimistic about Latin America
o    We like investing in a country when it is on the cusp of reaching investment grade
o    Doesn’t always work; we’ve been fortunate to move in and out at good times; Brazil recently was like handing the car keys to a teenager…sometimes they wreck it
o    European demographics are horrible, and only Japan might be worse; hard to see growing demand

•    Why does negativity abound among the investing class? We’re only wealthier in the past few years in terms of a fiat currency – are we moving from a responsible developed world to one dominated by competitive devaluations? And where is the demand? Our compliance costs have gone up 5x over the past eight years. So productivity is at an all-time low while regulation is at all-time high – unlikely to make historical rates of return in such an environment.

•    Look at the stock market. One could say that given the level of investment and growth it is overpriced. Real estate assets are at an all-time high. Inflation is at all-time lows. The result is not likely to be long-term positive results. More likely to have a recession, a cleansing, a market clearing before U.S. can grow. We can’t pretend and extend our way to growth.

•    On being pessimistic compared to Jon Gray or Barry Sternlicht: “I’m not as optimistic, but then I use my own money.”

o    Not finding ways to deploy capital in CRE today. Happy to sell to Jon and Barry.

•    On the traits of a good leader: it starts with 11th commandment, which is thou shalt not take oneself too seriously. Smile, make fun of yourself. Lead by example, not pontification.

•    The definition of a schmuck is someone who has reached his goals.


Be sure to check out the rest of the presentations from Invest For Kids 2016.

Frank Brosens Long Kaupthing Icelandic Bank: Invest For Kids Chicago 2016

We're posting up notes from the Invest For Kids 2016 investment conference.  Next up is Frank Brosens of Taconic Capital who pitched long Kaupthing, one of three Icelandic banks.


Frank Brosens' Presentation at Invest For Kids Chicago 2016

•    $6 billion AUM, event-driven and multi-strategy

•    Risks are high due to central banks

•    We seek very low correlation in our investments; we want no beta or duration; look for non-economic actors and forced sellers

•    Angst in the hedge fund industry as high as ever, but the opportunity is actually pretty good •    Returns likely to be muted versus historical levels



•    Long Kaupthing, one of three Icelandic banks

•    Iceland’s banking industry swelled in the prior decade to unsustainable levels – assets/GDP of ~10x

•    We are largest Kaupthing creditor, having acquired most of the stake in 2012 and 2013

•    In 2015 our partner in London got restricted and entered the negotiations with Icelandic task force

•    In December 2015 the liquidation process finally commenced; payouts began in January 2016 but only 1/3 of proceeds distributed so far

•    >200 assets in 12 countries; disclosure is very opaque – have to be a detective

o    Our partner went person by person within Kaupthing, often using LinkedIn, to piece together relationships and affiliations; then talked to local businessmen and brokers to triangulate asset values

o    Today, 16% cash, 33% operating assets and real estate, 25% stake in stable Icelandic bank, 25% other/misc.

o    We believe our notes are worth par, with some upside beyond that, against a price of 86

o    Most asset sales are coming in the next few quarters, so time horizon should be one year or less


Be sure to check out the rest of the presentations from Invest For Kids 2016.

John Lykouretzos Long Sealed Air: Invest For Kids Presentation

We're posting up notes from the Invest For Kids 2016 investment conference.  Next up is John Lykouretzos of Hoplite Capital who pitched long Sealed Air (SEE).


John Lykouretzos' Presentation at Invest For Kids Chicago 2016

•    $2.6 billion AUM, Tiger Cub, equity long/short, established 2003

•    Largest holding is Sealed Air (SEE)

•    Started in bubble wrap, now has three businesses

•    Highly integrated into customers’ processes = good pricing power

•    History of management was very good and then quite bad; new CEO named in 2012 and turnaround, results have been impressive; overhauled strategy, executives, pricing, cost structure, compensation; focus now on FCF

o    Turnaround is far from over – [EBITDA] margins have another 400 basis points to expand

