Mark Spiegel Short Tesla Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Mark Spiegel who pitched short Tesla (TSLA).  He thinks the company is a zero.


Mark Spiegel's Presentation: Short Tesla (TSLA)

- Telsa's financials are horrible and has no moat of any kind, and this is all before a ton of competition comes online

- Management can't be trusted after Elon Musk made misleading statements

- Lost over $25,000 per car sold based on recent earnings.  Sales of two top models were down double digits year-over-year, again this is before top competition comes online from Porsche, Jaguar and others

- $2.3 billion in negative net working capital, And - $1bn in negative net working capital.  Bulls point to the story being about 'the future' but Tesla's tax credits will expire later this year while competitors will just be starting to use their credits.

- Competition coming:  Jaguar I-Pace coming out is $10,000 less and much nicer.  Jaguar XJ Sedan also going electric.  Audi electric SUV coming 2018 winter and priced $5000 cheaper once Tesla's tax credit runs out.  Porsche's Mission E sedan coming.  Mercedes' ECQ coming out and electric version of the S Class.  Hyundai coming out with a crossover for the mass market.  Chevrolet Bolt out now.  Nissan Leaf next year increases electric range.  First electric Volvo comes out next year.  BMW iX3 comes out in 2 years, and i4 flagship electric car.  The list goes on and on.

-  China is a big market and very important; bulls think TSLA will gain share there but the reality is that so much competition is coming especially in that country that they've already lost

-  Other car companies using larger battery cells and Tesla is committed to smaller, inferior ones

-  Stunning number of executive departures.  Jim Chanos said the only two companies that had similar numbers are Enron and Valeant

Embedded below is the video of Mark Spiegel's presentation:




Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Sahm Adrangi's Presentation on Ad Fraud & Short QuinStreet: Kase Learning Short Selling Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Sahm Adrangi of Kerrisdale Capital who presented about ad fraud and talked about Quinstreet (QNST) which he published a short report on last month.


Sahm Adrangi's Presentation on Ad Fraud & Short QuinStreet (QNST)

- Recently gave a presentation on being short St. Joe (JOE) and short QuinStreet (presentation here), the latter of which plays into the theme of ad fraud

- Ad fraud is basically when online ad impressions or clicks are artificially higher due to bots, not actual users viewing the material.  Pay-per-click ads see 'fake' clicks and then there's sites with tons of fake traffic that are just full of ads to inflate the numbers.  Ad stuffing is when a video has other videos behind the main video someone is watching, giving impressions to something that's not actually being viewed

- Ad fraud is so prevalent and the intermediaries are beneficiaries of it (ad agencies etc), making them slow to adopt preventive measures.  The ultimate loser is the buyer of the ad but it's difficult to detect who is viewing your ad (human vs bot)

-  Technology is rapidly evolving and the bad actors are using more sophisticated measures to generate more fraud

- QuinStreet: if you look at investor presentations or management comments, it's hard to discern where exactly the revenue is coming from (lead generation, or ad-matching placements, etc).   Another report by a separate firm attacked Criteo late last year for suspect traffic as well.

- Walked through examples where some of Quinstreet's sites were receiving traffic from other sites that isn't what it seems: a car insurance site was receiving a lot of traffic, but not from people looking for quotes on car insurance, but rather people earning 'swag bucks' for filling out online surveys and things like that.  Thus car insurers buying ads / paying for leads, weren't really getting what they thought they were (the video below walks through the whole scenario as it's too long to type out)

- Thinks the opacity in the online ad space and lack of disclosures is a good place for short activists to hunt

Embedded below is the video of Sahm Adrangi's presentation:



mbedded below is the slideshow pdf of Sahm Adrangi & Kerrisale Capital's presentation on short QuinStreet (QNST):



Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Jillian McIntyre's Short Intelsat Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Jillian McIntyre of 221B Capital who pitched a short of Intelsat (I).  She runs a fundamental long/short equity fund, typically running 20% net short, typically focuses companies with poor corporate governance (Germany, UK, South Africa, Australia).  Previously worked with Sir Chris Hohn's TCI Fund.


