Bill Miller recently appeared on Consuelo Mack's WealthTrack for an interview. He's beat the S&P 500 for 15 consecutive years when he worked at Legg Mason. Then he had a few years of underperformance and has come back with Miller Value Partners, an independent investment advisory firm.
Here are some of the key takeaways:
- Looks for stocks trading at a discount to intrinsic business value (present value of future free cashflow): looks for business that are naturally cash generative and buys them when free cashflow yield is 50% or more higher than the market.
- Noted that typical value investors look for accounting value versus economic value. Cites them missing Amazon (AMZN) as an example over the past 20 years.
- Miller looks for "companies that can earn above their cost of capital through an economic cycle."
- "Where you can really make significant amounts of money is when an industry changes from being one that doesn't generate economic value to one that does." One example of this he cites is the airlines now. Now they've had positive cashflow ever since 2009. He owns Delta (DAL), United (UAL), American Airlines (AAL). Consolidation has played a huge role. As we've noted before, Warren Buffett is also now a large shareholder of airlines.
- Also owns Valeant Pharmaceuticals (VRX) equity in one fund and the bonds in another fund. Notes that Bill Ackman has sold his VRX position. Miller was buying around $30. Thinks "perceived risk is way underpriced to real risk." Thinks it could be a $50-60 stock in 3 or 4 years.
- Miller thinks Apollo Group (APO) and Carlyle Group (CG) are cheap. We've highlighted how Tiger Global has been buying APO as well.
- Miller doesn't think the market is overvalued on a relative or absolute basis. Especially compared to other asset classes it's cheap.
- Likes Intrexon (XON), leading company in synthetic biology (think re-writing DNA).
- If he had to pick one stock to own for the long-term he'd pick Amazon (AMZN). Compared it to Alphabet (GOOGL) and Facebook (FB) and their core business is the $500-600 billion ad market which is growing 5% a year. Whereas AMZN's core business is retail. US retail alone is $5 trillion so the total addressable market is huge. Not to mention Amazon Web Services, etc.
Embedded below is the video of Bill Miller's Wealthtrack interview:
For more recent Wealthtrack interviews, we've also posted Consuelo Mack's interview with Joel Greenblatt.
Thursday, April 13, 2017
Bill Miller Wealthtrack Interview
The Wizard of Lies Movie Trailer: Bernie Madoff HBO Film
HBO has released a trailer for its new film The Wizard of Lies featuring Robert De Niro and Michelle Pfeiffer. This new television movie tells the story of Bernie Madoff's infamous ponzi scheme.
It premiers on May 20th on HBO and also features Hank Azaria, Alessandro Nivola, and Kristen Connolly, among others.
Embedded below is the video trailer for HBO's Wizard of Lies:
There has been a surge of recent documentaries, shows, and films on finance. We've highlighted HBO's Becoming Warren Buffett as well as Showtime's Billions if you're interested.
Hayden Capital's Thesis on Zooplus
Fred Liu's Hayden Capital has penned an in-depth write-up on Zooplus (ETR: ZO1), a leading online retailer of pet food and supplies in Europe.
They see a return of around 20% per year as the company has 50% market share in its category and is the low cost provider.
Hayden notes the company's 94% sales retention rate and 31% annualized sales growth since 2010.
As far as risks go, they cite what any retailer fears: the looming Amazon (AMZN) threat. Hayden counters that AMZN's European distribution centers aren't equipped to handle heavy, bulky items and points to Chewy.com's success in the US market.
Also, Hayden acknowledges that there's some degree of 'key man' risk here as CEO Cornelius Patt has been a 'visionary' and losing him would be a big detriment.
Embedded below is Hayden Capital's full thesis on Zooplus:
You can download a .pdf copy here.
Berkshire Hathaway Trims Wells Fargo Stake To Stay Below 10% Threshold
Warren Buffett's Berkshire Hathaway has withdrawn its application to the Federal Reserve which would have let them take their ownership stake above 10%. Now, they'll sell 9 million shares instead in order to remain below the 10% level.
As of the end of 2016, Berkshire owned 479 million WFC shares. The latest news indicates Berkshire has sold 7.13 million WFC shares and plans another 1.87 million share sale soon.
Berkshire has said that "investment or valuation considerations" did not play a part in their decision to sell as it looks like they're merely just trying to stay under the threshold.
For more on Berkshire, here's Warren Buffett's most recent interview on Apple and other topics.
Per Google Finance, Wells Fargo is "a diversified financial services company. It has three operating segments: Community Banking, Wholesale Banking, and Wealth and Investment Management. The Company offers its services under three categories: personal, small business and commercial. It provides retail, commercial and corporate banking services through banking locations and offices, the Internet and other distribution channels to individuals, businesses and institutions in all 50 states, the District of Columbia and in other countries. It provides other financial services through its subsidiaries engaged in various businesses, including wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, computer and data processing services, investment advisory services, mortgage-backed securities servicing and venture capital investment."
Wednesday, April 12, 2017
What We're Reading ~ 4/12/17
Matchmakers: The New Economics of Multisided Platforms [David Evans]
Beating the odds when you launch a new venture [Harvard Business Review]
Consolidated learnings: What I think I know about investing [Medium]
Inside Blue Apron's meal kit machine [Bloomberg]
Is it last call for craft beer? [NYTimes]
Americans haven't been this optimistic about stocks for nearly two decades [Bloomberg]
The gap between sentiment and certainty is stunning [WSJ]
On the ramifications of Brexit [Arp Investments]
How Canada completely lost its mind over real estate [Macleans]
Why Costco (COST) loves store sales: you try shipping a tub of mayo [WSJ]
Q&A with Airbnb's CEO Brian Chesky [Fortune]
Mobile video to grow almost 900% by 2021 Cisco predicts [Fierce Wireless]
Inside Verizon's go90, a video app mix between YouTube and Netflix [Business Insider]
Your focus should be on saving money, not investment returns [Collaborative Fund]
Instagram (FB) 'influencer' marketing is now a $1 billion industry [MediaKix]
Quick video on Zara: How a Spaniard invented fast fashion [YouTube]
Tuesday, April 11, 2017
JANA Partners Files 13D on Whole Foods Market
Barry Rosenstein's hedge fund firm JANA Partners has filed a 13D with the SEC regarding shares of Whole Foods Market (WFM). Per the filing, JANA now owns 8.3% of the company with 26.31 million shares (including options to purchase 3.53 million shares).
The filing indicates JANA was buying throughout February, in early March and late March, and into early April. The bulk of their buying came between $29 and $31 per share.
As to why they purchased shares, the 13D filing notes that JANA is looking to:
"(1) addressing the Issuer's chronic underperformance for shareholders, (2) changing the Issuer's board and senior management composition and addressing governance, (3) optimizing the Issuer's real estate and capital allocation strategies, including discussing the Issuer's "365" small store format and opportunities to improve returns on invested capital, (4) pursuing opportunities to improve performance by advancing its brand development and by addressing core operating deficiencies in areas including customer loyalty and analytics, category management and analytics, technology and digital capabilities, procurement and buying practices, pricing strategies and value proposition communication, and online offerings, (5) improving in-store execution, including labor scheduling and management, management of inventory and shrink levels, stocking practices, product layout, in-store signage, private label program strategy and management, and assessing broader cost structure and operating opportunities, (6) evaluating opportunities to re-engineer the Issuer's suboptimal and cost-disadvantaged grocery procurement and distribution strategy, such as by internalizing distribution or pursuing other hybrid strategies, in order to diversify away from its existing primary wholesale distribution partner, while in the interim implementing better management and increased auditing of this relationship to reduce costs, improve execution, and limit such distribution partner's influence, and (7) initiating a review of strategic alternatives particularly in light of the Issuer's apparent unwillingness to engage in discussions with third parties regarding such alternatives."