•    Pricing power remains, even after CEO has aggressively raised price multiple times in recent years; customers have no choice; also now getting paid as a percentage of the savings generated for the customer
o    Estimate 1-2% price increases per year through 2022; mix improving too; 2% volume growth

•    Limited capital intensity and no M&A appetite – 10% of shares likely to be repurchased each year

•    Normalized FCF per share going from ~$2.89 in FY16 to $4.49 in FY18

•    Diversey (cleaning and sanitation segment) is somewhat of a comp to Ecolab; acquired in 2012 in an ill-conceived move, leaving the company over-levered and lacking direction

o    Will spin off this business; it could grow faster as an independent company – it needs investment in its salesforce, whereas SEE’s other businesses do not

•    Target price: $60 in 2016, $70 in 2017, $84 in 2018, $102 in 2019


Be sure to check out the rest of the presentations from Invest For Kids 2016.

Jonathan Gray on Real Estate: Invest For Kids Chicago 2016

We're posting up notes from the Invest For Kids 2016 investment conference.  Next up is Jonathan Gray, head of real estate at Blackstone who talked about real estate.


Jonathan Gray's Presentation at Invest For Kids Chicago 2016

•    16% net return to Blackstone

•    Our edge is scale and conviction

•    We seek an opportunity to buy it, fix it, sell it

•    Timing on Hilton and EOP deals in 2007 was poor, but still made 3x our investors’ money because we had the right structure and we didn’t panic; both were good assets and while levered they had reserves and no covenants; key was not being forced to sell; and had 2/3 of EOP assets not been sold 90 days after closing to delever, we wouldn’t be sitting here

•    Airbnb has reduced hotels’ pricing power, but most are leisure travels; business travels often still want hotels

•    Record occupancy across hotel industry

•    Good opportunity in logistics but a real challenge for retail, especially “generic consumer supply” retail

•    We’re looking to own in areas that are exciting and driven by technology/innovation: Bay Area, Seattle, New York

•    Risks today: sharp jump in rates due to wage inflation; political crisis leading to economic crisis in Europe; China deceleration gets worse

o    All are risks but none are base case

•    Sam Zell says I’m too optimistic but I think we’re likely to continue slow growth; housing recovery has legs; banks are in good shape; realistic but trying to find opportunity in slow growth world

•    Powerful urbanization trend in Chicago – people want to come here and live in the city, with companies like McDonald’s and Conagra following them


Be sure to check out the rest of the presentations from Invest For Kids 2016.

Ed Garden Long Bank of New York Mellon: Invest For Kids Chicago 2016

We're posting up notes from the Invest For Kids 2016 investment conference.  Next up is Ed Garden of Trian Partners who pitched a long of Bank of New York Mellon (BK).


Ed Garden's Presentation at Invest For Kids Chicago 2016

•    Long Bank of New York Mellon (BK)

o    $1.3 billion invested; Garden on board since Dec. 2014

•    We invest in great companies when undermanaged, underperforming, underappreciated; we try to work with management to become best in class at everything; we usually take a board seat

o    Eliminate management’s information advantage over board

o    Find problems, identify opportunities to attack

•    No hedging, long only, dislike the activist label

o    Income statement focus, not balance sheet

•    BK fits our risk profile: provides critical infrastructure, has good capital, is fee-driven (not NIM driven), has huge scale, and has opportunity to improve operations with cyclical upside as a bonus

•    Progress so far: 9% reduction in real estate owned; leaner cost structure; five new board members; returning $2.75 per share to shareholders in 12 months ended 6/30/17; margins and EPS up

•    25% discount to the market valuation; hurts to have “bank” in our name; most earnings streams at cyclical trough


Be sure to check out the rest of the presentations from Invest For Kids 2016.

Leah Zell Long BIM, Short Woolworth's: Invest For Kids Chicago 2016

We're posting up notes from the Invest For Kids 2016 investment conference.  Next up is Leah Zell of Lizard Investors who pitched long BIM, short Woolworth's.