Jillian McIntyre's Presentation: Short Intelsat

- 50% downside in her opinion, only 7% short interest.  $14bn of debt, $1bn run-rate of interest every year, negative cashflow

- Believes company is ripe for technology disruption and has a bad business model; needs capital ASAP

- Company is in satellite communications, provides signal broadcast to major networks, media companies etc.  Mainly exposure to Latin America and Africa.  Thinks there's some similarities to SunEdison (which they pitched back in 2015 which went bankrupt): levels of indebtedness & bad business model

- The recent hype surrounding 5G and the big spectrum auction in November has led to irrational exuberance as Intelsat is up almost 300% this year.  Lot of hype around the potential for C band spectrum.  Even if it's allowed by FCC, could take over a year to start to monetize it.  She thinks the company will see disruption in its ancient satellite model.  Lower-orbit satellites will be launched and are better and cheaper than Intelsat's much higher satellites.  Lots of hype also around potential with 'OneWeb'

-  Co has very complex debt structure and is a serial re-structurer: they think it breached covenants and will need to raise $400-500 million and worst case $1.5-2 bn. Don't think they have access to new revolving credit facilities.  Thinks they have aggressive accounting regarding bad debt provision and amortization rates and reliance on future revenue


Embedded below is the video of Jillian McIntyre's presentation:





Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Berna Barshay Short Ralph Lauren Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Berna Barshay of Viola Capital Management who pitched a short of Ralph Lauren (RL). 


Berna Barshay's Presentation: Short Ralph Lauren (RL)

-  Consumer specialist.  Industry ripe with disruption.

-  80% of household purchase decisions made by women, 80% of investment choices made by men

-  Ralph Lauren in the middle of attempted turnaround:  Co has lost 19% of sales last three years.  Why?  Historically positioned as an upscale brand, they over distributed (discounting, margin pressure).  Longtime COO departure led to disruption.  Trying to now pullback on promotions and try to reach a new, younger customer.  Stock up 70% in last 9 months, she's more skeptical on turnaround attempt and speed at which it would happen.

-  In the age of Instagram, brands can't control their story as much.  RL is too focused on North America.  Department stores in secular decline.  Trying to replicate Coach merely by reducing points of distribution

-  Ratio of outlets to full price stores is out of whack and is a challenge to elevating the brand back up.  Co is also omnipresent in the 'off price' channel.  TJMaxx and Marshall has a lot of inventory and continued to grow.  The difference between the $89 polo shirt at their flagship store wasn't that much different from the $35 polo shirt at TJMaxx.  RL has devalued their signature item and devalued their brand in the process.  This will be a headwind in the brand elevation efforts.

-  Co wants to update the product and modernize the brand: does this alienate the core customer they have?  Tough to straddle.  It's a preppy, country club look that's been around since the 70s.  Millennials and younger have much different street style

-  She talked to 200 Millennials about favorite clothing brands and received a wide array of responses: RL hardly on the radar, lots of newer brands, niche brands, etc.  Barriers to entry in clothing have come way down.  RL did much better with men than women in survey.

-  Near-term return to topline growth is nearly impossible due to off-price channel and department stores in secular decline.  Trading at 18x like a luxury goods stock but needs to show tangible results

-  Brand turnaround takes years and thinks that while expectations are low, still thinks estimates are too high.  Upcoming investor day could be a catalyst.  Thinks earnings will be flattish for next 2 years.  N. America growth will be down 4%, 11% earnings miss.  Thinks it should trade around 13x, for 30% downside though it's not a valuation short 

Embedded below is the video of Berna Barshay's presentation:




Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Gabriel Grego's Short Folli Follie Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Gabriel Grego of Quintessential Capital who pitched a short of Folli Follie.  (Please note that since presenting earlier this month, the stock traded down 70% and was subsequently halted.)


