If you've got a vacation / holiday coming up and need some reading material, here are some recommended books on investing, hedge funds, business, decision making, and life in general. Some are newer books, others are classics you might have missed and should catch up on.
Have any other suggestions? Hit the comments below. Enjoy!
2017 Summer Reading List
Competition Demystified: A Radically Simplified Approach to Business Strategy by Bruce Greenwald and Judd Kahn. Classic text on important concepts.
Wednesday, June 14, 2017
Market Folly's Summer Reading List
Tuesday, June 13, 2017
Senator Investment Group Shows Spirit Realty Capital Stake
Alex Klabin and Doug Silverman's hedge fund firm Senator Investment Group has filed a 13G with the SEC regarding shares of Spirit Realty Capital (SRC).
Per the filing, Senator now owns a 7.23% ownership stake in SRC with 35 million shares. This is a newly disclosed equity position and the filing was made due to activity on June 1st, 2017. In late April, shares traded from $10.44 down to a low of $6.71 in May and now trade around $7.70.
Per the company's website, Spirit Realty Capital is "one of the largest publicly traded triple net-lease real estate investment trusts (REITs) in the United States."
Carl Icahn Enters Forward Purchase Contracts on Herc Holdings, Adds to Freeport McMoRan Stake
Activist investor Carl Icahn has submitted a couple SEC filings recently.
Icahn Enters Forward Purchase Contracts on Herc Holdings
First, Icahn has filed a Form 4 with the SEC regarding shares of Herc Holdings (HRI), a spin-off from Hertz (HTZ).
Per the filing, Icahn has entered into forward purchase contracts on June 8th, 2017. These contracts have a forward purchase price of $35.00 per share, plus a financing charge. The contracts have expiration dates of June 7th, 2019. Multiple contracts were entered via various investment vehicles Icahn controls and in total they represent 23,607 shares.
Per the company's website, Herc Holdings "previously were known as Hertz Equipment Rental Corporation or “HERC.” We now operate in the U.S. under our new brand, Herc Rentals. We generated revenue of $1.6 billion in 2016 and offer customers a diversified fleet of equipment valued at $3.6 billion1. We serve customers through 270 company-owned locations, primarily in North America, and have approximately 4,800 employees. Through the years, we have been widely recognized as a pioneer and leader in the equipment rental industry, setting the standard for service and creating the performance metrics that are now commonplace for rental equipment companies."
Icahn Adds To Freeport McMoRan Stake
Second, Icahn has also filed an amended 13D with the SEC regarding his position in Freeport McMoRan (FCX). Per the filing, Icahn now owns 6.33% of the company with over 91.58 million shares.
The filing notes that on June 6th, Icahn acquired 351,644 shares in total at $11.41 per share.
Per Google Finance, Freeport McMoRan is "a mining company. The Company operates through geographical assets with proven and probable reserves of copper, gold and molybdenum, and traded copper producer. The Company's segments include refined copper products, copper in concentrate, gold, molybdenum, oil and other. The Company's segments include the Morenci, Cerro Verde, Grasberg copper mines, the Rod & Refining operations and the United States (U.S.) Oil and Gas Operations. The Company has organized its operations into five divisions, which include North America copper mines, South America mining, Indonesia mining and Molybdenum mines. The Company's portfolio of assets includes the Grasberg minerals district in Indonesia, copper and gold deposits, and mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America."
Farallon Capital Shows Savara Stake
Andrew Spokes' hedge fund firm Farallon Capital has filed a 13G with the SEC regarding shares of Savara (SVRA). Per the filing, Farallon now owns 9.5% of the company with over 2.22 million shares.
This is a newly disclosed equity stake and the filing was made due to activity on June 2nd. It's worth noting that Savara recently closed on a merger with Mast Therapeutics in April of this year. In conjunction with the merger, Master effected a 1 for 70 reverse stock split.
Also, Savara this month completed an underwritten public offering of over 9 million shares of common stock at $4.75 per share.
Per Google Finance, Savara is "formerly Mast Therapeutics, Inc., is a clinical-stage pharmaceutical company. The Company is focused on the development and commercialization of novel therapies for the treatment of patients with rare respiratory diseases. Its pipeline includes AeroVanc, Molgradex and AIR001. AeroVanc is an inhaled formulation of vancomycin, which the Company is developing for the treatment of persistent methicillin-resistant Staphylococcus aureus, lung infection in cystic fibrosis patients. Molgradex is an inhaled formulation of recombinant human granulocyte-macrophage colony-stimulating factor. It is developing Molgradex for the treatment of autoimmune pulmonary alveolar proteinosis, a rare lung disease. AIR001 is a sodium nitrite solution for inhalation via nebulization. AIR001 is in Phase II clinical development for the treatment of heart failure with preserved ejection fraction, also known as diastolic heart failure or heart failure with preserved systolic function."
Monday, June 12, 2017
Jim Chanos Interview on Bloomberg
Jim Chanos, founder of hedge fund Kynikos Associates recently sat down with Bloomberg to share his thoughts on markets.
He talks about the macro landscape, how the recent political shift has changed things, and other topics.
Chanos is worried about China because it's a debt driven model. He thinks they've added trillions to the system.
Turning to US healthcare, Chanos says it's a system designed to be gamed: "It's a hybrid of socialized and free market healthcare."
He thinks the kidney dialysis business is "headed for difficulties." DaVita (DVA) seems to be one play that Chanos is short.
Telsa (TSLA) is another company Chanos has been short. He would cover the short if the company actually began to make money. They were also short Solar City before it got folded into Tesla. The company burns a lot of cash (he thinks up to as much as $1 billion a quarter). The upcoming Model 3 is the big test.
Embedded below is the video of Jim Chanos' Bloomberg interview:
For more recent interviews with prominent investors, be sure to also check out Paul Singer's chat with David Rubenstein.
Paul Singer Chats With David Rubenstein
Paul Singer of hedge fund Elliott Management sat down with Carlye Group co-founder David Rubenstein to chat at Bloomberg Invest New York.
They talk about how Singer founded Elliott, investing, and more.
Elliott manages $34 billion now and started in 1977 with $1.3 million. Singer was a practicing lawyer at the time but started with friends and family money as he found investing much more enjoyable.
Convertible bond hedging was the first strategy Elliott used for around ten years. (Elliott, by the way, is Singer's middle name). Over 40 years, Elliott has compounded at 13.5% net.
Embedded below is the video of Singer's chat with Rubenstein:
For more profiles of prominent investors, check out Howard Marks' recent interview with Bruce Karsh.
Howard Marks Interviews Bruce Karsh at Wharton School
University of Pennsylvania's Wharton School has started a Howard Marks investor series where the founder of Oaktree Capital interviews outstanding investors and this time around he's interviewed Bruce Karsh, his co-founder at Oaktree.
They talk about the founding of Oaktree, distressed investing, and a myriad of other topics.
Embedded below is the video of Howard Marks' interview with Bruce Karsh:
For more from Marks, check out his most recent memo: Lines in the Sand.
Friday, June 9, 2017
Hedge Fund Links ~ 6/9/17
Seth Klarman says investors are missing huge risks [Business Insider]
As Point72 returns flatline, Steve Cohen eyes $20 billion for fund [Bloomberg]
John Paulson is struggling to hold onto client money [Bloomberg]
Hedge funds go to war over US defense contractor TransDigm [FT]
Elliott Management on 5 lessons that have shaped how it invests [Business Insider]
Machine learning set to shake up equity hedge funds [FT]
The quants run Wall Street now [WSJ]
Paul Tudor Jones said to back AI hedge funds [Bloomberg]
Thursday, June 8, 2017
20% Off Scuttleblurb For Our Readers: Investment Analysis and Commentary. Sample Posts Available
Market Folly readers get 20% off their first year of Scuttleblurb using coupon code: marketfolly
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 ("Quick Blurbs").
As a subscriber, you'll get access to scuttleblurb's growing library of content and regular email updates on hundreds of pages of analysis and summaries per year.
Sign-up for a 20% discount off your first year using coupon code: marketfolly
Sample Blurbs available on the site, including:
[SNI] Flip or flop?