Leah Zell's Presentation at Invest For Kids Chicago 2016

•    “The Grocery War Zone”

•    Case study of Aldi’s amazing success over the years; see also “Bare Essentials” by Brandes

o    A limited product range of everyday basics that sell fast

o    Commitment tot be the price leader in the marketplace

o    Extensive use of private label offerings

o    Bare bonds no-frills operations

o    Straight dealings with customers, employees, and vendors

o    Decentralized management with minimal corporate overhead (cash management is only centralized function)


•    Long BIM  

•    Same ideas apply to BIM in Turkey, whose slogan translates to “retail at wholesale prices”

•    Very low operating expenses

•    Low share of fragmented Turkish market

•    All expansion funded with cash flow

•    Since 2005 IPO, 26% CAGR in revenue, 34% in net income; >40% ROIC and ROE; net cash balance sheet

•    Trades at 20x 2017 EPS now, but at 15% revenue growth, flat margins and no multiple expansion, still a double by 2020



•    Short Woolworth’s in Australia 

•    Largest grocer but weaker as compared to Coles

•    Aldi now competing with 400 stores too

•    Woolworth’s now pursuing a restructuring, but too little too late? Needs a 3G makeover a la Heinz Kraft

•    At 3.5% operating margin with single-digit sales declines worth AUD $14.50, down 40%

•    Consumers today want either a premium product or the lowest cost – everything in between is getting squeezed

•    Low cost is powerful (see Ryanair) but hard to execute

o    Need a simple concept, ruthless execution, and a loop wherein scale widens the moat

o    If you find a great business like this, hold on for the long term


Be sure to check out the rest of the presentations from Invest For Kids 2016.

Matt Halbower Long Turquoise Hill & VMWare Tracking Stock: Invest For Kids Chicago 2016

We're posting up notes from the Invest For Kids 2016 investment conference.  Next up is Matt Halbower of Pentwater Capital who pitched Turquoise Hill (TRQ) and VMWare tracking stock (DVMT).


Matt Halbower's Presentation at Invest For Kids Chicago 2016

•    $3.4 billion AUM

•    Long Turquoise Hill (TRQ) 

•    Copper and gold miner with one mine in Mongolia; 51% owned by Rio Tinto

•    Phase II development on underground mine that will increase output 4x; requires spending $5 billion over next five years

•    Balance sheet is attractive: no debt, $1.4 bn cash, $4.1 bn receivable from Rio Tinto

o    Negative $3.1 billion enterprise value

•    At 7x 2021 EBITDA, worth $8 per share, but likely taken private sooner

•    Rio Tinto has a new CEO, and he has made many public comments about his bullishness on copper; Rio Tinto has engaged bankers regarding its stake in TRQ; logical outcome to take private, likely around $6 per share



•    Long DVMT, VM Ware tracker issued by Dell 

•    VM Ware balance sheet is cash rich; stock is 20% cheap to peers; lots of FCF and buybacks

•    Tracker is trading at 35% discount to VM Ware, much wider than typical 10% discount

o    Discount likely due to Dell as non-investment grade issuer, even though Dell is generating a lot of cash and rapidly delivering – will be IG soon

•    Agreement gives Silver Lake ability to IPO its Dell shares under certain conditions at certain points over the next two years; if so, DMVT tracker can be taken out at a premium

•    IPO seems more likely than not, in which case we think the discount closes; if VM Ware also performs as expected opportunity to make 2x on DMVT


Be sure to check out the rest of the presentations from Invest For Kids 2016.

Josh Wolfe Short Intel, Long nVidia: Invest For Kids Chicago 2016

We're posting up notes from the Invest For Kids 2016 investment conference.  Next up is Josh Wolfe of Lux Capital who pitched short Intel (INTC) and long nVidia (NVDA).