Per Google Finance, Whole Foods Market is "engaged in the business of natural and organic foods supermarket. The Company operates approximately 456 stores in the United States, Canada and the United Kingdom. Its stores have an average size of approximately 39,000 square feet, and are supported by its distribution centers, bake house facilities, commissary kitchens, seafood-processing facilities, a produce procurement center, and a specialty coffee and tea procurement and roasting operation, among others. It offers over 30,000 organic stock keeping units (SKUs), covering various areas of its store, including produce, packaged goods, bulk, frozen, dairy, meat, bakery, prepared foods, coffee, tea, beer, wine, cheese, nutritional supplements, vitamins, body care, pet foods and household goods. The Company's brands include 365 Everyday Value, Allegro Coffee, Whole Foods Market, Whole Paws, and Engine 2 Plant-Strong. It also offers approximately 400 temporary exclusives. ."
Tiger Global Buys More Apollo Global Again
Chase Coleman's hedge fund firm Tiger Global has filed a Form 4 with the SEC regarding its position in Apollo Global Management (APO).
Per the filing, Tiger Global purchased 1,266,800 shares in total across April 6th and 7th at weighted average prices of $25.254 and $25.301. After these purchases, Tiger Global now owns over 25 million shares of APO.
This comes after the hedge fund has been buying Apollo Global over the past two months.
Per Google Finance, Apollo Global Management is "an alternative investment manager in private equity, credit and real estate. The Company raises, invests and manages funds on behalf of pension, endowment and sovereign wealth funds, as well as other institutional and individual investors. The Company's segments include private equity, credit and real estate. The private equity segment invests in control equity and related debt instruments, convertible securities and distressed debt investments. The credit segment invests in non-control corporate and structured debt instruments, including performing, stressed and distressed investments across the capital structure. The real estate segment invests in real estate equity for the acquisition and recapitalization of real estate assets, portfolios, platforms and operating companies, and real estate debt, including first mortgage and mezzanine loans, preferred equity and commercial mortgage backed securities."
Monday, April 10, 2017
Sohn New York Conference & Investment Contest 2017
Since 1995, the Sohn Investment Conference in New York has been the premier investing event. It features top hedge fund managers sharing their latest insights and ideas in order to benefit the Sohn Conference Foundation's work to end childhood cancer.
This year's conference is coming up fast, so be sure to register for the conference before it sells out.
Sohn New York Event Details
When: May 8th, 2017
Where: David Geffen Hall, Lincoln Center, New York City
Sohn New York Speakers List 2017
David Einhorn, Greenlight Capital
Bill Ackman, Pershing Square Capital
Jeff Gundlach, DoubleLine Capital
Clifton Robbins, Blue Harbour Group
Josh Resnick, Jericho Capital
Larry Robbins, Glenview Capital
Davide Serra, Algebris Investments
Brad Gerstner, Altimeter Capital
Keith Meister, Corvex Capital
Debra Fine, Fine Capital Partners
Chamath Palihapitiya, Social Capital
Tal Ben-Shahar, Potentialife
Kevin Warsh, Hoover Institution
To hear the latest investment ideas from these top managers next month, sign up for the New York Sohn Investment Conference here.
Sohn Investment Idea Contest
Also, the Sohn Investment Idea Contest is now live. Pitch your best idea with a 12-month horizon and have it judged by David Einhorn, Bill Ackman, Joel Greenblatt, Seth Klarman, and Larry Robbins.
The winner of the contest will then present their idea in front of 3,000 people at the Sohn Investment Conference in New York.
You can enter the idea contest here.
Kase Capital Short Wingstop Presentation
Whitney Tilson's hedge fund firm Kase Capital has released a slide deck on its short position in Wingstop (WING). This is Kase's largest short position.
He notes that while the company is growing rapidly, the stock's valuation is "absurd", trading at 52x trailing EPS and 29x trailing EBITDA.
Tilson points out that same store sales growth is decelerating and the company's gross margin has also declined significantly.
Embedded below is Kase Capital's presentation on why they're short Wingstop:
You can download a .pdf copy here.
Betting on Zero Trailer: Documentary on Bill Ackman's Fight Against Herbalife
Bill Ackman and Pershing Square's short bet against Herbalife (HLF) has been dragging on for quite some time now. Simply put, he argues the company is a pyramid scheme.
Now, a documentary has been released called Betting on Zero. It details Bill Ackman's 'holy war' against the company and also touches on Carl Icahn's long position.
The documentary is available on iTunes now, but here's a teaser of what you can expect.
Embedded below is the video trailer for Betting on Zero:
For more on this fund, we've detailed Pershing Square's 2016 annual report.
Friday, April 7, 2017
Hedge Fund Links ~ 4/7/17
Julian Robertson shuts down Tiger Accelerator fund [Reuters]
Allan Mecham's Arlington Value closes to new investors [ValueWalk]
Hedge funds manage risk: opposing view [USA Today]
Sears and its hedge fund owner, in slow decline together [NYTimes]
Eton Park shutdown shows how hedge funds are dying at an alarming rate [Fortune]
Potential Eton Park spinoffs coming? [Institutional Investor]
Hedge fund flows and name gravitas [SSRN]
Law firm Seward Kissel sees further hedge fund fee shift [ValueWalk]
Hedge fund titans face what's next as they pass certain age [Bloomberg]
The future of family office investing [Medium]
Thursday, April 6, 2017
Ryanair's Low Cost Flywheel: Scuttleblurb Analysis
Scuttleblurb has agreed to let us post their recent analysis of Ryanair for free. If you're not familiar, Scuttleblurb.com provides subscribers with balanced and insightful analysis and commentary on the moats, business models, and corporate strategies of companies across a variety of industries, as well as time-saving summaries of management commentary on earnings calls.
Market Folly readers can receive an 18% discount off your first year of Scuttleblurb using coupon code: marketfolly.
Ryanair's Low Cost Flywheel
“One thing we have looked at is maybe putting a coin slot on the toilet door...Pay-per-pee. If someone wanted to pay £5 to go to the toilet, I’d carry them myself. I would wipe their bums for a fiver.”
- Michael O’Leary, CEO of Ryanair
In a letter to one of GEICO's officers dated July 22, 1976, Warren Buffett wrote:
“I have always been attracted to the low cost operator in any business and, when you can find a combination of (i) an extremely large business, (ii) a more or less homogenous product, and (iii) a very large gap in operating costs between the low cost operator and all of the other companies in the industry, you have a really attractive investment situation. That situation prevailed twenty five years ago when I first became interested in the company, and it still prevails.”
One of the most compelling moats a company can possess is a set of self-reinforcing processes that continuously fosters lower unit costs. Interactive Brokers, for example, benefits from such a dynamic. As I've previously noted, IBKR can charge its customers a fraction of the commission assessed by peers and still generate significantly higher profit margins because it: 1) spends far less of its revenue on advertising; 2) does not support physical branches or an army of customer service reps, and less appreciated but critically; 3) attracts trading volume that is itself endemic to continuously driving down execution costs, since the more trades the company executes, the more optimally it can route orders to low-cost venues, and better execution in turn, leads to more trading volume.
Ryanair benefits from a similar low-cost flywheel.