[SHW] Valuation looks stretched
Quick Blurbs [ADS, AXP, BAC, IBKR, KMX, SVU]
[BRO] Compounder in a fragmented sector
Wednesday, June 7, 2017
What We're Reading ~ 6/7/17
Investing between the lines: how to make smarter decisions decoding CEO communication [Rittenhouse]
Honored to be included in list of 50 of the best investing blogs [Acquirers Multiple]
Interview with Blackstone's Steve Schwarzman [Bloomberg]
What do you know with a high degree of confidence about investing? [Abnormal Returns]
Why it's so hard to admit you're wrong [NYTimes]
Inversion: the crucial thinking skill nobody ever taught you [James Clear]
Is Sephora killing the department store beauty counter? [Consumerist]
Estee Lauder vs L'Oreal: who's winning beauty's arms race? [Business of Fashion]
The economics of eSports [Digits to Dollars]
Profile of the founders of Atlassian (TEAM): The Wizards From Oz [Forbes]
Profile of SoulCycle's CEO [Fortune]
How the QR code has forever changed China's social habits [SCMP]
An introduction to LIDAR: the key self-driving car sensor [Voyage Auto]
Ten myths about machine learning [Medium]
Why Amazon is eating the world [Techcrunch]
On retail carnage: perception vs reality [Peridot Capitalist]
US unemployment hits lowest level since 2001 [CNN Money]
US home prices rising 2 times faster than wages [KSL]
Tuesday, June 6, 2017
Tiger Management Increaes T2 Biosystems Position
Julian Robertson's hedge fund firm Tiger Management has filed a 13G with the SEC regarding its position in T2 Biosystems (TTOO). Per the filing, Tiger now owns 5.68% of the company with over 1.73 million shares.
This is an increase of around 373,000 shares since the end of the first quarter. The filing was made due to activity on May 25th.
Per Google Finance, T2 Biosystems is "an in vitro diagnostics company engaged in developing a technology platform offering an alternative to diagnostic methodologies. The Company's T2 Magnetic Resonance platform (T2MR) enables detection of pathogens, biomarkers and other abnormalities in a range of unpurified patient sample types, including whole blood, plasma, serum, saliva, sputum and urine, and can detect cellular targets at limits of detection as one colony forming unit per milliliter (CFU/mL). The Company's initial development efforts target sepsis, hemostasis and Lyme disease. T2MR is a miniaturized, magnetic resonance-based approach that measures how water molecules react in the presence of magnetic fields. Its platform detects a range of targets, including molecular targets, such as deoxyribonucleic acid (DNA), immunodiagnostics, such as proteins, and a range of hemostasis measurements. The Company offers T2Dx Instrument (T2Dx) and the T2Candida Panel. "
Third Point Trims Baxter Stake
Dan Loeb's hedge fund firm Third Point has filed a 13D and Form 4 with the SEC regarding its stake in Baxter International (BAX). Per the 13D, Third Point now owns 7.5% of BAX with 41 million shares.
The Form 4 indicates Third Point sold 5 million shares on June 1st at $59.5. After this sale, they still own over 41 million shares.
For more from this fund, check out Third Point's Q1 letter.
Per Google Finance, Baxter "provides renal and hospital products. The Company operates through two segments: Hospital Products and Renal. Its Hospital Products business manufactures sterile intravenous (IV) solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, IV nutrition products, parenteral nutrition therapies, infusion pumps, inhalation anesthetics and biosurgery products. The Renal business offers a portfolio to meet the needs of patients with end-stage renal disease, or irreversible kidney disease and acute kidney injuries, including technologies and therapies for peritoneal dialysis (PD), hemodialysis (HD), continuous renal replacement therapy (CRRT) and additional dialysis services. Its products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctors' offices and by patients at home under physician supervision. ."
Berkshire Hathaway Acquires More Liberty SiriusXM Shares Again
We've highlighted recently that Warren Buffett's Berkshire Hathaway has been buying Liberty Sirius XM (LSXMA / LSXMK). Well, they're at it again.
Per Form 4's filed with the SEC, Berkshire acquired 377,656 shares of LSXMA across May 26th, 30th, and 31st at weighted average prices around $41.xx. After these buys, they own over 14.86 million LSXMA shares.
The second Form 4 indicates they also bought 644,172 LSXMK shares on May 26th, 30th, and 31st at weighted average prices ranging from $40.9877 to $41.7432. After these buys, they own over 31 million LSXMK shares.
We've also previously noted that it seems likely that Berkshire's portfolio manager Ted Weschler is the one buying here.
For more on Berkshire Hathaway, check out a recent interview with Warren Buffett here.
Per Google Finance, Liberty SiriusXM is "Liberty Media Corporation owns interests in subsidiaries and other companies, which are engaged in the media and entertainment industries. The Company's principal businesses and assets include its consolidated subsidiaries Sirius XM Holdings Inc. (SIRIUS XM) and Braves Holdings, LLC (Braves Holdings), and its equity affiliate Live Nation Entertainment, Inc. (Live Nation). The Company's segments are SIRIUS XM, and Corporate and other. SIRIUS XM provides a subscription-based satellite radio service. Through its subsidiaries and affiliates, the Company principally operates in North America. The Company also owns a portfolio of minority equity investments in publicly traded media companies, including Time Warner, Inc. and Viacom, Inc. SIRIUS XM transmits music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, in the United States on a subscription fee basis through two satellite radio systems."
Corvex Management Boosts Energen Position
Keith Meister's activist hedge fund Corvex Management has filed a 13D with the SEC regarding its stake in Energen (EGN). Per the filing, Corvex now owns 5.5% of EGN with over 5.37 million shares. This is up from the previous 1.34 million shares they owned at the end of the first quarter.
The filing was made due to activity on May 22nd. The 13D notes that they've been quite active buying call options and selling put options and you can view the full list of transactions here.
They've had discussions with management and Corvex feels that:
"(Energen) has some of the most attractive leaseholds for oil and gas development in the Permian Basin. However, despite this leading asset position, the Issuer’s operational performance has fallen short of its peer companies, leading to underperformance both in terms of financial results and shareholder returns. As a result, the Reporting Persons’ believe the Issuer needs to strongly consider what actions can be taken to enhance and maximize shareholder value – including a review of the potential value delivered to shareholders through a change of control transaction given the recent wave of acquisitions in the Permian Basin at per acre values well in excess of the Issuer’s current implied value."
For more on this fund, Keith Meister also recently presented at the Sohn Conference New York and you can catch up on his presentation here.
Per Google Finance, Energen is "an oil and natural gas exploration and production company. The Company is engaged in the exploration, development and production of oil and natural gas properties and natural gas. Its operations are conducted through subsidiary, Energen Resources Corporation and occur within the Midland Basin, the Delaware Basin and the Central Basin Platform areas of the Permian Basin in west Texas and New Mexico. The Company is focused on increasing its oil, natural gas liquids and natural gas production and proved reserves through active development and/or exploratory programs in the Permian Basin. As of December 31, 2016, oil, natural gas liquids and natural gas represented approximately 60%, 20% and 20% of its reserves. As of December 31, 2016, its development activities added approximately 327 million barrels of oil equivalent (MMBOE) of reserves from the drilling of 623 gross development, exploratory and service wells and 73 well recompletions and pay-adds."
ValueAct Capital Trims Willis Towers Watson Stake Again
Jeff Ubben's activist investment firm ValueAct Capital has been trimming more of its holdings. Per a 13D filed with the SEC, ValueAct now owns 4.9% of Willis Towers Watson (WLTW) with 6.66 million shares.
Per Form 4's filed with the SEC, ValueAct sold 500,000 WLTW shares in total across May 25th, 26th, 30th, and 31st at around $145.xx.
This is the second time they've sold WLTW shares in recent months.