Gabriel Grego's Presentation: Short Folli Follie

-  Co has 1.3bn euros of sales, trades on the Greek exchange, products are watches, purses, mainly jewelry etc.  70% of revenue and all profit originates in Asia, mainly China.  Now investing into the United States

- Actual sales and profitability are less than accounting suggests. Business is shrinking rapidly, they are worried about potential insolvency

-  Called 630 stores, they only found 289 open... nobody answered or store was closed.  Out of 248 supposed stores in Asia, they only found 64.  Hired Chinese and Japanese teams to do due diligence in the countries.  Went to visit stores, found many were tiny, non-existent or liquidating

-  Claims solid online sales, but traffic is tiny compared to big competitors who supposedly generate similar revenues.  Social media has a tiny presence as well compared to others

-  Thinks the company will have to issue shares or bonds to makeup for a shortfall soon

-  Company claims $1 billion of sales in Asia, but actual China subsidiaries are only showing millions of dollars.  Company has always used the same auditor then suddenly switched to another auditor that's not really as well known

Embedded below is the video of Gabriel Grego's presentation:




Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Enrique Abeyta Short Anheuser Busch Inbev Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Enrique Abeyta who pitched a short of Anheuser Busch Inbev (BUD).  

Enrique Abeyta's Presentation: Short Anheuser Busch Inbev (BUD)

-  Thinks there will be negative earnings revisions.  Craft brewers are a threat, but contract brewing and the lower hurdle to entry in the market is the bigger story: it costs very little to start up a tiny beer somewhere and start producing.

-While most legacy beer companies built their advantage via scale and advertising via expensive mediums (TV, print) today advertising costs have come way down via online advertising and you can target the exact type of customer you're looking for.

-  Also thinks Kraft Heinz (KHC) and Disney (DIS) will face similar threats and would be short those as well (KHC: lots of micro brands starting ot popup, DIS: cost of producing content is coming down and others can do so much more cheaply)

Below is the video of Enrique Abeyta's pitch on shorting Budweiser:





Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Chris Brown Short Energous (WATT): Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Chris Brown of Aristides Capital who pitched short Energous (WATT).


Chris Brown's Presentation: Short Energous (WATT)

- Company's stock skyrocketed late last year on FCC approval news.  Says CEO pretty much always lies. 

- Energous has an agreement with Apple

- Company seeking to do RF or wireless charging at a distance: claims to create pockets of energy around your device to charge it. The physics behind it isn't new and technology isn't new.  The science behind it is explained in the video below but basically what they're trying to do isn't practical and is extremely exagerrated

- Lots of insider sales recently

-  Marketing is touting 'vaporware' and doing a good job of hyping things.  He thinks the company is a zero and a fraud.


Embedded below is the video of Chris Brown's presentation:





Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Asher Jacobs & Jade Hu Short Stericycle (SRCL) Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Asher Jacbos and Jade Hu, Columbia MBA students who pitched a short of Stericycle (SRCL).


Asher Jacbos & Jade Hu's Presentation: Short Stericycle (SRCL)

-  See 36% downside over the next 18 months.  Fallout over recent lawsuit settlement is only in the early innings as it highlighted the company's price gouging.  Company won't be able to continue its rollup strategy with 4 turns of leverage.  Numerous accounting redflags highlight the company's deteriorating fundamentals

-  Company focuses on the medical waste market with around 80% market share.  Has expanded to other industries like shredding, environmental waste, and other areas

-  They expect the company's pricing power increases to be capped at around 5%, compared to historic increases of 18% biannually.  Competition will increase in the space as they're heavily spending on marketing to take share

-  Think one segment's revenue will drop 7% based on lack of ability to drive pricing.  Sees volume decreasing 7% (but not as severe as it was previously) as they're making price concessions to drive business.  7% revenue decline leads to a 14% EBITDA decrease

-  Company is seeing a mix shift to lower margin businesses.  Credit rating was recently downgraded, lots of debt due in 2020

-  Thinks management is focused on empire building, as incentive compensation is built on absolute adjusted EBITDA

- Expect continued earnings misses, large asset impairment.  Base case assumes 9x EV/EBITDA.  If margins stabilize and the stock gets a higher multiple, there's only 20% upside, capping risk on the short


Embedded below is the video of their presentation:



And here's a link to their presentation from the Columbia Business School's Graham & Doddsville newsletter.

Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Notes From Sohn Hong Kong Investment Conference 2018

The 2018 Sohn Hong Kong Investment Conference recently took place benefiting the Karen Leung Foundation for gynecological cancer education, prevention, and support.  Fund managers presented investment ideas in a gathering that benefited charity.  Here's a quick summary with notes from the event.


Notes From Sohn Hong Kong Conference 2018

Eashwar Krishnan (Tybourne Capital):  Long: Line (LN).  Dominant messaging platform in Japan and several other countries.  Based on enterprise value (EV) to monthly active users (MAU), Line is the cheapest and most undervalued messaging app in the world.  On this metric, LN trades at $39 while Tencent trades at $207, Naver at $199, Facebook at $180, and Yahoo Japan at $101.  Median number (including others like Kakao, Weibo, Twitter etc) is $67. Sees potential to double your money in three years.  Company can try to take more 'time spent' from other apps and rollout revenue from more advertising, games, financial services and food delivery. Prior to founding Tybourne, he worked at Lone Pine Capital.


Rajesh Sachdeva (Flowering Tree Investment Management): Long: VP Bank (Vietnam Prosperity JSC Bank).  The country has a solid base for an economy and VP Bank is the cheapest bank in Asia yet has the highest returns on equity (ROE).  Largest consumer bank in Vietnam.  5 million customers, around 10% of the labor force of the country.  Has strong underwriting standards.  Thinks the stock can go up 4-5x over the next 3 years as long as there aren't huge economic hiccups.


Avinash Abraham (Torq Capital Management):  Long: Pacific Basin (2343.HK).  Dry shipping company in Hong Kong.  Minor bulks shipping and is "very undervalued."  Company recently became profitable again last year.  Thinks the 10 year bear market in dry bulk shipping is coming to a close.  Company has diversified exposure to products.


Kok Hoi Wong (APS Asset Management):  Short: JD.com (JD).  This has been a consensus long among many managers but argues that it's already priced for perfection.  Thinks impairment losses coming.  Company made bad investments (PaiPai and QQ Wanggou, Bitauto, Tuniu, Yihaodian).  Thinks a big impairment is possible from Yihaodian.  Management is "investing recklessly."  Says to be weary as company can't make a profit in highly competitive Chinese e-commerce market.  Business model is misunderstood. 


Benjamin Fuchs (BFAM Partners):  Long Tencent (700.HK) & Tencent Put Options.  Hedged trade that bets on one of the dominant companies in Asia but allows you to profit from a swing in the stock either direction.  Buy Spring 2019 puts to complement the long equity position. Profitable if shares go more than 15% in either direction


Soren Aandahl (Blue Orca Capital):  Short: Samsonite (1910.HK).  Has previously attacked the company with a recent short report and did so again at the event.  Shares have been halted.  CEO Ramesh Tainwala has been lying about resume & misrepresenting himself as a doctor, calls for his firing.  Company has audit red flags: third auditor in three years.  Pointed out accounting practices and corporate governance.  If you recognize the investor's name he was previously running Glaucus Research which put out a lot of short reports and recently launched an activist fund.


Seth Fischer (Oasis Management): Long Don Quijote Holdings Subsidiary Japan Asset Marketing (8922.JP).  Don Quijote is a retail chain based in Japan that's open 24 hours and sells all kinds of various goods from food to personal care to you name it.  Subsidiary JAM is its real estate segment.  Thinks the company is able to survive "Amazonification of the world" but has been mismanaged.  They've launched an activist campaign, have owned stock since 2017.  Proposed corporate restructuring   Sees 50% upside. Details on their proposal here.