This story really begins with Herb Kelleher - the founder of Southwest Airlines, the company that Ryanair modeled itself after - who observed that the hub-and-spoke networks operated by legacy carriers, designed to maximize load factors, sub-optimally left aircraft stranded on the tarmac waiting for feeder traffic and baggage transfers. Herb understood that to generate healthy profits along short point-to-point routes, he had to keep his planes off the ground and in the air for as long as possible while assiduously controlling costs, which informed an operating framework designed to hasten turnaround times: single-class, unassigned seating to expedite onboarding; a no-meals policy to obviate time- consuming clean-up; a single aircraft model (Boeing 737) to reduce crew training costs and enable speedier repairs and servicing; and at least at the start, concentrating on uncongested, secondary airports to enable rapid take-off and landing.
Michael O’Leary, profanity-oozing ass-kicker and Ryanair CEO since 1994, left Kelleher’s charm and decency on the Love Field tarmac but imported his operating model to Europe, stoking a relentless self-reinforcing moat entrenchment process that continues to this day. Early in its corporate life, by targeting secondary airports desperate for traffic - Hahn, not Frankfurt; Brescia, not Verona; Lubeck, not Hamburg; Skavsta, not Stockholm - Ryanair obtained substantial landing fee discounts. Stansted, for instance, agreed to charge Ryanair £1 per passenger vs. the official rate of £6 while Essex airport offered heavily discounted fees on new routes, laddering up to higher tariffs over 4-5 years as those routes matured and densified. Ryanair recycled the cost savings into lower passenger fares, attracting fresh waves of traffic that were used to negotiate favorable landing fees at other secondary airports and receive discounts on aircraft orders from Boeing.
[When reading coherent business triumph narratives involving bold actors and crafty strategy, it's easy to neglect the crucial role of luck. Just to swiftly dispel the notion that Ryanair's status as the largest and most profitable airline banner in Europe was inevitable, know that the company was on the brink of collapse in the late '80s before Ireland's persuasive Minister of Transport somehow convinced the Cabinet to break up Aer Lingus' monopoly, yielding critical, life-saving routes to Ryanair. At the time, O'Leary, who was handling finances for the troubled airline, actually recommended to Tony Ryan (the airline's founder) that the whole cash-draining enterprise be shut down before striking what turned out to be an insanely profitable compensation package for himself, one which granted O'Leary a quarter of any profits above £2mn, a goal Ryan believed outside the realm of possible at the time (this deal has since been scrapped). The Aer Lingus break-up was then followed by EU’s 1992 Open Skies treaty, which deregulated the European airline industry and allowed carriers to fly passengers between EU states. I found this story and other interesting historical tidbits referenced in this post in the book Ryanair: The Full Story of the Controversial Low-Cost Airline written by Siobhan Creaton]
Complementing this feedback loop, a keen obsession with cost control and efficiency has taken root in policies and behaviors ranging from cringeworthy (charging the disabled for wheelchairs) to heroic (O’Leary heaving baggage onto planes during strikes) to downright petty (apparently and perhaps apocryphally, at one time Ryanair banned employees from charging their mobile phones during work hours, citing theft of company electricity amounting to 1.4 pence per charge), reinforcing an unrepentantly utilitarian attitude toward customer service: humane treatment for one compromises low costs for all.
This has all crescendo’ed to a cost structure today that no European competitor is even remotely positioned to rival. Ryanair's cost per passenger (excluding fuel) is just €27 vs. €40 for Wizz Air, the second lowest-cost airline. Culturally stodgy full-service European incumbents like IAG, Air France, Lufthansa, and Air Berlin have average ex. fuel per passenger costs that run 4x higher than Ryanair's. Besides maybe Wizz Air, a low-cost carrier focused on Eastern European routes whose seat capacity is just ~1% of Ryanair’s, no competitor can match the company's €42 airfare and still make money. This cost advantage will only widen as the company inks still more incentive deals with airports and takes delivery of Boeing 737 MAX aircraft, which come with 4% more seats and a 16% reduction in fuel costs per passenger.
And so, because engaging in a fare war with Ryanair is suicidal - as the failed low-cost initiatives of major incumbents like Virgin Express, BA Go, and KLM Buzz attest - Ryanair can profitably undercut competitors and steal their passengers, maximizing load factors while leveraging market share gains to secure increasingly advantaged landing fees and aircraft prices, with the capacity to incessantly reinvest the resulting savings into still lower passenger fares. Over the last dozen years, this self-perpetuating process has spurred 14% annual growth in passenger volume, amplifying scale advantages that have allowed Ryanair to cost-effectively (EBIT/passenger has remained flat over this time) extend its reach beyond secondary airports. Unable to compete with Ryanair's prices, competitors have increasingly relinquished bases in Germany, Italy, Spain, and Belgium, compelling primary airports, which today represent just over half of all airports served by the company, to negotiate attractive volume deals with Ryanair.
[On public conference calls, O'Leary will frequently and explicitly highlight its cost advantage over peers, often goading competitors by name. The confrontational posture is more than just an unvarnished reflection of O'Leary's gracious personality; it signals to competitors that Ryanair stands credibly ready to take fares down to levels that would still allow Ryanair to generate profits while producing significant losses to them, i.e. "don't even bother competing with us on price" (my words)].
Sometime in the late-90s, Ryanair placed an £800mn order for 25 planes with Boeing with the option to purchase 20 more for £650mn, a huge commitment for what was then a relatively unknown fledgling. To test the company’s creditworthiness, Boeing rigorously stress tested the airline’s business model through computer-simulated declines in passenger traffic, fluctuating fuel costs, and exchange rates. The result: Boeing could not find a single 3-month period in which Ryanair would not be profitable.
Boeing’s Director of Sales in the UK and Ireland remarked,
“The lowest we could do was break even....It is probably the most robust model we have encountered.”
This assessment would prove mostly prescient as Ryanair subsequently delivered positive operating profits each fiscal year up to today (“mostly,” because there were losses in some 3-month periods), generating among the highest returns on capital (averaging low-teens over the last 15 years) of all European airlines. Under O'Leary's guidance, management has acted as capable stewards of capital, opportunistically retiring 15% of the company’s share count over the last 5 years at attractive prices - with nearly 30% of that reduction taking place during the Brexit vote, when the company increased its share repurchase authorization to seize on the stock’s ~25% decline - all while maintaining a pristine balance sheet, which carries less than €600mn in net debt against €2bn in LTM EBITDA. The stock trades at 16x trailing earnings with a long runway for growth as passenger volumes, per management's guidance, expand by ~9%/year (about 2x the industry) from 119mn in FY17 to 200mn by FY24, and assuming flat fares, earnings should grow meaningfully faster than that on lower costs per passenger (as the more efficient MAX comes on line) and higher per-passenger ancillary revenue.
Since Ryanair announced that membership in myRyanair for all online bookings would be mandatory last November, membership has surged and is expected to reach 20mn by March 2017. Besides the immediately obvious revenue and cost opportunities from upselling reserved and upgraded seats (which has prompted management to raise medium- term guidance on ancillary sales) and disintermediating costly OTA and metasearch traffic, there are significant advantages from directly interfacing with a huge customer base, like fostering loyalty through customized services and even, just maybe, scaling an in-house OTA, linking travelers to car rentals and hotel rooms. Over the last decade, passenger fares haven't really budged much at all; however, ancillary revenue per passenger has nearly doubled, from ~€8 to ~€15 per passenger, driving all of the per-passenger EBITDA growth over that period, and now that Ryanair has made myRyanair membership mandatory, its burgeoning captive audience should translate into still greater ancillary sales/passenger.