Per Google Finance, Willis Towers Watson is "a holding company. The Company operates as a global advisory, broking and solutions company. It is engaged in offering risk management, insurance broking, consulting, technology and solutions, and private exchanges. The Company operates through eight segments: Willis International; Willis North America; Willis Capital, Wholesale & Reinsurance (CWR); Willis GB; Towers Watson Benefits; Towers Watson Exchange Solutions; Towers Watson Risk and Financial Services; and Towers Watson Talent and Rewards. The Willis GB segment comprises four business units: Property and Casualty, Transport, Financial Lines and Retail Networks. The Willis Capital Wholesale and Reinsurance segment includes Willis Re; Willis Capital Markets & Advisory; Willis' wholesale business, and Willis Portfolio Underwriting Services. The Willis North America segment provides risk management, insurance brokerage and related risk services."
Tuesday, May 30, 2017
London Value Investor Conference Notes 2017: Parames, Roden, Channon & More
Below are notes from the recent 2017 London Value Investor Conference. Each link takes you to that speaker's presentation. Enjoy!
London Value Investor Conference Notes 2017
Francisco Garcia Parames (Cobas Asset Management): Long Teekay Corp and Teekay LNG
Stuart Roden (Lansdowne Partners): His talk on investing
Gary Channon (Phoenix Asset Management): Long Easyjet
Steve Romick (FPA Funds): Loan to Sears Canada
Nick Train (Lindsell Train): Long Diageo
Django Davidson (Hosking Partners): Talk on the consumer
Kevin Murphy (Schroders): Long Standard Chartered
Alex Wright (Fidelity Special Situations Fund): Two long ideas
Michael Keller (Brown Brothers Harriman): Long Wendel SE
Jonathan Boyar (Boyar Value Group): 4 long ideas
Ben Preston (Orbis): Long Samsung SDI
Charles Heenan (Kennox Asset Management): Long Texwinca
Joe Bauernfreund (Asset Value Investors): Long Wendel
Ronald Chan (Chartwell Capital): Long Far East Consortium
Rhys Summerton (Milkwood Capital): Long John Menzies
Filip Weintraub (Skagen Funds): Long Taiheiyo Cement
Francisco Garcia Parames Long Teekay: London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Francisco Garcia Parames of Cobas Asset Management. He pitched long Teekay Corp (TK) and long Teekay LNG Partners (TGP).
Francisco Garcia Parames London Value Investor Conference Presentation
Whilst at Bestinver 1993-2014, Parames’s returned 15.7% per annum in his Spanish equity fund, equivalent to 2,279% compounded compared to 410% for the Spanish index. In 1997 he also began to manage an international portfolio, which returned an average 10.6% per annum versus 2.9% for the MSCI World Index. He left Bestinver due to a difference of opinion over whether to take on more capital. He felt that at $10bn euros the fund had become too big.
Temperament is more important than IQ for success in investment management. He qualified this by saying that you manage risk by knowing what you are doing. Studying companies in depth is important – if you don’t it will lead to mistakes. You can reduce risk by buying assets that have gone down a lot in price.
His approach to valuation is to buy good businesses trading on less than 10x earnings. He looks for companies with high returns on capital. He said that one of the things he wished he had learnt earlier in his career was to invest in better quality companies. Joel Greenblatt’s Little Book That Beats the Market helped him to develop this side of his game and to avoid value traps.
A distinctive feature of Parames’s style is that he actively changes the size of his positions in companies. The names in his portfolio do not change that often but under the surface there is a high turnover of money. All things being equal, if one stock in his portfolio goes up by 20% and another goes down by 20% he moves money from the winner to the loser.
In terms of sell discipline, he only sells when there is something better to buy. “We almost never go to cash.” The current market is on the expensive side but it is not in a bubble.
Long Teekay Corporation (NYSE: TK) and Teekay LNG Partners (NYSE: TGP)
Teekay is his first shipping investment in 27 years of investing. It is the main investment in the new Corbas fund – about 9% of the portfolio. Teekay is a family owned company. He trusts family owed companies to keep watch on management and over his career about 80% of the investments have been in family owned businesses. Shipping is cyclical, leveraged, tends to have low returns and can be a lousy business.
Teekay Corporation currently receives $40m in payments per annum from its subsidiaries but before the collapse in the oil and gas price it received much more. The largest subsidiary, Teekay LNG Partners, is expected to return to paying the parent company $100m a year as it did in 2014 and 2015. Given these cash flows Parames’s thinks that Teekay Corporation is worth $19.5 per share (it is trading around $6.40).
Teekay LNG is the key to the valuation. It is trading at 5-6x FCF. It is leveraged 50-60% of assets - lower than most other shipping companies that are in the 70-90% range. Compared to most other shipping businesses LNG companies work on very long-term contracts with companies like Shell and Total. Free cash flows will increase every year for the next 10 years and are predictable. He expects an IRR of 18% per annum.
Parames noted that it was the first time in his career that he had seen a stock’s price fall 75% with no change in the earnings estimates.
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Stuart Roden's Presentation at London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Stuart Roden of Lansdowne Partners.
Stuart Roden's Presentation at London Value Investor Conference
Stuart Roden and Peter Davis managed Lansdowne’s flagship long/ short equity fund, The Developed Markets Strategy, until the end of 2014. Since then he has taken on the role of Chairman.
He does not regard himself as a value investor or a growth investor - he is eclectic. He likes to focus on situations that involve change typically at an industry level rather than a company level.
Investment managers need to have an appetite for risk and be able to cope with loss. Most of Lansdowne’s employees have First Class degrees but he said that sometimes very academic people particularly from a science and maths background cannot deal with uncertainty. It’s partly due to not being used to things ‘not working out’ but also because they may not have experienced enough set-backs in life. “The stock market can make a fool of you for quite a long time.” Fund managers need common sense as well as brains and managers need to understand that they may be wrong. You can’t control events and things are going to happen that you are not ready for – you will be shocked at times. If you can’t deal with that level of uncertainty it can make you emotionally unstable.
At Lansdowne, they encourage their portfolio managers to get four things right. Firstly, you need a creative idea. Secondly, strong analysis. Thirdly, risk management and correlation control to make sure that you are not missing a risk that runs throughout the portfolio. Fourthly, monitoring. He likes Barton Biggs’s advice on portfolio management: ask yourself is this the portfolio you would build today? His role was often to be ‘questioner in chief’. He watched out for thesis creep. Do the reasons why you wanted to buy a stock in the first place still hold true? Do you need to change your view? If you can’t change your view you won’t make it as a fund manager.
He values imagination pointing out that they made a very successful investment in Amazon by thinking creatively about the way Amazon would look in 3-5 years. This was not a momentum trade but instead required long-term thinking. They were only able to make the investment because they did not hold a static view of Amazon’s valuation.
If you can find two people who complement each other partnerships work very well in investment management. He said three people was too many. He was very lucky to have worked with his partner, Peter Davis. There was something about their partnership that worked, they were very different people, their emotions were different, Davis was optimistic whereas he was looking over his shoulder the whole time to see what might go wrong – a combination of confidence and humility. There was also an age gap that avoided them becoming competitive. Good partnerships require respect and mutual admiration.
Given the state of the markets, if he was opening a fund today it would be a long/ short fund and not a long-only fund. In the past 16 years when a lot of Lansdowne’s shorts have been in indices rather than single stocks the markets have tended to go up. Today all their shorts are in single names. Shorts are easy to find because there are so many businesses being hurt by disruption. When he first started he was often confident that they could hold equity investments for at least 5 years but today he feels that has shrunk to 3 years. There is so much uncertainty – not just in interest rates and valuations.
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Gary Channon Long Easyjet: London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Gary Channon of Phoenix Asset Management who pitched a long of Easyjet (LON: EZJ).
Gary Channon's Presentation at London Value Investor Conference
Phoenix is a UK focused fund that since inception in 1998 has returned 12% annualised vs the 4.9% for the UK benchmark.
Long: Easyjet (LON: EZJ)
There is an intrinsic human desire to travel. GDP per capita and the cost of travel drive the overall market. Air travel has been doubling about every 12 years. Yet airlines have been terrible businesses except for Southwest Airlines in the US. The Southwest model has been copied by both Ryanair’s and Easyjet’s founders.
It is often assumed that Ryanair and Easyjet are competing. Ryanair is thought of as the low-cost producer and to be more effective than Easyjet. Channon argued that the two airlines have different strategies and are not competing. They do not fly the same routes – there is only 4% overlap. This is not an accident but a deliberate strategy. Easyjet takes customers from convenient airport to convenient airport. Ryanair is low cost - inconvenient airport to inconvenient airport. Both companies produce a similar return on capital.