Wesley Wong (Oxbow Capital Management): Long Guangzhou Baiyun Airport (SHA:600004).  Third largest airport in China and 14th largest in the world.  Sees 50% upside in the next year to year-and-a-half.  New terminal coming online will lead to increased number of passenger and rent from retail tenants.  Sees EBTIDA coming in around 20% higher than consensus.


Carl Huttenlocher (Myriad Asset Management): Long MSCI China 2025 Index.  Simple trade, thinks China will be the best global equity market for the next few years.  Chinese A-Shares being included in indexes now will be a catalyst.


Hermes Li (Aspex Management):  Long SJM Holdings (0880.HK).  Likes the casino company as it's poised to benefit from opening the new Lisboa Palace in the back-end of 2019.


Ben Melkman (Light Sky Macro): Thinks inflation in Japan is coming faster than people realize and will yield higher rates.  To bet on this there's two plays: spread trade for bearish exposure on 10-year Japan Commodity Clear House rate or buy banks that will benefit from increased interest rates.


For more investment conference coverage, we've previously posted notes from the Sohn New York Conference and also this week we just posted up notes from the London Value Investor Conference.

ValueAct Capital Takes Olympus Stake

Jeff Ubben's activist investment firm ValueAct Capital has disclosed a 5% ownership stake in Japanese camera and medical device company Olympus (TYO:7733).  Their stake is valued at around $600 million and is a brand new position.  Their core position size seems to be around $1 billion these days, so this is a bit below that.

As far as we're aware, this is firm's first activist bet in Asia.  ValueAct issued a statement, saying, "Olympus has an exceptional business model, market share, technology leadership and emerging markets presence in the global medical device industry.  We think it's an ideal company for our first investment in Japan."

Activism in Japan seems to slowly becoming more acceptable.  Changes in corporate governance in the country have helped that progress.  A few years ago we highlighted Third Point's activist position in Sony and they had also previously invested in Seven & i.

You can view more ValueAct portfolio activity here.

Tiger Global Increases Sunrun Position

Chase Coleman's hedge fund firm Tiger Global has filed a 13G with the SEC regarding its stake in Sunrun (RUN).  Per the filing, Tiger Global now owns 10.7% of the company with over 11.67 million shares.  This is up significantly from the 5.74 million shares they disclosed back at the end of the first quarter.

An additional Form 4 filed with the SEC shows Tiger was buying RUN shares on May 25th, 29th, and 30th.  In total, they bought 776,138 shares at weighted average prices from $10.71 to $11.50.  The filing also notes the securities are held by advisory clients of Tiger Global.

Per Yahoo Finance, Sunrun "engages in the design, development, installation, sale, ownership, and maintenance of residential solar energy systems in the United States. It also sells solar leads. The company markets and sells its products through direct channels, partner channels, mass media, digital media, canvassing, referral, retail, and field marketing. Sunrun Inc. was founded in 2007 and is headquartered in San Francisco, California."

Lone Pine Capital Boosts IQVIA Stake

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding its stake in IQVIA (IQV).  Per the filing, Lone Pine now owns 5% of the company with over 10.45 million shares.

This is an increase over the 9.89 million shares they owned at the end of the first quarter, per their most recent 13F filing.  The most recent trading activity was on May 16th.  To see the rest of Lone Pine's portfolio, check out the brand new issue of our quarterly newsletter.

Per Yahoo Finance, IQVia is "IQVIA Holdings Inc. provides integrated information and technology-enabled healthcare services in the Americas, Europe, Africa, and the Asia-Pacific. It operates through three segments: Commercial Solutions, Research & Development Solutions, and Integrated Engagement Services."

Whale Rock Capital Adds To MongoDB Stake

Alex Sacerdote's hedge fund firm Whale Rock Capital has filed a 13G with the SEC regarding its stake in MongoDB (MDB).  Per the filing, Whale Rock now owns 16.05% of the company with over 3.83 million shares. 