Josh Wolfe's Presentation at Invest For Kids Chicago 2016

•    Founder of Lux Capital, $750 million VC fund

•    Science background

•    Has Bill Gates on one of his companies’ boards (only board other than Microsoft and Berkshire)

•    Seeks truly radical change and disruptive technology

•    Lux is differentiated by longer horizon of 10 years

•    Best way to predict the future is to invent it

•    Gap between sci-fi and sci-fact is shrinking

•    Companies

o    Kymeta: meta-physics in satellites for transportation applications; Gates on board of directors

o    Planet Labs: tiny satellites

o    Orbital Insight: data analytics and artificial intelligence using big data, often sold to hedge funds

o    Zoox: CPU (multi-cores) going to GPU (hundreds of cores); “these guys are the second coming of Jobs and Woz)

o    Nervana Systems: just sold to Intel

•    Short Intel (INTC) – it is a shell of its former self; it is trying to buy success via M&A; nobody coming out of top schools wants to work there

•    Long nVidia (NVDA), on the other hand, which is ascendant -- $850 million of FCF this year going to $1 billion next year

o    NVDA is the “arms dealer” to all of the companies we’re backing


Be sure to check out the rest of the presentations from Invest For Kids 2016.

William Heard Long Fair Isaac (FICO): Invest For Kids Chicago 2016

We're posting up notes from the Invest For Kids 2016 investment conference.  Next up is William Heard of Heard Capital who pitched long Fair Isaac (FICO).


William Heard's Presentation at Invest For Kids Chicago 2016

•    Long Fair Isaac (FICO)

•    Misunderstood, synonymous with credit scores but has a much broader, better business

•    60% applications, 25% credit scores, 15% tools

•    Valuation seems rich on P/E and P/BV but still a good opportunity

•    Not just levered to consumer credit and mature, saturated markets -- $8 billion total addressable market, so a move from current 3% share to 5% means hundreds of millions in revenues

•    Shrinking share count: -57% since 2004

•    Have beaten quarterly estimates more often than not in recent quarters

•    Only six analysts cover the company

•    $150 price target at 22x forward EPS


Be sure to check out the rest of the presentations from Invest For Kids 2016.

Arthur Kaz Long Avaya Bonds: Invest For Kids Chicago 2016

We're posting up notes from the Invest For Kids 2016 investment conference.  Next up is Arthur Kaz of Greenbriar Asset Management who pitched long Avaya bonds.


Arthur Kaz's Presentation at Invest For Kids Chicago 2016

•    Long Avaya bonds

o    7% senior secured 1st lien notes worth par within a year

o    Also buying 2nd lien notes at 43

•    Company likely to file for Chapter 11 protection as soon as next month

•    Revenue declining in shift from hardware to software, but margins are offsetting -- -7% sales but +7.7% EBITDA margins

•    Lots of special charges and add-backs that can soon be addressed

•    $200 million of interest expense

•    Believes there is $850 million of EBITDA

o    At 6x and with 4x leverage, believes first liens get 76 cents of cash and stock for ~2/3 of equity in reorganized company

o    Room to be wrong on both EBITDA and multiple


Be sure to check out the rest of the presentations from Invest For Kids 2016.

Market Folly Exclusive Discount: Florida's Largest Family Office Conference

Market Folly's partner, The Family Office Club, is lowering the price for you to access their largest event of the year.  The Family Office Super Summit is an incredible conference experience, featuring an audience of 700+ attendees, 250+ family offices, and 50+ family office speakers on stage.

Market Folly readers receive $400 off admission, so you can attend the event for only $299.  Simply use the registration code "Save400" when signing up: http://FamilyOffices.com/Super

Your week starts with an early arrivals cocktail reception on November 28th, a fully-catered conference session with multiple networking breaks on November 29th, and our final day on November 30th with panels, presentations, and a build your own Bloody Mary Bar to send you off to a week's worth of art, culture, and fun in Miami at the country's biggest private art festival, Art Basel.

For more information and speaker line-up visit: http://FamilyOffices.com/Super

If you have any questions about the event you can give the Family Office Club a call at (305) 503-9077 and they can help you get signed up with this exclusive discount.