Brexit has prompted Ryanair to pivot away from the UK and concentrate its growth ambitions in continental Europe. The UK represents about 2% of the company's capacity and 3 out of its 1,800 routes, so it seems like a manageable risk, though who can fully handicap the destabilizing consequences of creeping populist/isolationist sentiment? It's a risk. Still, pick a year, any year and you’ll find that there has almost always been a sound macro, political, or industry- specific reason not to invest in Ryanair stock: ATC strikes, terrorism, austerity measures, economic contraction, fuel shocks, low-cost competition from incumbents, low-cost competition from upstarts, foot and mouth disease, the Iraq War, Avian flu, Volcanic ash clouds. Just as GEICO’s structural cost advantage remained intact despite the company’s reckless underwriting practices during the ‘70s, so has Ryanair’s persisted through these destabilizing exogenous events. And besides, through it all, it turns out that for the right price folks still want to explore different cultures, get away during holidays, and visit loved ones in distant locations. I suspect this will continue to be true over the next decade.
So if you're a shareholder, the next time you find yourself on a Ryanair flight, as you recline comfortably squirm perpendicularly in your squeaky, navy blue seat, carapaced by overhead compartment doors littered with tacky revenue-generating ads, feel free to silently cheer through your discomfort.
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Wednesday, April 5, 2017
What We're Reading ~ 4/5/17
Modern Monopolies: What It Takes to Dominate the 21st Century [Alex Moazed]
How moats make a difference [Intrinsic Investing]
Boyar Research's thesis on QVC and Madison Square Garden [Barrons]
Autonomous cars and second order consequences [Benedict Evans]
The hardest question in portfolio management [A Wealth of Common Sense]
Diversification, adaptation, and stock market valuations [Philosophical Economics]
Noise: how to overcome the high, hidden cost of inconsistent decisions [Harvard Biz Review]
How Domino's built a $9 billion empire [Bloomberg]
How do winning consumer goods companies capture growth? [McKinsey]
Airlines make more money selling miles than seats [Bloomberg]
At Blackrock, machines are rising over managers to pick stocks [NYTimes]
What's next for malls? [Fashionista]
Andrew Ng on what AI can and can't do [Harvard Business Review]
Margin debt hit all time high in February [WSJ]
The 1% rule: why a few people get most of the rewards [James Clear]
Chuck Akre's Talk at Google: Three-Legged Stool Investment Construct
Chuck Akre of Akre Capital Management recently had a talk at Google about investing entitled "The Peregrinations of an English Major Trying to Solve the Investment Puzzle."
If you're unfamiliar with Akre, he focuses on finding long-term compounders and runs a somewhat concentrated portfolio. Here's notes from his talk:
Chuck Akre's Talk at Google
- Reads voraciously to this day. Cited one of the very first books he liked: The Money Masters. Also noted that 100:1 in the Stock Market is the book he took the idea of compounding from. Said he read The Intelligent Investor as well as business biographies.
- What makes a great investment? "Rate of return is the bottom line of all investing."
- Looks at free cashflow return and focuses on valuation as the key to compounding; buy it right.
- How do they identify investments that will generate above average returns? "We like to fish in the pond of high return businesses." Asks: what kind of returns on capital? What are the net margins? Thinks an 'average' business returns high single digits. Cites Mastercard (MA) and Visa (V) with 30% margins. "What is it about the essence of that business that allows them to earn returns that cause them to have a big bullseye on their back?"
- Three-legged stool: Their investment construct that lets them think in simple terms. First leg is the quality of a business: a high return business. Second leg is operations: want management to have skill and integrity (a demonstrated record) and treat investors as partners. Third leg is reinvestment: would love the company to put cash back into the business if there's great opportunity. Cited the book Dear Chairman (which we've reviewed here).
- "I have never been able to learn from other people's mistakes. I have to make my own."
- Wants to be an investor in a business rather than a speculator in shares.
- His goal is to compound capital at an above average rate while incurring a below average level of risk. Volatility is only a risk in the short run.
- Akre's separately managed accounts over 27 years have compounded at 12.7% versus S&P at 9.4%. Also has a partnership that's done 15.25% versus S&P 9.2% and mutual funds that have done 13.2% annual.
- Mastercard: originally purchased in 2010 at around $22 with regulatory worries around Durbin amendment. Business has fantastic returns, had a low valuation (13-14x at the time). "Their returns are so high they can't possibly find a place to reinvest their money, so our compounding is diminished modestly because of that."
- Moody's (MCO): Bought in January 2012 at $39. Any company that wants debt has to get a rating on it and it's basically an oligopoly: MCO, S&P (SPGI), and Fitch.
- Enstar (ESGR): Been involved for 10 years. They buy insurance that's in run-off. Paid 3 times book when he bought shares.
- Quotes Einstein: "You should make everything simple as possible but no simpler." "We cannot solve our problems with the same thinking we use to create them." "The only source of knowledge is experience." "Imagination is more important than knowledge." That last quote is what's on the front of Akre's book:
- Two of his best investments (100 baggers): Berkshire Hathaway (BRK.A) and American Tower (AMT). "Most of the time you can buy these businesses at reasonable valuations... sometimes you can buy them at a steal."
- On selling: "The most difficult thing to do in our business is not sell, if you're a long-term investor."
- Bought Visa (V) because they have concentration limits in their funds and were bumping into that with their stake in MA. Did the same with SBA Communications (SBAC) as it relates to their AMT position. Gaining more exposure to the themes via competitors since individual position limits kicked in.
Embedded below is video of Chuck Akre's talk at Google:
We've covered many other investor talks at Google, including:
- Howard Marks' talk at Google
- Michael Mauboussin's talk at Google
- Jim Grant's talk at Google
Joel Greenblatt's Talk at Google
Joel Greenblatt is the founder of Gotham Capital and also author of the book The Little Book That Beats the Market. He recently gave a talk at Google and here are the takeaways:
Joel Greenblatt's Talk at Google
- He thinks the vast majority of investors should index rather than pick stocks. That said, he doesn't index and Warren Buffett doesn't either.
- Greenblatt said people are still crazy (human behavior) and the market has wild rides (50% drops in recessions, tripling in value afterwards, etc). So there's an opportunity. The key is obviously to buy when valuations are below average and sell when they're above average.
- He tells his MBA students at Columbia Business School: "If they do good valuation work, I guarantee the market will agree with them... I just don't know when."
- "Stocks are ownership shares in businesses." Looks at how relatively cheap they are compared to other businesses, to history, etc. Measure in absolute and relative value.
- Emphasizes being patient; market oscillates back and forth over the years. Time horizons are shrinking so we're playing time arbitrage.
- "Almost never have I bottom-ticked a stock." That means most of the time he'll be down on a stock at some point. There's two reasons why: he's either wrong or just needs more time for the thesis to play out.
- Greenblatt also wrote a book called The Big Secret that he joked is still a secret since no one read it. But he's also authored a wildly popular investing book with a cheesy title: You Can Be a Stock Market Genius
- "To beat the market you have to do something different."
- Runs 100% net long but it's typically achieved via 170% long and 70% short. They determined the leverage amount based on returns.
- The market's been cheaper 83% of the time based on current valuations. Based on this, market could see 3-5% returns over the next year and then 8-10% over the next two. Not a prediction though he said.
- "Stock investing is figuring out what a business is worth and paying less."
- Harped on the importance of compound interest tables. Start investing as early as possible.
- Thinks there's still a lot of groupthink going on. If you're good at taking 'unfair bets' in obscure places that other people aren't looking, you can do well. But eventually you'll have too much money to play in that arena anymore to have it move the needle.
- On Apple (AAPL): "I think it's cheap relative to other choices right now."
- "Your job is to be cold and calculating, and unemotional. Unfortunately, people are human. That's good news for us, but the stats are against you."
- "The last man standing is patience. We call it time arbitrage. That's in really short supply. It's not getting better, things are moving faster... and less patience."