This is way up from the 556,862 shares they owned at the end of the first quarter. 

They originally disclosed the increased position in a separate 13G filing due to activity in late April, showing a 5.83% ownership stake. The most recent filing was made due to activity on May 24th, showing they've further upped their stake to now 16.05% of the company.

Per Yahoo Finance, MongoDB "operates as a general purpose database platform worldwide. The company offers MongoDB Enterprise Advanced, a subscription package for enterprise customers to run in the cloud, on-premise, or in a hybrid environment; MongoDB Atlas, a cloud-hosted database-as-a-service solution; and Community Server, a free-to-download version of its database, which includes the functionality that developers need to get started with MongoDB. It also provides professional services, such as consulting and training. The company was formerly known as 10gen, Inc. and changed its name to MongoDB, Inc. in August 2013"

Notes From London Value Investor Conference 2018

The 2018 London Value Investor Conference recently concluded and we've got notes from each speaker's presentation.  Click the links below to go each speaker's pitch.


London Value Investor Conference 2018 Notes


- Dawid Krige (Cederberg Capital): Long Kweichow Moutai (SHA):600519) & Dong-E-E-Jiao (SHE:000423)

- Nigel Waller & Andrew Goodwin (Oldfield Partners): Long Kansai Electric (TYO:9503) & E.ON (ETR:EOAN)

- Ben Preston (Orbis): Long Peabody Energy (NYSE:BTU)

- Nick Kirrage (Schroders): Long Standard Chartered (LON: STAN)

- Mark Asquith (Somerset Capital): Long Pacific Textiles (HKG:1382), Sunny Friend (TPE:8341), Cia Hering (BVMF:HGTX3) 

- Alex Wright (Fidelity Special Situations): Long Pearson (LON:PSON), Bunzl (LON:BNZL)

- Stephen Mitchel & Bryan Pilsworth (Foyston, Gordon & Payne): Long Transcontinental (TSE:TCL) & Walgreens Boots Alliance (NASDAQ:WBA)

- Adrian Warner (Avenir Capital): Long HCA Healthcare (NYSE:HCA)

- Stephen Anness (Invesco Perpetual): Long National Oilwell Varco (NYSE:NOV)

- Alvaro Guzman & Fernando Bernad (Az-Valor Asset Management): Long Buenaventura (NYSE:BVN)

- Jonathan Boyar (Boyar Value Group): Long Axalta Coating Systems (AXTA), Acushnet Holdings (GOLF), Madison Square Garden Networks (MSGN), Franklin Resources (BEN), Howard Hughes (HHC) 

- Mark Pearson (Arcus Investment): Long Asanuma Corp (TYO:1852)

Dawid Krige Long Kweichow Moutai & Dong-E-E-Jiao: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Dawid Krige of Cederberg Capital who pitched longs of Kweichow Moutai (SHA:600519) and Dong-E-E-Jiao (SHE:000423).


Dawid Krige's London Value Investor Conference Presentation

Dawid co-founded Cederberg Capital in 2011. From 2005 to 2011 he was at Mondrian Investment Partners where he was a portfolio manager and China specialist. Cederberg are concentrated, fundamental, bottom-up, quality investors focused on China.

Frauds in China exist but they can be avoided. Fraud is not endemic. The recent China Hustle film presents a misleading and overly negative view of Chinese companies.

China is catching up with the US and will overtake it. In terms of STEM graduates - Science,Technology, Engineering, Mathematics – US 5% Vs China 38%. Global Patent applications: US 19% Vs China 43%. Unicorn unlisted start-ups with a valuation of more that $1bn: US 45% Vs China 43%. Yet China only accounts for 4% of the MSCI world index whilst the US is 50%. Over the next 20 to 30years China is going to become 20% to 30% of the MSCI. It will take share from the US.