What We're Reading ~ 10/26/16

The $108 billion man who has beaten the market [WSJ]

Cash: the most hated asset class on the planet [Felder Report]

What you can learn from family business [HBR]


On the future of video [REDEF]

The intelligent industrial revolution [nVidia]

Five market insights from Peter Lynch [Ivanhoff]

Explaining what made the internet 'break' recently [Gizmodo]

U-Haul parent Amerco (UHAL): ready to move [Barrons]

Arbs stay on sidelines of AT&T, Timer Warner deal [WSJ]

Private equity is sitting a ton of cash [ai-cio]

Interview with CEO of new exchange IEX [Bloomberg]

Why negative churn is such a powerful growth mechanism [Tom Tunguz]

WeChat works to maintain startup culture as it matures [WSJ]

Pershing Square Exercises Chipotle Options

Bill Ackman's activist firm Pershing Square Capital Management filed an amended 13D with the SEC regarding their position in Chipotle (CMG).  Per the filing, Pershing's ownership stake remains unchanged at 9.9% of the company.

However, the filing notes that they exercised forward purchase contracts on CMG on October 20th.  Total trade amount was just over $947 million and yielded them over 2.32 million shares of Chipotle common stock.

Chipotle just reported earnings yesterday and the stock is trading down 8% today.

You can view other recent Pershing Square portfolio activity here.

Per Google Finance, Chipotle "operates Chipotle Mexican Grill restaurants. The Company's Chipotle Mexican Grill restaurants serve a menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. The Company operates approximately 1,970 Chipotle restaurants throughout the United States, over 10 in Canada, seven in England, four in France and one in Germany. The Company's restaurants include over 10 ShopHouse Southeast Asian Kitchen restaurants, serving Asian-inspired cuisine. The Company owned and operated approximately three Pizzeria Locale restaurants, a fast casual pizza concept, resulting in a totaling of approximately 2,010 restaurants. The Company sells gift cards which do not have an expiration date."

Notes From Great Investors Best Ideas Conference (GIBI) Dallas: Einhorn, Pickens, Gabelli

Below are some notes from the 2016 Great Investors Best Ideas (GIBI) conference in Dallas, TX.  It featured prominent investors sharing investment ideas to benefit the Michael J. Fox Foundation for Parkinson's research and Vickery Meadow Youth Development Foundation.


Notes From Great Investors Best Ideas (GIBI) Dallas Conference 2016

David Einhorn (Greenlight Capital):  Likes Mylan (MYL), thinks the Epipen situation is overblown relative to the rest of their business as they're mainly in generic drugs.  "So the earnings that we're looking at in 2018 are in the low $6's and we think only about 25 cents of it comes from EpiPen, so you're gonna earn something in the high $5s, excluding EpiPen and the stock's today in the mid $30's."

Contrasted the situation to that of Mallinckrodt (MNK) which bought QuestCor, a formerly highly shorted hedge fund name.  Their Acthar Gel drug has raised prices from $40 in 2001 up to a whopping $40,000 a dose but you don't hear about it as much because less people use it but says they're more exposed to potential health care focus on lowering drug prices given Acthar is a much larger portion of MNK's profit. 

Thinks General Motors (GM) is cheap and can earn its entire market cap before Tesla turns a profit.  Laid it out as follows:  stock could fall 3/4 and still has enough to pay the dividend.  Another quarter of the earnings are stock buybacks so you're basically getting a 5-6% share reduction, a 5% dividend so you're almost getting a 11% return just by sitting around. 

Thinks the Rite Aid (RAD) deal closes and separately also sees upside in Chemours (CC).  You can view his thesis on Chemours in Greenlight's Q2 letter.

Talked about the active vs passive investing debate.  Noted that "It seems to me that passive money management strategies are fundamentally momentum strategies.  In other words, the more the stock goes up, the more it becomes weighted in the index.  The more it becomes weighted in the index, the more important it becomes.  It continues going up, it doesn't ever revert."  Also called stocks like Apple (AAPL), Herc Holdings (HRI), and CIT (CIT) 'very cheap stocks.'