- For more from this investor, we've also posted up Greenblatt's interview with Consuelo Mack
Embedded below is the video of Joel Greenblatt's talk at Google:
We've also posted a bunch of other investor talks at Google, including:
- Howard Marks' talk at Google
- Michael Mauboussin's talk at Google
- Jim Grant's talk at Google
Tuesday, April 4, 2017
Phil Fisher's Investment Checklist: 15 Things to Look For In A Stock
Phil Fisher was a noted investor who founded investment firm Fisher & Company back in 1931. He was basically a pioneer in the field of growth investing by buying great companies at reasonable prices while focusing on the long-term. He's also the author of the popular investing book, Common Stocks and Uncommon Profits.
In the book, Fisher outlined what he deemed to be 15 things that investors need to look for in a common stock.
Phil Fisher's Investment Checklist: 15 Things To Look For
1. "Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?"
2. "Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?"
3. "How effective are the company's research and development efforts in relation to its size?"
4. "Does the company have an above-average sales organization?"
5. "Does the company have a worthwhile profit margin?"
6. "What is the company doing to maintain or improve profit margins?"
7. "Does the company have outstanding labor and personnel relations?"
8. "Does the company have outstanding executive relations?"
9. "Does the company have depth to its management?"
10. "How good are the company's cost analysis and accounting controls?"
11. "Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?"
12. "Does the company have a short-range or long-range outlook in regard to profits?"
13. "In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?"
14. "Does the management talk freely to investors about its affairs when things are going well but 'clam up' when troubles and disappointments occur?"
15. "Does the company have a management of unquestionable integrity?"
If you want to explore the usage of checklists further, many investors have recommended Atul Gawande's book, The Checklist Manifesto. While it's not an investing book, it is about incorporating checklists into your process.
For guidance from other prominent investors, be sure to also check out Viking Global's Andreas Halvorsen on investment process as well as Fairholme Capital's Bruce Berkowitz investment checklist.
Tiger Global Adds To Apollo Position
Chase Coleman's hedge fund firm Tiger Global has filed a Form 4 and an amended 13G with the SEC regarding its position in Apollo Global Management (APO). Per the filing, Tiger Global now owns 12.5% of the company with 23.36 million shares.
The Form 4 indicates their recent trading activity includes buying 300,000 APO shares on March 30th at $23.65, 34,900 shares at blended average of $24.022 on March 31st, and then another 26,900 shares on April 3rd at $24.565.
Per Google Finance, Apollo Global Management is "an alternative investment manager in private equity, credit and real estate. The Company raises, invests and manages funds on behalf of pension, endowment and sovereign wealth funds, as well as other institutional and individual investors. The Company's segments include private equity, credit and real estate. The private equity segment invests in control equity and related debt instruments, convertible securities and distressed debt investments. The credit segment invests in non-control corporate and structured debt instruments, including performing, stressed and distressed investments across the capital structure. The real estate segment invests in real estate equity for the acquisition and recapitalization of real estate assets, portfolios, platforms and operating companies, and real estate debt, including first mortgage and mezzanine loans, preferred equity and commercial mortgage backed securities."
Wednesday, March 29, 2017
Pershing Square's 2016 Annual Report: VRX, APD, FNMA, HLF, HHC, MDLZ, NOMD, PAH, QSR
Bill Ackman's hedge fund firm Pershing Square Capital Management is out with its 2016 annual report.
Pershing Square lost 13.5% net in 2016. The bulk of this loss was attributed to its previous position in Valeant Pharmaceuticals (VRX).
Ackman writes about why they ended up selling VRX:
"If the stock price had increased even very substantially from here, the impact on our overall performance would have been modest, and would not compensate us for the human resources and substantial mindshare that this investment had and would have continued to consume if we had remained a shareholder. Furthermore, while Valeant has made significant progress and we expect management to continue to do so, there is still a lot of work to be done.
Clearly, our investment in Valeant was a huge mistake. Th e highly acquisitive nature of Valeant’s business required flawless capital allocation and operational execution, and th erefore, a larger than no rmal degree of reliance on management. In retrospect, we misjudged the prior management team and this contributed to our loss. We deeply regret this mistake, which has cost all of us a tremendous amount, and whic h has damaged the record of success of our firm."
Despite the poor 2016, Pershing points out that they've generated a compound annual return of 14.8% compared to S&P returns of 7.7% over the same time period.
The report also details portfolio updates on numerous positions, including: Air Products & Chemicals (APD), Fannie Mae (FNMA) / Freddie Mac (FMCC), their short of Herbalife (HLF), Howard Hughes (HHC), Mondelez (MDLZ), Nomad Foods (NOMD), Platform Specialty Products (PAH), and Restaurant Brands (QSR).
They also touch on some of the positions they've exited.
Embedded below is Pershing Square's 2016 annual report:
You can download a .pdf copy here.
Tuesday, March 28, 2017
Greenlight Capital's General Motors Presentation: Unlocking Value at GM
David Einhorn's hedge fund Greenlight Capital has put out a slide deck on its large position in General Motors (GM). The presentation is entitled: "Unlocking Value at GM: Two Classes of Common Shares."
Basically, Greenlight has asked the company to change its capital structure in order to unlock 'substantial shareholder value.' The hedge fund has proposed that GM distribute 'dividend shares' on a tax-free basis.
Greenlight concludes that, "Creating two classes of common stock will unlock GM's value by forcing the market to appropriately value the dividend and give credit for GM's earnings potential.
Regarding how the company responded to these ideas, CNBC's David Faber tweeted that "GM considered Greenlight proposal for and rejected after months of meetings with management and board - sources."
He also tweeted: "GM rejected Greenlight proposal citing potential loss of Inv grade rating, governance challenge and uncertain demand for new shares - sources."
Embedded below is Greenlight's presentation: Unlocking Value at GM:
You can download a .pdf copy here.
For more on this fund, be sure to also check out Greenlight Capital's Q4 letter where they drastically increased their GM position.
Friday, March 24, 2017
Hedge Fund Links ~ 3/24/17
Eton Park hedge fund to shut down [NYTimes]
The 34-year old hedge fund manager who bet everything on a stock that tanked [Forbes]
Top 25 highest earning hedge fund managers [Forbes]
What it's like to be a woman in the hedge fund business [Business Insider]
How a $26 billion hedge fund lures the beautiful minds [Bloomberg]
Simon Lack on hedge funds [Ritholtz]
Hedge funds' top secret social network is... Yahoo? [fnLondon]
Preet Bharara: a prosecutor who knew how to drain a swamp [NYTimes]
Viking Global Adds To Gulfport Energy Stake
Andreas Halvorsen's hedge fund firm Viking Global has filed a 13G with the SEC regarding its position in Gulfport Energy (GPOR). Per the filing, Viking now owns 5.8% of the company with over 9.13 million shares.
They've boosted their position size by over 2.83 million shares since the end of 2016 when they owned 6.29 million shares. The filing was made due to activity on March 10th.
We've highlighted other recent portfolio activity from Viking Global here.
Per Google Finance, Gulfport Energy is "an oil and natural gas exploration and production company. The Company focuses on the exploitation and acquisition of natural gas, natural gas liquids and crude oil in the United States. The Company's properties are located in the Utica Shale in Eastern Ohio and along the Louisiana Gulf Coast in the West Cote Blanche Bay (WCBB) and Hackberry fields. The Company also has an interest in producing properties in Northwestern Colorado in the Niobrara Formation and in Western North Dakota in the Bakken Formation. The Company also holds an acreage position in the Alberta oil sands in Canada through its interest in Grizzly Oil Sands ULC and an interest in an entity that operates in the Phu Horm gas field in Thailand. The Company also owns interests in various fields, which includes Deer Island, Fay South, Crest, Squaw Cheek, Green River Basin and Watonga Chickasha Trend."