Long: Kweichow Moutai (SHA: 600519):  Last year Kweichow Moutai overtook Diageo as the world’s largest spirits company. The company is over 300 years old. It spends very little on marketing. Moutai is a national drink and is offered to visiting politicians and dignitaries. It has 99% brand awareness in China. It’s essentially a monopoly with 70% of the spirits market. Its margins are almost 3x Diageo’s. ROIC: 30%. In the last 10 years it has grown at 30% per annum. At a PE 21x 2019 it trades on a similar PE to Diageo but with much more growth.


Long: Dong-E-E-Jiao (SHE: 000423):  Dong is a traditional Chinese medicine company that makes nutritional supplements. The supplements are over-the-counter products that are made from natural ingredients and therefore don’t face regulation. Cederberg think of the company as a luxury consumer goods company and not a healthcare company. The brand has a history that goes back over 2500 years. It has 70% marketshare and 98% brand awareness. It trades on a PE 14x 2019.

Krige said that whether the product works or not is not that important because of its cultural significance. If your parents and your parent’s parents have used it, you are likely to use it.  The biggest risk is from a change in distribution that could happen due to the challenge from e-commerce.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Nigel Waller & Andrew Goodwin Long Kansai Electric & E.ON: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Nigel Waller and Andrew Goodwin of Oldfield Partners who pitched longs of Kansai Electric (TYO:9503) and E.ON (ETR: EOAN).


Nigel Waller & Andrew Goodwin's London Value Investor Conference Presentation

Waller and Goodwin usefully suggested that disruption happens in four different way. Firstly, technology gets investors excited sometimes creating bubbles around new technologies. Investors over react and drive the price of the disrupted stocks too low. The market drives disrupted stocks to valuations that make no sense unless the technological change is very significant, swift and permanent.

A second area of disruption is caused by product cycles. It can affect all industries, but it is particularly prevalent in the pharma sector. The market gets excited about new drugs and over-pessimistic about those that are facing patent cliffs.

A third type is caused by new competition. The market tends to favour the disruptor and focuses its ire on the incumbent. The fourth area of disruption is caused by economic cycles, both large scale macro-economic cycles and smaller scale capital cycles that some sectors are particularly prone too.  As contrarian investors they try to take advantage of these cycles to buy companies when they are cheap.


Long Kansai Electric (TYO: 9503):  In March 2011, Japan suffered a large earthquake that led to the Fukushima nuclear disaster. Prior to Fukushima there were 54 reactors in service providing 30% of Japan’s energy needs. Afterwards all the reactors were taken off line.  Kansai Electric was hit particularly hard because half of its energy production came from nuclear.  Investors exited the stock.

Oldfield Partners started to buy in March 2015 at around 1100 Yen per share. At the time the Japanese market analysts were completely bearish and none of them thought the return to service of the nuclear reactors was likely. Market analysts in Japan are risk averse as that is the only way they have survived the long-term bear market. The Oldfield team became convinced that Japan could not satisfy its energy demands without the nuclear reactors. Despite some local resistance, Japan is slowly bringing its nuclear reactors back online. Kansai now have 4working reactors reducing their reliance on thermal and reducing fuel costs.

Kansai shares are up 60% from Oldfield’s buy price. They feel shares still offer good value as Kansai think that eventually 7 of its 11 reactors will come back on line. Operating profits could increase a further 50% from here.Japanese energy markets are deregulated. Kansai is the lowest cost producer and could enter new regions to grow its market share.


Long E.ON (ETR: EOAN):  The market has been worried that technological and regulatory changes will disrupt E.ON. Since 2010 Germany has been trying to shift from thermal to renewables. The Fukushima disaster led Germany to do a U-turn on its nuclear policy and to set a target for closing its nuclear power stations by 2022. An additional negative for potential E.ON investors was that solar energy was being heavily subsidised.

Oldfield Partners started buying E.ON in Sept 2015 and has an average price of 7.24 euro.  The nuclear operations are in run-off. In terms of returns 65% now comes from the regulated business. E.ON has completed its de-gearing.