Boone Pickens (BP Capital):  Sees oil at $60 by the end of 2016 and up to $70 by the end of next year.  Likes EOG Resources (EOG) as well as Pioneer Natural Resources (PXD). Says 'you can't miss' on the later, argued that the only thing that can mess up his thesis is a recession.  Says PXD has a huge amount of oil.  (In the past we've posted how David Einhorn has/had been short PXD.)  Pickens says he's up 300% this year



Mario Gabelli (GAMCO Investors): Likes Herc Holdings (HRI), recent spin-off from Hertz Global (HTZ),  as a play on infrastructure: thinks EBITDA margins widen up to 1000 basis points.  Says the biz is growing 4-5% and is a highly fragmented biz but with 3 major players (other two being Ashtead (LSE:AHT) and United Rentals (URI).  Thinks stock triples over next 5 years.  He also posted about HRI on his Twitter account here.



Andy Beal (Beal Financial): He was pretty bearish and argued that government policies are basically depriving them of potential investment opportunities and basically said to get out of everything.  Talked up rental real estate.



Lisa Hess (SkyTop Capital):  Formerly of Loews, now manages SkyTop.  Her pick was Constellium (CSTM) as a proxy for more use of aluminum in automobiles etc.



Caroline Cooley (Crestline Investors):  Long Shutterfly (SFLY).  Says they have 60% market share and likes it as a growth play.  Said she's not worried about competition from the likes of Amazon (AMZN) and others like Snapfish.  Cited Apple trying and failing to compete with a similar service.  Says SFLY earns ten times that of its next biggest competitor, giving them a huge advantage.  Likes new CEO Chris North (previously of Amazon UK) and says company has some potential partnerships in the works and has bought back stock in the past.



Ray Nixon (Barrow Hanley Mewhinney & Strauss):  Talked about active vs passing investing.  Argued Buffett could potentially buy Phillips 66 (PSX) around $100 per share.  We've highlighted how Buffett has been accumulating PSX.


For more coverage of other recent investment conferences, head to our notes from the Sohn San Francisco conference.

Balyasny Asset Management Ups Oasis Petroleum Stake

Dmitry Balyasny's hedge fund firm Balyasny Asset Management has filed a 13G with the SEC regarding its stake in Oasis Petroleum (OAS).  Per the filing, Balyasny now owns 6% of OAS with over 13.75 million shares.

This is an increase of over 10.17 million shares since the end of the second quarter when they only owned 3.58 million shares.  The filing was made due to activity on October 18th.

We also just recently highlighted how SPO Advisory reduced its Oasis Petroleum stake this month as well.

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)."

Inaugural Sohn Australia - Hearts and Minds Investment Leaders Conference (Marks, Zell, Ho & More)

The Sohn Conference Foundation has announced a partnership with the Hearts & Minds Investment Leaders Conference to create the inaugural Sohn Australia - Hearts & Minds Investment Leaders Conference.

This will be the premier investment conference in Australia and will take place on November 11, 2016 at the Sydney Opera House.  Like the other Sohn events around the world, it will feature top fund managers sharing investment ideas to benefit charity and good causes. 

Proceeds from Sohn Australia will be dedicated to medical research and care within the prestigious Victor Chang Cardiac Research Institute as well as the Black Dog Institute, MS Research Australia and JDRF Australia.

For more about the event and to register, head to www.sohnconference.org/australia


Sohn Australia 2016 Speakers List

- Howard Marks, Oaktree Capital
- Leah Zell, Lizard Investors
- Shane Finemore, Manikay Partners
- John Ho, Janchor Partners
- Madeleine Beaumont, BlackRock Asset Management
- Anthony Aboud, Perpetual
- Peter Cooper, Cooper Investors
- Hamish Douglass, Magellan Financial Group
- Patrick Hodgens, Macquarie Investment Management
- Philip King, Regal Funds Management
- Robert Luciano, VGI Partners
- Michael Messara, Caledonia
- Kerr Neilson, Platinum Asset Management
- David Prescott, Lanyon Asset Management
- Geoff Wilson, Wilson Asset Management
- John Pearce, UniSuper Management
- The Hon. Paul Keating, Former Prime Minister of Australia
- The Hon. Mike Baird, MP, Premier of New South Wales, Australia
- Dr. Silviu Itescu, Mesoblast


Event Details

When: November 11, 2016

Where: Sydney Opera House, Sydney Australia

Registration:  You can click here to register for the event