Eminence Capital Trims Autodesk Position
Ricky Sandler's hedge fund firm Eminence Capital has filed an amended 13D with the SEC regarding its stake in Autodesk (ADSK). Per the filing, Eminence now owns 3.6% of Autodesk with 8.01 million shares.
Per the filing, Eminence sold 3.47 million shares on March 16th at $88.08.
It notes they sold "solely for portfolio management reasons. Due to the significant price appreciation of the Shares since their original investment the Reporting Persons’ position in the Shares had significantly increased as a percentage of total assets under management. The Reporting Persons’ position in the Shares remains the largest position owned by the Reporting Persons. The Reporting Persons are pleased with the progress that has been made in both the Issuer’s business model transition and operating fundamentals and remain confident in the Issuer’s ability to continue to create value for shareholders."
We've highlighted other recent portfolio activity from Eminence Capital here.
Per Google Finance, Autodesk is "a design software and services company, offering customers productive business solutions through technology products and services. The Company serves customers in the architecture, engineering and construction; manufacturing, and digital media, consumer and entertainment industries. It operates in four segments: Architecture, Engineering and Construction (AEC), Platform Solutions and Emerging Business (PSEB), Manufacturing (MFG), and Media and Entertainment (M&E). The PSEB, AEC and MFG segments offer a range of services, including consulting, support and training. The M&E segment offers software products to professionals, post-production facilities and broadcasters for a range of applications. Its software products enable its customers to experience their ideas before they are real by allowing them to imagine, design and create their ideas and to visualize, simulate and analyze real-world performance in the design process by creating digital prototypes."
Thursday, March 23, 2017
What We're Reading ~ 3/23/17
Mauboussin: The incredible shrinking universe of stocks [Credit Suisse]
7 traits for active investors to win in the long term [Jim O'Shaughnessy]
How to fight a price war [Harvard Business Review]
Stephen Jarislowsky's secret: buy stocks you never plan to sell [Canadian Business]
The fourth industrial revolution: a primer on artificial intelligence [Medium]
A pitch on Alphabet (GOOGL / GOOG) [Wexboy]
The autonomous vehicle revolution [Rational Walk]
Mohnish Pabrai thinks autonomous vehicles will take 20 years [Benzinga]
Baidu's (BIDU) CEO envisions a spinoff of robot cars arm [Bloomberg]
On Intel's (INTC) purchase of Mobileye (MBLY) [Stratechery]
Apple (AAPL) wants to bring augmented reality to the masses [Bloomberg]
Tech and entertainment in the era of mass customization [Andreessen Horowitz]
How being wrong can help us get it right [Tim Harford]
Advertisers are more interested in Instagram than Snapchat [Fortune]
Interview with Ctrip.com's (CTRP) CEO [Skift]
The billion dollar industry of professional video gaming [Bloomberg]
Soda loses its US crown; Americans now drink more bottled water [WSJ]
Monday, March 20, 2017
Pat Dorsey Interview With Young Investors Society
Pat Dorsey was recently interviewed by Young Investors Society. He's the founder of Dorsey Asset Management and prior to that worked as the Director of Equity Research for Morningstar.
He's also the author of two books: The Little Book That Builds Wealth and then The Five Rules for Successful Stock Investing. Here's some takeaways from his talk:
- His book talks about moats and competitive advantage. He wished he put more in his book about the business that is building the moat, versus one that already has one. A younger biz with a longer runaway and each dollar of incremental cashflow is being invested at an increment ROIC.
- If you've got long-term time horizon, smaller pool of capital, and investors ok with volatility, your returns are probably gonna be superior.
- For companies, the ability to reinvest is where you really maximize things
- On short selling: Highlighted the not-so-great risk/reward of only being able to make 100% on your position but the potential to lose an infinite amount (if the short just keeps going up and up). "Shorting is tough because time is not on your side."
- Short selling is very hard and the few good short sellers he's met never ever ever short because of valuation. They short because a business is fraudulent or fundamentally flawed. For shorting candidates, look for businesses that both raises equity and pays a dividend.
- On Snapchat (SNAP): Thinks it could be a smoking hole in the ground after a while. Mentioned to look at the company's growth rate once Facebook (FB) rolled out its 'stories' copycat feature on its Instagram platform. Said SNAP needs to find a monetization model over time.
- Said investing in DryShips (DRYS) is kind of like playing poker with Kim Jung Il.
- Make sure it's a business you can understand, don't ignore management.
- On Facebook (FB), which Dorsey owns: seems almost too obvious; has huge topline but still growing at over 50%. Global advertising market is huge (opportunity). Advertising grows a little bit more than global GDP but digital ads have grown even faster. Advertisers follow attention. 2 companies get 80% of incremental ad spend: FB and Alphabet (GOOGL). But if you had to take the stock and lock it up and not touch it for 10 years, you probably can't do that with FB because the landscape changes too much. FB is hyper-aware of the risk of declining user engagement. The current valuation does not assume dominance 10 years from now. Close to 17-18x EBIT now, growing over 50%.
- "We worry about all our positions. If you ever have a position you're not worried about, you're probably in trouble."
- Single biggest lesson is to avoid endowment bias. Just because he owns it doesn't mean he should trust management more. "My biggest mistakes have definitely come when I've not kept the bar as high as it should be with management quality or business quality."
- You can never have too high of a hurdle rate for businesses you evaluate. You don't need to own 100 stocks, you're not running a Fidelity mutual fund. Maybe 10 in your personal account, or 30 if you're running a fund
- Sticky note on his computer: "No FOMO" or No Fear Of Missing Out.
- Ask yourself: Does it fit your personality? Does it fit what you're trying to do as an investor?
The publisher disabled the ability to embed the video but you can view it here at the Young Investors Society YouTube channel.
We also recently posted up Mark Cuban's interview with Young Investors Society as well.
Tiger Global Starts Apollo Global Management Stake
Chase Coleman's hedge fund firm Tiger Global has filed a 13G with the SEC regarding shares of Apollo Global Management (APO). Per the filing, Tiger Global now owns 7% of APO with over 13 million shares.
This is a newly disclosed equity position for the firm and the filing was made due to activity on March 8th.
We've highlighted other recent portfolio activity from Tiger Global here.
Per Google Finance, Apollo Global Management is "an alternative investment manager in private equity, credit and real estate. The Company raises, invests and manages funds on behalf of pension, endowment and sovereign wealth funds, as well as other institutional and individual investors. The Company's segments include private equity, credit and real estate. The private equity segment invests in control equity and related debt instruments, convertible securities and distressed debt investments. The credit segment invests in non-control corporate and structured debt instruments, including performing, stressed and distressed investments across the capital structure. The real estate segment invests in real estate equity for the acquisition and recapitalization of real estate assets, portfolios, platforms and operating companies, and real estate debt, including first mortgage and mezzanine loans, preferred equity and commercial mortgage backed securities."
Fairholme Capital Buys More Sears Holdings
Bruce Berkowitz's investment firm Fairholme Capital has filed a Form 4 with the SEC regarding its position in Sears Holdings (SHLD). Per the filing, Fairholme acquired 222,100 SHLD shares in total across March 15th, 16th, and 17th at prices of $8.75, $8.76, and $8.86.
After these purchases, Fairholme now owns over 27.98 million shares.
This is the second time Fairholme has acquired SHLD shares this month as we previously highlighted Berkowitz's SHLD activity.