Easyjet has a moat which is underappreciated by the market. The moat is derived from the slots it owns. The slot is the right to take off and land at a certain time on a certain day. The slots are regulated by quasi-legal international conventions referred to as Grandfather Rights. The slots belong to the airlines not the airports. A slot can provide pricing power if it is at a sought-after airport where demand outstrips supply. The lack of runways in the UK and Europe and the failure to build new ones guarantees a shortage of supply. Because of the value of slots airlines tend to be against the expansion of runways while the owners of airports tend to be supporters.
The slots provide a barrier to entry as people’s propensity to switch airports is limited. Only 20% of passengers are prepared to add an extra hour to their travel if they are on a short-haul European flight. Easyjet’s real competitors are those who fly the same routes from busy airports - mainly British Airways and Air France but certainly not Ryanair. British Airways and Air France are not strong competitors to Easyjet because they have structurally higher costs due to pension schemes, staffing costs and culture. This creates an environment in which Easyjet will keep expanding, gradually taking the flag-carriers business.
Channon estimates that three-quarters of Easyjet’s business is protected by a slot-constrained moat. This provides pricing power and high returns.
The opportunity for Phoenix to invest in Easyjet came about because of Brexit. Channon said he thought Brexit was a non-event for Easyjet. It does not change the competitive landscape and Easyjet will get a European license. Phoenix bought their Easyjet stock 9 months ago. Channon said he would not buy today but would wait for the price to fall below £10 per share (the stock is trading at around £13.80).
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Nick Train's Presentation at London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Nick Train of Lindsell Train.
Nick Train's Presentation at London Value Investor Conference
Even though Train regards himself as a value investor he has changed his investment style considerably in the last 20 years. He quoted Michael Lewis:
“Graham and Dodd investors are people who place a very high price on having the last laugh… “
“….in exchange for that privilege they have missed out on a lot of laughs in between.”
Train missed the TMT boom in the 1990s, not owning any technology stocks. He missed both the boom and the bust but the experience left him feeling dissatisfied. As a traditional value investor, he felt that he had been ill equipped to analyse and deal with an historic, world changing and enormously value creating technology shift. He felt his traditional value investor’s mindset had blinkered him and revealed some limitations. The value discipline had led him to spend too much time looking at cycles and not enough time looking out for trajectories. He had been waiting for years for reversions to the mean that did not happen and not enough time looking for self-reinforcing trends. He felt he had missed the whole point of what creates long-term equity value.
Today he believes the single most important thing that they can do is to extrapolate long term trends. Cycles are irrelevant. Today he likes to invert Howard Marks’s well-known quote:
“Ignoring cycles and extrapolating trends is one of the most dangerous things an investor can do.”
He gave global whisky shipments as an example of a re-enforcing trend that has continued to grow over the last 100 years. There is no sign of cyclicality or reversion to the mean and he says he expects the trend to continue for the next 30 years. Similarly, he noted that £1 invested in the UK Engineering Industry in 1900 would have grown to £2283 today while £1 invested in the UK alcohol Industry would have grown to £243,152. Again, he expects this trend to continue and it is a reason why Lindsell Train have a large investment in Diageo.
It’s far better to lock into the value creating trajectories and leave the tricky cyclical-type trades alone. The stock market is better viewed as a trajectory rather than a series of potentially ruinous ups-and-downs.
Value investing with its focus on cyclicality can make us too prone to cynicism and pessimism. Optimism is hard but if you hold on to those investment trajectories you will benefit from looking on the bright side.
Everyone has their favourite Buffett quote. Train said that the one that resonates most for him is that the best holding time is forever. “My starting point is that I’ve made a permanent/ semi-permanent commitment to a franchise and I am prepared to ride through the fluctuations.” If the trajectory that we are trying to capture turns out to be misplaced or the company cannot deliver on what we are hoping for that’s a reason to sell. The other reason he would sell is if the balance sheet is deteriorating to such an extent it is threatening the survival of the company.
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Django Davidson's Presentation at London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Django Davidson of Hosking Partners.
Django Davidson's Presentation at London Value Investor Conference
Django Davidson is a portfolio manager and founding partner of Hosking Partners where he works with Ex-Marathon Asset Management investor, Jeremy Hosking. Before that Davidson worked at Algebris.
Hosking Partners refer to themselves behavioural investors. He noted that once people form an opinion they do not like to give it up. We get a rush of dopamine when people agree with us. Having people agree with you is the crack-cocaine of the middle-aged dinner party circuit. Sticking to your guns is a widely perceived social good. Humans attach a huge premium to ideas they already have.
Davidson warned that the belief in Buffett style quality compounders/ franchise stocks in the investment world has taken on something close to religious dogma. The huge outperformance of quality compounders particularly since the financial crisis has led Davidson to take an outsiders view. Shareholder returns for many quality compounders have been very good over the last 5 years while their revenues have gone down - Kellogg’s, Coca-Cola, Pepsi, Colgate Palmolive. The margins of quality compounders have been on a continuous three-decade rise but if the underlying moat premise works the revenues should be rising and they are not.
The danger is that the customer is not coming back as often as they used to. Jeff Bezos says that power is shifting from the company to the consumer. Technology is empowering the customer challenging companies to change. According to Bezos the best way for companies to respond is to put all their energies into creating a great product and put less effort into shouting about it through marketing. The old model is shareholder centric whilst the new model is customer centred.
The old shareholder focused companies used to be the only ones that could afford TV advertising. Now two-thirds of the screen times of under 25 year olds is spent on hand-held devices. When they do watch TV, they self-select their own channels. Linear TV is being propped up by an aging demographic. Today new businesses can reach their customers through social media and YouTube at a fraction of the cost. Often, they have better products to sell.
Why are customers leaving the old brands? Are the brands staying relevant in a multi-channel world? How will these brands react to people ordering their shopping through Amazon Alexa? What will the industry have to spend to retain customers? Are companies gouging their customers by providing low quality, high priced goods? Franchise investing appears to be a warm and cosy place, but is it?
Investment ideas: Long AIG Tarp Warrants (expiry 2021); Long: Michelmersh Brick (LON: MBH)
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Steve Romick's Presentation at London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Steve Romick of FPA Funds.
Steve Romick's Presentation at London Value Investor Conference
Since inception in June 1993, Steve Romick’s FPA Crescent Fund has returned 10.4% annualised Vs 7.0% for the MSCI World Index.
A few stocks drive the index at any one time. Contrary to popular belief you don’t need to hold the golden stocks of each era to win at investing. You can win by avoiding the losers. His fund typically underperforms in bull markets but outperforms by more in bear markets. Stocks are expensive today and he is finding it hard to find good investments. He outlined an example of how he has been putting some of the fund’s money to work outside of the equity market.
The fund has provided a loan to Sears Canada. The company is facing the same pressures as many other retailers and may go bankrupt at some point. Given their tenuous finances the loan has been secured against inventory, receivables, and real estate. He estimates that the liquidation value is about 1.7X the loan value. Romick expects the loan to produce an IRR of 11% no matter what happens to Sears.
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Kevin Murphy Long Standard Chartered: London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Kevin Murphy of Schroders who pitched a long of Standard Chartered (LONG: STAN).
Kevin Murphy's Presentation at London Value Investor Conference
Long Standard Chartered (LON: STAN)
Standard Chartered are exposed to emerging markets and the shares are down two-thirds from their peak. As usual as the price has gone down more analysts have given sell ratings. As a deep value investor, he is not interested in consensus profit or what profit a company generated last year. He tries to think about profit through the cycle. Murphy likes to use deposits as a measure of value for banks as they are highly cyclical. With interest rates so low you could consider deposits as float and not a liability. Standard Chartered has extreme liquidity.
Compared to other banks that focus on emerging markets Standard Chartered looks cheap if measured in terms of deposits but not so cheap measure by profit. Why has it failed to produce better profits? The main reason is low interest rates.
Standard Chartered came through the Asia Crisis and the credit crunch well. Murphy thinks its balance sheet could withstand another crisis if one arose. If interest rates go up Standard Chartered will do well.