Per Google Finance, Sears Holdings is "an integrated retailer. The Company is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). It operates through two segments: Kmart and Sears Domestic. It operates approximately 940 Kmart stores across over 50 states, Guam, Puerto Rico and the United States Virgin Islands. Kmart stores carry an array of products across various merchandise categories, including seasonal merchandise, toys, lawn and garden equipment, food and consumables and apparel, including products sold under labels, such as Jaclyn Smith, Joe Boxer and Alphaline and certain Sears brand products (such as Kenmore, Craftsman and DieHard) and services. Its Sears Domestic segment's operations consist of full-line stores, specialty stores, commercial sales and home services. Full-line stores offer an array of products and service offerings across various merchandise categories, including appliances, consumer electronics/connected solutions and tools."
Friday, March 17, 2017
Glenn Greenberg's Brave Warrior: Long Financials (CNBC Interview)
Glenn Greenberg of Brave Warrior Advisors sat down with CNBC for a rare interview. Here's some key takeaways:
- He looks to buy stocks that will have around a 10% free cashflow yield 1-2 years from now
- Focused on 2-3 years ahead, less concerned about short-term swings or quarterly volatility. Likes to focus on companies that build wealth.
- Long financial stocks JPMorgan (JPM), Primerica (PRI), and Charles Schwab (SCHW). "We made a big bet that normal interest rates would not stay at zero. It was that simple and we didn't know when they would change, but the payoff we felt would be substantial so we have had a lot of financial stocks in our portfolio the last few years."
- On JPM: "They should be earning $8-9 in a couple of years if rates track at the moderate increases that are in the dot plot (of the Federal Reserve)."
- On SCHW: "Amazing franchise" and sees it largely as a bet on interest rates normalizing ... 175 bps now versus 350 bps back in 2007 on client cash positions.
- On Freddie Mac: "Best business model I have ever seen."
- "(Interest) rates could go a lot higher, Inflation could go a lot higher."
- Also owns Airbus (AIR.PA), Express Scripts (ESRX)
- Says Valeant Pharmaceuticals (VRX) was "biggest investment mistake over last 30 years" for him. But still broke even on it.
If you missed the interview on TV today, it looks like the video replay is behind CNBC's paywall.
ValueAct Capital Buys More Valeant Pharmaceuticals
Jeff Ubben's activist firm ValueAct Capital has filed a 13D and Form 4 with the SEC regarding its position in Valeant Pharmaceuticals (VRX). Per the 13D, ValueAct now owns 5.2% of the company with over 17.99 million shares.
They purchased 3 million shares in total on March 14th, with the bulk of the trade coming at $10.81 per share with some shares coming at $10.88.
This comes on the heels of Bill Ackman's Pershing Square exiting its Valeant investment entirely.
Per Google Finance, Valeant Pharmaceuticals is "a pharmaceutical and medical device company. The Company is engaged in developing and marketing a range of branded, generic and branded generic pharmaceuticals, over-the-counter (OTC) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices). It operates through two segments: Developed markets and Emerging markets. In the Developed Markets segment, it focuses on the areas of dermatology, neurology, gastrointestinal disorders, and eye health therapeutic classes. In the Emerging Markets segment, it focuses on primarily on branded generics, OTC products and medical devices. Its pharmaceutical products include Xifaxan, Solodyn and Glumetza. Its OTC products include PreserVision, Biotrue and Boston. Its other generic products include Latanoprost and Metronidazole. Its ophthalmic surgical products include intraocular lenses, such as Akreos, enVista, Crystalens and Trulign."
Thursday, March 16, 2017
Paulson & Co Trims Extended Stay America / ESH Hospitality Position
John Paulson's hedge fund firm Paulson & Co filed a 13D with the SEC regarding its position in Extended Stay America (STAY). Per the filing, Paulson now owns 10.3% of STAY with over 20 million shares.
This is a decrease of over 8.54 million shares since the end of 2016 when they previously owned 28.6 million STAY shares. These are paired shares with ESH Hospitality which Paulson also owns and they trimmed that position proportionately as well.
Paulson sold some STAY shares on March 10th at $16.70 per a Form 4 filed with the SEC. We previously highlighted that Paulson trimmed this position back in November as well.
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. The Company's business operates in the extended stay sector of the lodging industry. As of December 31, 2016, the Company owned and operated 629 hotels comprising approximately 69,400 rooms located in 44 states across the United States and in Canada. The Company owns and operates its hotels under its brand, Extended Stay America, which serves the mid-price extended stay sector. As of December 31, 2016, the Company also owned and operated three Extended Stay Canada hotels. The Company 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."
Tiger Global Shows Teladoc Position
Chase Coleman's hedge fund firm Tiger Global has filed a 13G with the SEC regarding shares of Teladoc (TDOC). Per the filing, Tiger Global now owns 9% of TDOC with over 4.89 million shares.
This is a newly disclosed position and the filing was made due to activity on March 14th. We recently highlighted another stock Tiger Global has been buying as well.
Per Google Finance, Teladoc is "a telehealth company. The Company offers telehealth platform, delivering on-demand healthcare anytime, anywhere, through mobile devices, the Internet, video and phone. The Company operates through health services segment. Its solution connects its Members, with its over 3,000 board-certified physicians and behavioral health professionals who treat a range of conditions and cases from acute diagnoses, such as upper respiratory infection, urinary tract infection and sinusitis to dermatological conditions, anxiety and smoking cessation. Its enterprise scale platform is offered for real-time sharing of clinical and non-clinical data in real time among the Teladoc constituents, which include Members, Providers, physician network operations center staff, nurses, SureScripts for electronic medication prescription writing, routing and fulfillment and health plans for claims processing, clinical summaries and clinical alerts."
Third Point Adds To Kadmon Holdings
Dan Loeb's hedge fund firm Third Point has filed a Form 4 with the SEC regarding its position in Kadmon Holdings (KDMN). Per the filing, Third Point bought 1.48 million shares of KDMN on March 13th at $3.36 per share. After this transaction, they now own over 9.4 million shares. Included in the transaction were 595,238 warrants to purchase 0.40 shares of common stock each. These have an expiration date of April 13, 2018 and an exercise price of $4.5. We've posted other recent portfolio activity from Third Point here.
Per Google Finance, Kadmon Holdings is "an integrated biopharmaceutical company engaged in the discovery, development and commercialization of small molecules and biologics to address disease areas of various unmet medical needs. The Company is developing product candidates in a number of indications within autoimmune and fibrotic disease, oncology and genetic diseases. Its product pipeline consists of KD025, Tesevatinib and KD034. The Company's other products include Ribasphere RibaPak, Ribasphere, Qsymia, Tetrabenazine and Valganciclovir. KD025 is an orally available, selective small molecule inhibitor of Rho-associated coiled-coil kinase 2 (ROCK2), a molecular target in multiple autoimmune, fibrotic and neurodegenerative diseases. Tesevatinib is an oral tyrosine kinase inhibitor (TKI) designed to block key molecular drivers of tumor growth, metastases and drug resistance. KD034 is the Company's portfolio of enhanced formulations of trientine hydrochloride for the treatment of Wilson's disease."
Fairholme Capital Buys Some Sears Shares
Bruce Berkowitz's investment firm Fairholme Capital has filed a Form 4 with the SEC regarding its position in Sears Holdings (SHLD). Per the filing, Berkowitz bought 84,200 SHLD shares on March 10th at $8.33 and then bought another 197,700 shares on March 14th at $8.82.
Fairholme owns over 27.7 million shares of SHLD and keep in mind they own warrants as well with an expiration of December 15th, 2019 and exercise price of $25.686.