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Alex Wright Long Ladbrokes Coral & Ultra Electronics: London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Alex Wright of Fidelity Special Situations Fund who pitched two longs: Ladbrokes Coral Group (LON: LCL) and Ultra Electronics (LON: ULE).
Alex Wright's Presentation at London Value Investor Conference
Long Ladbrokes Coral Group (LON: LCL)
Ladbrokes has been underperforming. It botched the introduction of a new IT system a few years ago. The merger with Coral that was announced about a year ago has created a bigger player and significant cost savings should be achieved. It will also strengthen Ladbrokes’s online presence. At present 70% of revenues come from offline, from the retail estate – 3000 bookmaker shops. Expect margins to improve. Coral delivered 36% CAGR between 2008-2015.
The stock is cheap due to the potential regulation of online gambling. The government is investigating Fixed Odds Betting Terminals (FOBTs). His worst-case scenario is that the government could ban B2 games completely. B2 games have the highest stakes and are very profitable. If banned they could lead to a 12% loss in the company’s value. In this scenario in the longer term, he believes the betting shops would remain profitable and that online would restructure and come back over time. If government regulation is less draconian Ladbrokes Coral could see anything between 50-70% upside.
Over time expect the online share of Ladbrokes’s business to grow to about 50%.
Long Ultra Electronics (LON: ULE)
Defence spending has been falling as a percentage of GDP since the withdrawals from Afghanistan and Iraq – it is at post-war low in the US and UK. Going forward there are long-term proposals put forward by governments to increase spending. It is possible that the Trump administration will bring about much higher spending.
Wright thinks that future spending will be focused on more sophisticated foes in the areas of cyber, communication & surveillance and underwater. These are key areas for Ultra.
Ultra had a setback in 2014 when its largest contract in Oman fell through. Today, free cash flow is beginning to recover. Ultra’s business had been built via M&A resulting in duplication of cost centres. Their S3 programme will better integrate the units and achieve cost savings.
The company is not particularly cheap trading on a P/E 15 but it is cheaper than most of the market.
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Jonathan Boyar's Presentation at London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Jonathan Boyar of Boyar Value Group.
Jonathan Boyar's Presentation at London Value Investor Conference
Boyar is a value focused research company and asset manager. Jonathan Boyer favours 5 approaches to identifying value:
- Look for hidden assets. This is his favourite approach as it cannot be replicated by computers
- Business value – look for businesses hated by Wall Street. They tend to throw the ‘baby out with the bathwater’.
- Spin offs (and their parents). Both do well
- Consumer franchises
- Fallen angels On top of this he looks for catalysts.
Long QVC (QVCA); Long Discovery Communications (DISCA/DISCK); Long Hanes Brands (HBI); Long Legg Mason (LM)
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Michael Keller's Presentation at London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Michael Keller of Brown Brothers Harriman who pitched a long of Wendel SE (EPA:MF).
Michael Keller's Presentation at London Value Investor Conference
Long: Wendel SE (EPA: MF)
Wendel is a holding company based in France that invests in a variety of industries. It usually takes control positions and at the very least it has significant influence. The Wendel Family has overall control but professional managers run the day to day operations. They are drawn to Wendel by:
- Attractive combination of assets
- Most of their companies sell products that are vital to other companies
- The stable and long-term capital structure
- The overlap of the businesses philosophy with their own
- A double-digit discount to NAV
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Ben Preston Long Samsung SDI: London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Ben Preston of Orbis who pitched long Samsung SDI (KRX: 006400).
Ben Preston's Presentation at London Value Investor Conference
Long Samsung SDI (KRX: 006400)
Samsung SDI is one of the few companies globally that can make good quality electric car batteries. The stock is trading at close to book value.
He expects the electric car market to grow quickly. In Norway where they are subsidised, electric vehicles already have 29% market share. Electric vehicles only have 1% market share globally. As technology allows electric vehicles to come down in price to compete with the internal combustion engine expect sales to rise.
Competitors in the market include: Panasonic, LG Chem, Tesla Gigafactory, BYD
Will there be enough batteries to go around? He thinks demand could outstrip supply.
Sum of the parts valuation: net cash and financial investments + chemical business + Samsung Display (which makes screens for smart phones) = $8-14bn + battery business – if he is right about the growth of electric vehicles it could be worth a lot.
Samsung SDI’s market cap today = $8bn. If they are wrong they don’t lose much and if they are right it could be a big winner.
Ben Preston also pitched Long MercadoLibre (MELI).
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Charles Heenan Long Texwinca: London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Charles Heenan of Kennox Asset Management who pitched a long of Texwinca (HKG: 0321).
Charles Heenan's Presentation at London Value Investor Conference
Long Texwinca (HKG: 0321)
Charles Heenan does not buy companies that are trading for more than 12x earnings. He looks for quality sustainable franchises that are suffering temporary headwinds. He tries to take advantage of market over-reactions by focusing on the underlying health of a company, not a narrow view of short-term growth.
Texwinca’s share price has fallen over 50% in the last 5 years. It is Kennox’s fourth largest position. It supplies the leading clothes retailers with textiles. It is the market leader and a quality company. It has the capacity to deliver materials to retailers to the tightest schedules.
Texwinca’s environment and labour standards are good and need to be because of increased regulation. The management is conservative and competent. The company has minimal debt and net cash is 50% of market cap. It is cheap at 6x sustainable earnings. The dividend is 10%.
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Joe Bauernfreund's Presentation at London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Joe Bauernfreund of Asset Value Investors who pitched Wendel SE (EPA:MF) and mentioned a few other investment ideas.
Joe Bauernfreund's Presentation at London Value Investor Conference
Asset Value Investors specialise in investing in companies trading at below realisable book value. They do not look at recorded book values or NAVs but instead do the work themselves. They can only achieve accurate valuations in companies that are open, transparent with managements that are prepared to talk to them.
Long: Wendel SE (EPA: MF)
Wendel is listed in France and is primarily engaged in owning assets or securities of other companies. It’s a family run business (36.4%) with a long-term focus. The management have proved themselves to be good capital allocators but they did buy St Gobain in 2007 which turned out to be awful timing. They are now reducing the stake in St Gobain and paying down debt. Despite the St Gobain purchase Wendel has handily beaten the MSCI Europe return since 2005: 9.1% Vs 5.5%
Wendel owns 12 businesses. The unlisted part of the portfolio has the most potential to act as a catalyst. It has 4 assets all of which have been identified for IPO by the end of 2018. The IPOs could add 8% to NAV. Bauernfreund estimates that Wendel is already trading at a 29% discount to NAV.
AVI own 1.3% of Wendel’s outstanding shares.
He also mentioned 3 other investment ideas. Long Hudson Bay (TSE: HBC), Long Symphony International (LON: SIHL) and Long Toshiba Plant (TYO: 1983).
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Ronald Chan Long Far East Consortium: London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Ronald Chan of Chartwell Capital who pitched long Far East Consortium (HKG: 0035).
Ronald Chan's Presentation at London Value Investor Conference
Long: Far East Consortium (HKG: 0035)
Ronald Chan pitched Hong Kong listed property company Far East Consortium. Run by David Chiu the company is involved in property development, car parks and hospitality. Chan made the case that Far East Consortium was cheap compared to the other large property companies in Hong Kong such as Sun Hung Kai, Henderson Land, Chinese Estates and Lai Sun Development. Far East Consortium trades at a 54% discount to NAV. P/E 6.6. P/B 0.7. Net Debt to Equity = 68.8%.
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Rhys Summerton Long John Menzies: London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Rhys Summerton of Milkwood Capital who pitched a long of John Menzies (LON: MNZS).
Rhys Summerton's Presentation at London Value Investor Conference
Rhys Summerton set up Milkwood Capital in 2013. Around 30% of Milkwood’s capital is Rhys’s own money.
Milkwood is highly concentrated, holding 8-10 companies. Milkwood has a mandate to invest anywhere in the world but currently the fund is 70% invested in the UK. Summerton has two areas of idea generation at the moment: 1. unloved winners 2. companies that operate in the US but are listed elsewhere.
Long John Menzies (LON: MNZS)
In 1998 John Menzies sold its shops to WH Smith, leaving them with a distribution business. Menzies then tried their hand at a number of businesses including The Early Learning Centre. They also moved into airport services. Today John Menzies has three businesses: distribution, airport services and fuel distribution to aircraft. Menzies has recently announced that it is going to sell off the distribution business by merging it with DX Logistics.
Menzies is the second largest aviation services group in the world. Menzies operates in 209 airports. Its biggest competitor is Swissport. Seven or eight players control the market. Valuing it against other M&A deals in the industry Menzies Aviation is trading at a 50% discount. The business generates a lot of cash and does not need to borrow capital to grow. It is trading on a pre-tax P/E 8x. The company could be a beneficiary of Trump administration tax cuts.
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Filip Weintraub Long Taiheiyo Cement: London Value Investor Conference
We're posting up notes from the 2017 London Value Investor Conference. Next up is Filip Weintraub of Skagen Funds who pitched a long of Taiheiyo Cement (TYO: 5233).
Filip Weintraub's Presentation at London Value Investor Conference
As lead portfolio manager of Skagen Global Sept 2001-March 2010 Weintraub returned 20.6% annualised vs 4.6% for the index.
He looks for companies with restructurings, spinoffs and new products and requires 50% upside potential to invest. He calls himself a contrarian and looks for companies that are ignored rather than hated. He believes that 99% of the time the market is approximately right.
Long Taiheiyo Cement (TYO: 5233)
There are only 3 large players in the Japanese cement market. The company is trading at 5x cash flow and 1x P/B with a 22% return on equity. The cement market is depressed but the Japanese Olympics in 2020 will create demand. The company is not vulnerable to imported cement because Japan’s geographical position makes imports uneconomic.
Be sure to check out the rest of the presentations from the London Value Investor Conference.
Tuesday, May 23, 2017
Tiger Global Increases TransDigm Group Position
Chase Coleman's hedge fund firm Tiger Global has filed a 13G with the SEC regarding its position in TransDigm Group (TDG). Per the filing, Tiger Global now owns 7.7% of TDG with 4 million shares.
This is a noticeable increase from the 2.45 million shares the hedge fund owned at the end of the first quarter. The filing was made due to activity on May 18th.
While this second quarter activity is notable, it's also worth pointing out that Tiger Global boosted its TDG position back in the first quarter by 492% as they previously owned a small position. Simply put, they've been acquiring a lot of TDG shares over the past five months.
TDG shares were hit in Q1 by a short seller report questioning the company's pricing practices. As detailed in the brand new issue of our Hedge Fund Wisdom newsletter, numerous hedge funds bought TDG shares in Q1.
Per Google Finance, TransDigm Group is "a designer, producer and supplier of engineered aircraft components for use on commercial and military aircraft in service. The Company operates through three segments: Power & Control, Airframe and Non-aviation. The Power & Control segment includes operations that primarily develop, produce and market systems and components that provide power to or control power of the aircraft utilizing electronic, fluid, power and mechanical motion control technologies. The Airframe segment includes operations that primarily develop and market systems and components that are used in non-power airframe applications utilizing airframe and cabin structure technologies. The Non-aviation segment includes operations that primarily develop, produce and market products for non-aviation markets. Its product offerings include mechanical/electro-mechanical actuators and controls, engineered latching and locking devices, and seat belts and safety restraints."
To view the rest of Tiger Global's portfolio, check out the just released issue of our premium newsletter.
Berkshire Hathaway Adds To Liberty SiriusXM Again
Warren Buffett's Berkshire Hathaway has filed two separate Form 4's with the SEC regarding its position in two share classes of Liberty SiriusXM (LSXMA / LSXMK).
Per the filing, Berkshire was buying shares of both on May 18th, 19th, and 22nd. They acquired 492,156 shares of LSXMA at weighted average prices ranging from $37.1826 to $38.8041. After these buys, they owned over 14.15 million LSXMA shares.
They also bought 679,930 shares of LSXMK at weighted average prices ranging from $36.8074 to $38.5003. After these purchases, they now own over 29.77 million LSXMK shares.
This is the second month in a row that Berkshire has bought LSXMA / LSXMK shares. We highlighted then how Ted Weschler (one of Berkshire's portfolio managers) seems to be the lead investor here.
For more from Berkshire, be sure to check out a recent interview with Warren Buffett and Charlie Munger.
Per Google Finance, Liberty SiriusXM is "Liberty Media Corporation owns interests in subsidiaries and other companies, which are engaged in the media and entertainment industries. The Company's principal businesses and assets include its consolidated subsidiaries Sirius XM Holdings Inc. (SIRIUS XM) and Braves Holdings, LLC (Braves Holdings), and its equity affiliate Live Nation Entertainment, Inc. (Live Nation). The Company's segments are SIRIUS XM, and Corporate and other. SIRIUS XM provides a subscription-based satellite radio service. Through its subsidiaries and affiliates, the Company principally operates in North America. The Company also owns a portfolio of minority equity investments in publicly traded media companies, including Time Warner, Inc. and Viacom, Inc. SIRIUS XM transmits music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, in the United States on a subscription fee basis through two satellite radio systems."
ValueAct Capital Sells Some Willis Towers Watson
Jeff Ubben's activist firm ValueAct Capital has filed a Form 4 with the SEC regarding its position in Willis Towers Watson (WLTW). Per the filing, ValueAct sold WLTW shares on May 17th through 19th at prices between $140.11 and $141.05. In total, they sold 1 million shares.
After these transactions, ValueAct still owns 7.1 million shares of WLTW. Ubben's firm has trimmed a few positions in the past few months as he feels the market has been overvalued and has been having a hard time finding new opportunities. That said, ValueAct did reportedly take a stake in KKR.
Per Google Finance, Willis Towers Watson is "a holding company. The Company operates as a global advisory, broking and solutions company. It is engaged in offering risk management, insurance broking, consulting, technology and solutions, and private exchanges. The Company operates through eight segments: Willis International; Willis North America; Willis Capital, Wholesale & Reinsurance (CWR); Willis GB; Towers Watson Benefits; Towers Watson Exchange Solutions; Towers Watson Risk and Financial Services; and Towers Watson Talent and Rewards. The Willis GB segment comprises four business units: Property and Casualty, Transport, Financial Lines and Retail Networks. The Willis Capital Wholesale and Reinsurance segment includes Willis Re; Willis Capital Markets & Advisory; Willis' wholesale business, and Willis Portfolio Underwriting Services. The Willis North America segment provides risk management, insurance brokerage and related risk services."
You can view the rest of ValueAct's portfolio in the new issue of our Hedge Fund Wisdom newsletter.
Sunday, May 21, 2017
Find Out Which Stocks Hedge Funds Have Been Buying: New Issue Just Released
A brand new Q1 2017 issue of our Hedge Fund Wisdom newsletter was just released. Subscribers please login at www.hedgefundwisdom.com to read it.
Inside The New Q1 Issue
- Investment Thesis Summaries of 2 Stocks Hedge Funds Have Been Buying: Find out which stocks and quickly get up to speed on the bull and bear thesis
- 25 Top Investor Portfolios Revealed: Seth Klarman, Warren Buffett, David Tepper, Steve Mandel, Dan Loeb and 20 more investors featured (full list here)
- New Consensus Buy / Sell Lists: Reveals which stocks are most popular
- Commentary on Each Fund's Moves: Including international market short positions when applicable
- 1 Convenient Document To Save You Time: You can view a free full past issue here to see the newsletter's format
Read The New Issue Immediately: Subscribe Below
1-year Subscription (4 issues): $299.99 per year (save 20% with this option)
Quarterly Subscription: $89.99 per issue
Want to pay by check or soft dollar account? Please email us:
info (at) hedgefundwisdom (dot) com
Friday, May 12, 2017
Pershing Square's Q1 Letter
Bill Ackman is out with Pershing Square's first quarter 2017 letter. Pershing returned -2.6% net in the first quarter of the year.
We've already highlighted how Ackman pitched Howard Hughes at the recent Sohn conference.