Per Google Finance, Sears Holdings is "an integrated retailer. The Company is the parent company of Kmart Holding Corporation (Kmart) and Sears, Roebuck and Co. (Sears). It operates through two segments: Kmart and Sears Domestic. It operates approximately 940 Kmart stores across over 50 states, Guam, Puerto Rico and the United States Virgin Islands. Kmart stores carry an array of products across various merchandise categories, including seasonal merchandise, toys, lawn and garden equipment, food and consumables and apparel, including products sold under labels, such as Jaclyn Smith, Joe Boxer and Alphaline and certain Sears brand products (such as Kenmore, Craftsman and DieHard) and services. Its Sears Domestic segment's operations consist of full-line stores, specialty stores, commercial sales and home services. Full-line stores offer an array of products and service offerings across various merchandise categories, including appliances, consumer electronics/connected solutions and tools."
Tuesday, March 14, 2017
Elon Musk's Recommended Reading List
If you haven't noticed before, on the right sidebar of the website we've catalogued various recommended reading lists from top investors. Many of these investors have recommended expanding your horizons beyond just books on investing.
So this time around we're taking a look at a recommendations from an entrepreneur. Elon Musk is the founder of electric car company Tesla (TSLA), space exploration company SpaceX, and he also previously co-founded online payments firm PayPal (PYPL).
Here are books Elon Musk has recommended over the years, as well as books he said shaped him into who he is today.
Elon Musk's Recommended Reading List
Musk has also recommended various fiction books such as The Foundation Trilogy by Isaac Asimov, as well as The Hitchhiker's Guide To The Galaxy by Douglas Adams, and The Lord of the Rings by J.R.R. Tolkien.
If you're looking for more investing-focused books, be sure to check out Charlie Munger's recommended reading list as well as Seth Klarman's favorite books.
Pershing Square Exits Valeant Pharmaceuticals
Bill Ackman's activist firm Pershing Square Capital Management has announced it sold 27 million shares and options in Valeant Pharmaceuticals (VRX).
Per the release, "We elected to sell our investment and realize a large tax loss which will enable us to dedicate more time to our other portfolio companies and new investment opportunities."
Around the time of sale, Pershing's VRX position size was smaller by their standards, between 1.5% to 3% of their funds. Like many hedge funds involved, they suffered sharp losses.
With this news, the only other major funds involved with Valeant as of the end of 2016 include ValueAct Capital (who have now roundtripped their investment) and Paulson & Co.
Per Google Finance, Valeant Pharmaceuticals is "a pharmaceutical and medical device company. The Company is engaged in developing and marketing a range of branded, generic and branded generic pharmaceuticals, over-the-counter (OTC) products, and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices). It operates through two segments: Developed markets and Emerging markets. In the Developed Markets segment, it focuses on the areas of dermatology, neurology, gastrointestinal disorders, and eye health therapeutic classes. In the Emerging Markets segment, it focuses on primarily on branded generics, OTC products and medical devices. Its pharmaceutical products include Xifaxan, Solodyn and Glumetza. Its OTC products include PreserVision, Biotrue and Boston. Its other generic products include Latanoprost and Metronidazole. Its ophthalmic surgical products include intraocular lenses, such as Akreos, enVista, Crystalens and Trulign."
Monday, March 13, 2017
8th Annual March Madness Bracket Contest: Enter For Free
It's the most wonderful time of the year! March madness is back with college basketball's championship tournament. It's time for the 8th annual Market Folly Madness. Entry is completely free, so sign up below!
Enter Market Folly Madness For Free
To join the free contest, click here: http://marketfolly.mayhem.cbssports.com
If it asks you for a group password, enter: folly
(If you don't have a CBS Sports account, simply create a free account to join the contest)
Contest Prizes
1st place: 1-year subscription to our Hedge Fund Wisdom quarterly newsletter ($300 value)
2nd place: A copy of the first season of Showtime's show about a hedge fund manager: Billions
3rd place: Your choice of either a copy of Howard Marks' book The Most Important Thing or a copy of the recent financial movie The Big Short
To be eligible, you must fill out your bracket before the start of the main games on Thursday, March 16th. Only one entry person. Good luck!
Carl Icahn Buys More Herbalife & Navistar
Activist investor Carl Icahn has submitted two SEC filings regarding his positions.
Icahn Buys More Herbalife
Icahn added to his Herbalife (HLF) position, per SEC filings. In a 13D filing, Icahn disclosed he now owns 24.57% of HLF with over 22.87 million shares.
This means he purchased 372,324 shares at a price of $51.35 on March 10th per the 13D.
For more on this investor, we also highlighted how Icahn started a Bristol-Myers Squibb stake.
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."
Icahn Adds To Navistar Position Too
Second, Icahn now owns 17.02% of Navistar (NAV) with over 16.69 million shares, per a 13D filed with the SEC.
The filing notes Icahn bought 423,404 shares in total across March 8th, 9th, and 10th at prices of $25.47, $25.37, and $25.92.
Per Google Finance, Navistar is "a holding company whose principal operating entities are Navistar, Inc. and Navistar Financial Corporation (NFC). The Company's segments include Truck, Parts, Global Operations (collectively, Manufacturing operations) and Financial Services, which consists of NFC and its foreign finance operations (collectively, Financial Services operations). The Truck segment manufactures and distributes Class 4 through 8 trucks, buses and military vehicles under the International and IC Bus brands, along with production of engines. The Parts segment supports its brands of International commercial trucks, IC buses and engines. The Global Operations segment includes operations of its subsidiary, International Industria de Motores da America do Sul Ltda. (IIAA). The Financial Services segment provides and manages retail, wholesale and lease financing of products sold by the Truck and Parts segments and their dealers."
Market Strategist Jeff Saut on Being Wrong and Still Making Money
Raymond James market strategist Jeff Saut is out with his latest commentary entitled, "Being Wrong and Still Making Money." It's been a while since we checked in with Saut, so here's what he's saying these days.
He has been cautious over the past month or so and admits his stance has been 'too cautious.' Saut then dove into the concept of being wrong and still making money. He quotes Peter Bernstein, who wrote:
"The trick is to survive! Performing that trick requires a strong stomach for being wrong because we are all going to be wrong more often then we expect. The future is not ours to know. But it helps to know that being wrong is inevitable and normal, not some terrible tragedy, not some awful failing in reasoning, not even bad luck in most instances. Being wrong comes with the franchise of an activity whose outcome depends on an unknown future (maybe the real trick is persuading clients of that inexorable truth)."
Saut then goes on to reference a piece that divides investors into three categories: Rabbits, Hunters, and Assassins, based on how they act in the market. Written by Lee Freeman-Shor, it states:
"My findings suggest the odds are that an investor's great ideas will lose money. As such, before you invest a cent into an investment idea, it is imperative to have a plan of action as to what you will do if you find yourself in a losing position. When losing, the successful investors I worked with planned to become either Assassins or Hunters. Assassins sold losing investments that fell by a certain percentage or that declined by any amount and showed no signs of recovery after a certain period of time. Hunters invested a lesser amount at the outset and with a plan of buying significantly more shares if the price fell. Hunters were also unafraid to sell if it became clear that they had made a mistake. The bad investors didn't have a plan and consequently turned into Rabbits. When losing money, Rabbits neither bought more shares nor sold their holdings. Once forming an initial perception, Rabbits were achingly slow to change their opinion of a stock. Which tribe will you become a member of?"
As to where Saut is looking to put any money to work on pullbacks, he recommended Hilton (HLT), Flexion Therapeutics (FLXN), Nvidia (NVDA), Iridium (IRDM), and Texas Capital Bancshares (TCBI).
Embedded below is Jeff Saut's latest market commentary: Being Wrong and Still Making Money
You can download a .pdf copy here.