His Q1 letter provides updates on other stocks such as Mondelez (MDLZ), Air Products (APD), Restaurant Brands (QSR), Chipotle (CMG), Fannie Mae/Freddie Mac, as well as Platform Specialty Products (PAH), Nomad Foods (NOMD), and their short of Herbalife (HLF).
Embedded below is Pershing Square's Q1 letter:
You can download a .pdf copy here.
Graham & Doddsville Spring 2017 Issue: Begg, Sosin, Krishna
Columbia Business School is out with its spring 2017 issue of Graham and Doddsville. It features:
- Interview with A. Rama Krishna of ARGA Investment Management who talked about investing in international markets and in particular, Russia.
- Interview with Cliff Sosin of CAS Investment Partners talking Herbalife (HLF) and World Acceptance (WRLD).
- Interview with Chris Begg of East Coast Asset Management, who we've featured on the site numerous times in the past. He shares his thesis on TransDigm Group (TDG) and thoughts on Sherwin Williams (SHW).
The new issue also includes student investment pitches such as long Yum China (YUMC), long Alaska Airlines (ALK), long Corning (GLW), and long Dollarama (DOL).
Embedded below is the spring 2017 issue of Graham & Doddsville:
You can download a .pdf copy here.
For more of their past issues, we've also posted up their interview with Kingstown Capital as well as their interview with Meritage Group and MSD Capital.
Hedge Fund Links ~ 5/12/17
Latest thoughts from Bridgewater's Ray Dalio [LinkedIn]
Carl Icahn scrutinized for shaping policy that helped him profit [NYTimes]
Carl Icahn loses $179 million on Hertz double down [Bloomberg]
Singer's flagship fund said to raise $5 billion in commitments in 24 hours [Bloomberg]
Wednesday, May 10, 2017
Warren Buffett, Charlie Munger & Bill Gates Interview
Becky Quick on CNBC recently sat down with Berkshire Hathaway's Warren Buffett for a one-on-one interview and then was later joined by Charlie Munger and Bill Gates for a discussion on a myriad of topics. Here are some highlights:
Warren Buffett's Interview
- Talked about technology stocks a lot at Berkshire's annual meeting. Munger said they missed Google (GOOGL) and Buffett thought they should have had some insight into it because GEICO was a heavy user of it for advertising and paying per click. He wasn't sure if there was a first mover advantage or if increased competition was going to come along (Bing, etc) or if there were going to be technological advances he couldn't understand. "If I were forced to buy it or short it, I'd buy it. Same with Amazon."
- Apple (AAPL) shares were much more reasonable compared to future earnings so that's why he bought that tech stock. Likens the consumer nature of the product as a way for him to easily tell what's going on with customer preference. "You can't move people by price in the smartphone market remotely like you can in appliances ... the loyalty is huge." Notes that most items are price sensitive (TVs, etc) but AAPL's products don't seem to be.
- Recently highlighted how Buffett sold some IBM and he said that they've experimented with IBM's Watson at GEICO. In that space you have to worry about somebody coming in and jumping ahead with the utility. "The biggest value will come when it replaces human labor."
- Doesn't make trades on the basis of political election outcomes, doesn't look much at quarterly GDP numbers.
- Railroad figures show the economy is doing 'OK', 2% rate or so. Natural gas has gone up in price so that dictates the use of goal a lot of places, so coal shipments are up the most % wise.
- Housing market is getting better, but not 'booming.' Berkshire owns Clayton homes (manufactured homes), Acme brick, Berkshire Hathaway realty, Shaw flooring, Benjamin Moore paints.
- "Credit card volume will tell you a lot about the consumer., what their attitude is."
- "Packaged goods has generally been a very profitable business."
- Largest investor in four major airlines (UAL, DAL, AAL, LUV): Airlines have found a very high percentage of customers are price conscious. Yet most consumers are captive to whatever airline flies the route they need to take. Thinks consolidation of the industry has helped and it's no longer a 'suicidal business.'
- "I have no idea what the market will do in the short-term." They've got $95 billion sitting around and it doesn't make him happy that he's not earning anything on it. Says it's getting tougher to buy businesses these days, "Once you buy a business, the business doesn't know what you paid for it." "It's a very tough period to allocate capital."
- Says he's still cheap but not as cheap as he used to be. "You can afford to overpay a bit for a really fine business depending on your degree of certainty that it's a really fine business."
- Buffett says one thing he mentioned at the annual meeting no one really appreciated: that the five largest businesses today by market value ($2.5 trillion or more) you could run those businesses with no equity capital. That's a completely different world than the past when industrial giants needed a lot of capital.
- Didn't buy Amazon (AMZN) because of "stupidity." Says he was impressed by Bezos long ago but didn't think he could pull off what he has. On shares currently: "It's a big valuation ... I'm not buying any. These are powerful ideas with big potential and he's executed."
- One essential factor that determines what he thinks about market valuations: "The most important item over time in valuation is obviously interest rates." "Anybody that prefers bonds to stocks today is making a big mistake. It's ridiculous for somebody to buy a 30 year bond at these rates."
- "Every smart guy is tempted by leverage, and some of them are broken by it."
Then at the end of Buffett's 1-on-1 interview, Charlie Munger and Bill Gates also joined Buffett to talk about healthcare, tax reform, mistakes they've made, and other topics.
Embedded below is the video of Warren Buffett, Charlie Munger, and Bill Gates's interview on CNBC:
For more from these investors, be sure to check out Warren Buffett's recommended reading list as well as Charlie Munger's favorite books.
David Einhorn's Sohn Presentation: Short Core Labs
We've posted up notes from the Sohn Conference New York and today are also posting the slideshow presentation from David Einhorn of Greenlight Capital. He pitched a short of Core Labs (CLB) with the thesis that it's a cyclical company disguised as a secular grower.
He thinks fair value is $62, or around 40% lower as the company has exposure to international oil field capex budgets that won't recover.
Embedded below is David Einhorn's Sohn conference presentation on Core Labs:
You can download a .pdf copy here.
For more from this conference, we've also posted up Bill Ackman's presentation on HHC.
Baupost Group Sells Vast Majority of Innoviva Shares
Seth Klarman's investment firm Baupost Group has filed an amended 13G with the SEC regarding its position in Innoviva (INVA). Per the filing, Baupost now owns 0.92% of INVA with just over 1 million shares.
This is a sizable decrease from the previous 14.93 million shares they owned at the end of 2016 per their most recent 13F filing. This latest filing was made due to portfolio activity on April 30th.
For more from this manager be sure to check out Seth Klarman's recommended reading list.
Per Google Finance, Innoviva "formerly Theravance, Inc., is engaged in the development, commercialization and financial management of bio-pharmaceuticals. It focuses on the respiratory assets partnered with Glaxo Group Limited (GSK), including RELVAR/BREO ELLIPTA (fluticasone furoate (FF)/vilanterol (VI)) and ANORO ELLIPTA (umeclidinium bromide/vilanterol (UMEC/VI)). Under the Long-Acting Beta2 Agonist (LABA) Collaboration Agreement and the Strategic Alliance Agreement with GSK, the Company is eligible to receive the annual royalties from GSK on sales of RELVAR/BREO ELLIPTA. For other products combined with a LABA from the LABA collaboration, such as ANORO ELLIPTA, royalties are upward tiering and range from 6.5% to 10%. RELVAR/BREO is a once-a-day combination inhaled respiratory medicine consisting of a LABA (VI) and an inhaled corticosteroid (ICS), FF. ANORO ELLIPTA a once-daily medicine combining a long-acting muscarinic antagonist (LAMA), umeclidinium bromide (UMEC), with a LABA."
Monday, May 8, 2017
Sohn Conference New York Notes 2017: Ackman, Einhorn, Meister & More
Below we're posting up notes from the Sohn Conference New York 2017. It featured top hedge fund managers sharing their latest investment ideas all to benefit pediatric cancer research. We've also posted up the emerging manager presentations from Next Wave Sohn.
Notes From Sohn Conference New York 2017
Bill Ackman (Pershing Square): Long Howard Hughes (HHC)
He argued strong management and solid real estate locations as the main reasons to own the company. Note that Ackman is the Chairman of the co. We've posted up Ackman's slideshow presentation from Sohn here.
David Einhorn (Greenlight Capital): Short Core Labs (CLB)
Cyclical stock, expects earnings to disappoint. Oil prices won't have a 'v' shaped recovery. Company's annual report shows 65% decrease in oil prices over two years and then a 100% increase in price, a literal 'v' chart. Says stock is pricey and that they're exposed to the least desirable parts of the market. Exposure to international oilfield capex budgets which won't recover. Fair value could be around $62, or over 40% lower. Recall that Einhorn has also been short Pioneer Natural Resources (PDX) in pitch at previous conferences.
Larry Robbins (Glenview Capital): Long DXC Technology (DXC), FMC (FMC), Quintiles IMS (Q)
DXC has already doubled over the past two years but he thinks it can double again given the huge increase in earnings power. FMC purchased businesses that Dow and DuPont dumped as part of their merger. Thinks FMC benefits as the others had to divest this in order to get their big deal done.
Keith Meister (Corvex Management): Long CenturyLink (CTL)
Thinks the company's merger with Level 3 is a game changer. Filing a 13D with the SEC today disclosing a 5.5% stake. Says consolidation in telecom will continue due to more data. If economy is doing well = more data growth which is good for CTL. If economy doing bad = a 9% dividend yield versus a 10-year Treasury potentially falling back to 2%. Would never have invested if it weren't for the merger. Stock priced as if things are in decline permanently. Sees 40% upside with dividends in base case, but potential return as high as 50-70% if there's corporate tax reform.
Clifton Robbins (Blue Harbour Group): Long Investors Bancorp (ISBC)
Has seen deposit and asset growth continue, should benefit from less regulations and tax reform as well. They own around 9.9% of the company and one of their partners just joined the board. Stock could be worth between $17 and $19. Fortress balance sheet. Have grown loans 22% CAGR. Co has $1 billion in excess cash to allocate. Could potentially be an acquisition target since it's a strong regional bank. Has previously pitched this name at another conference a few years ago. Also noted his firm is focusing more now on the importance of environmental, social and governance (ESG) in investing.
Chamath Palihapitiya (Social Capital): Long Tesla 2022 Convertible Bonds
He called Elon Musk this generation's "Thomas Edison." Thinks playing the bonds means no money lost as long as the company is worth at least $15 billion. Argues company will have 5% of car market in the next decade. They don't spend on advertising or a dealer network, don't have unions, etc. Very capital intensive. Called TSLA "unmodelable."
Josh Resnick (Jericho Capital): Short Frontier Communications (FTR)
Massive debtload and deteriorating EBITDA which is a bad combination. Has been short for five years, from $4 down to $1.50, longest short of his career. Thinks company goes bankrupt. 32% of revenue comes from voice (phones) and thinks it declines sharply. Losing market share to cable as well.
Jeff Gundlach (DoubleLine Capital): Emerging market outperformance (EEM) vs S&P 500
Not very bearish on the US dollar, but also not a bull. American stock market seems to be overvalued. Questioned the herd mentality around index funds. Go long EEM short SPY and leverage it up 1x. Also said he's now on Twitter: @TruthGundlach to fight back fallacious media reports.
Debra Fine (Fine Capital): Long DHX Media (DHX/B on TSE)
Creator, buyer and distributor of children's TV content in Canada. Thinks fair value is C$20-C$30. The change in how video is consumed has increased need for children's content. Says new content buyers like Netflix, Amazon and YouTube are driving up prices. Notes that children's content drives merchandise and licensing dollars. Children's content ages well and is usually cheaper to produce.
Davide Serra (Algebris Investments): Short U.K. gilts (bonds), Long UniCredit (UCG:BIT)
Brexit doesn't really help the UK economy, thinks it costs U.K. around 7% of GDP (~$200 billion). Thinks European stocks are at an inflection point. Big gap versus S&P 500 over past eight years and that's about to change. Also talked long UniCredit, thinks Europe is overdue for consolidation efforts. Italian banks been penalized for high share of nonperforming loans which creates opportunity as the company is fixing this and then added tailwinds of interest rates normalizing. We previously highlighted Dan Loeb & Third Point's thesis on UniCredit.
Brad Gerstner (Altimeter Capital): Long United Airlines (UAL)
Thinks skepticism of the airline industry that's been pervasive for years is too negative. Led to lower multiples despite margins that were uptrending. Sentiment shouldn't be that low. Millennials are traveling more than their parents did so airlines can be a secular grower. Altimeter settled proxy contest with UAL last year. Sees 18% increase in EPS to around $16.75. More conservative base case is $13 a share by 2020. Consolidation of the industry cannot be overstated and has basically resulted in an oligopoly. Planes are full and price wars are long gone so there's pricing power now. We've also highlighted how Warren Buffett likes airlines now too. Shares could double.
Kevin Warsh (Former Fed Governor):
Thinks a lot about tail risks and tail outcomes. Feels most assets aren't ready for downside surprise. Says to watch capex going forward. If companies are spending, the economy still has further legs. If there's a cut, not so sure the economy can keep it in high gear to go forward. Biggest question for him is if lower inflation continues with slow growth. Thinks institutional credibility rather than the printing press will be biggest asset going forward.
Tal Ben-Shahar (Potentialife): General advice: Do less
If you want to be happier, do less as quantity affects quality. Reduce multi-tasking and find time for play, for friends, for family.
Sohn Contest Winner Dylan Adelman: Long eBay
Be sure to also check out notes from Next Wave Sohn which featured emerging managers pitching their investment ideas.
Next Wave Sohn New York Notes 2017
Below we're posting up notes from the Next Wave Sohn New York Conference 2017. This is the lead-in event to the main Sohn Conference and features emerging managers pitching their latest investment ideas to benefit cancer research. We've also posted up notes from the main Sohn Conference here.
Next Wave Sohn New York 2017 Notes
Neal Nathani (Totem Point): Long Xilinx (XLNX)
Sees 70% return in shares. Secular tailwinds in data center and automotive/industrial markets. AI and machine learning the next big opportunity in tech. Strong balance sheet and returns on capital, strategic asset. Thinks they take share from Altera and grow 11% versus FPGA market growth rate of 7%. Also notes if the company levers up it could repurchase over $6 billion in stock over the next few years, around 37% of market cap. 70% upside is achieved via 17.5x CY20 EPS of $5.39 plus net cash.
David Copley (Trafalgar Copley): Short JBH and NZD
Said that if China has a credit problem, then Australia and New Zealand definitely have a big problem. Thinks there's a residential housing supply bubble in Australia
Li Ran (Half Sky Capital): Long Fever-Tree (FEVR:LN)
Expansion to mass market retail has boosted volume. Attractive due to solid consumer messaging and long runway for growth opportunity. Prior to founding Half Sky, worked at Lone Pine Capital.
Jack Franke (Blockhouse Capital): Long MPLX (MPLX)
Thinks volume growth will accelerate due to pipeline additions. Argued stock could return 40% over next two years. Dividend could grow to $3 per share by 2019 and could close valuation gap to peers.
Dave Thomas (Atalan Capital): Long Gigamon (GIMO)
GIMO has 90% customer retention, dominant player in network visibility software. Says the total addressable market for GIMO is multiples higher than sell-side estimates. Thinks it is more of a software company than hardware. Price target $45 or 4x 2018 sales.
Mark Moore (ThornTree Capital): Long Formula 1 (FWONA)
Sport is growing revenue around 4-5% annually. The injection of Chase Carey into the team has helped rebuild the company/brand and invest in the fans.
Be sure to also check out the notes from the main Sohn Conference New York 2017.
Bill Ackman's Sohn Presentation on Howard Hughes: SimCities
We've posted up notes from the Sohn New York Investment Conference and at the event Pershing Square's Bill Ackman pitched a long of Howard Hughes (HHC).
He's actually the Chairman of the company and has been a longtime shareholder. His pitch is included here in its entirety.
Embedded below is Bill Ackman's Sohn Conference presentation on Howard Hughes entitled 'SimCities':
You can download a .pdf copy here.
Be sure to also check out notes from the Sohn Conference New York as well as Next Wave Sohn.