In 2018 E.ON announced an asset swap with its big competitor RWE. RWE is going to take E.ON’s renewables and E.ON will get RWE’s regulated business. The asset life of the renewables is probably 25 years whilst the regulated assets have an asset life of around 100 years. That is a good swap and E.ON will have 80% regulated assets. The synergies of the combined business are significant at 600-800m euros. There is a 5% dividend that can grow.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Ben Preston Long Peabody Energy: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Ben Preston of Orbis who pitched a long of Peabody Energy (BTU).


Ben Preston's London Value Investor Conference Presentation

Peabody is the world’s largest publicly listed provider of coal. Coal mining had a particularly tough time in 2015/6. At one point almost half of US coal was being produced by companies that had filed for bankruptcy.  Peabody produces 200m tons of coal per year mostly in the US which it mostly sells to power stations. A lower volume of coal is produced in Australia but that is where Peabody makes most of its money from export markets, particularly China.

After the commodity markets peaked in 2011 Peabody found itself with too much debt. It filed for bankruptcy in 2016 and spent a year sorting itself out. The shareholders were wiped out. The re-incarnation has lower capex and debt interest payments. Whilst production is down, free cash flow is up. As Peabody are not opening new mines the money is flowing back to shareholders. There is a very high FCF yield at 25% on a trailing basis.

Since the commodity crash coal production has declined. In addition, China has been trying to tackle its pollution problems by moving away from coal. This has been good for the environment but does not keep Chinese people warm. China relaxed the new clean air policy in 2016. There is a conflict between the E and the S of ESG (environment, social, governance). Tackling air pollution has led to more demand for high quality coal because it is more efficient and pollutes less. Peabody’s coal is high quality.

Peabody is cheap because investors are worried the price of coal will fall back again. Mr Market is convinced it will but if it doesn’t Peabody will do well.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Mark Asquith Long Pacific Textiles, Sunny Friend, Cia Hering: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Mark Asquith of Somerset Capital Management who pitched three longs: Pacific Textiles (HKG:1382), Sunny Friend (TPE:8341), and Cia Hering (BVMF:HGTX3).


Mark Asquith's London Value Investor Conference Presentation

Mark Asquith is the lead manager of the Global Emerging Market Small Cap and EM Small Cap Strategies.

Long: Pacific Textiles (HKG: 1382):  It’s been a savage environment for textile companies. Competition between brands and from Amazon has depressed prices.  Environmental regulations create barriers to entry as few can afford to meet the benchmarks for water, air and heat treatment. Also, there are barriers to entry that are driven by customer expectations: lead time 7-45 days, quality, ESG. Few can meet these. The number of textile enterprises has reduced dramatically in the last 10 years.The market is concerned about growth, tariffs and a stronger Renminbi.  Pacific Textiles is trading at PE 10x, ROE 30%, FCF 10%.

Long: Sunny Friend (TPE: 8341):  Sunny Friend is a waste management company in Taiwan. They have incineration and liquidation waste disposal facilities. It’s a compounder rather than a deep value stock.  In Taiwan, they have 35% market share in medical and 16% in industrial waste.  They have barriers to entry because no one wants a waste management plant in their back yard (NIMBYism). There are also customer switching cost and permits. These protect their Taiwanese business but make it difficult for them to break into the Chinese market. China is a potential growth market (currently <20% of sales).  Sunny friend is not classically cheap, but it does have good free cash flow yield and generation.

Long Cia Hering (BVMF: HGTX3):  Cia Hering is a Brazilian clothing brands company. It has been having a hard time including losing control of its point of sale. The shares fell 80% from 2012-2015.  Somerset bought their stake in 2015/16 when new management replaced the old. The new management have rebranded the product range and invested in point of sale.  Many of their competitors have gone under. Consumer confidence is picking back up.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Nick Kirrage Long Standard Chartered: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Nick Kirrage of Schroders who pitched a long of Standard Chartered (LON: STAN).


Nick Kirrage's London Value Investor Conference Presentation

Deep value has had ten of the worst years of under-performance verses growth on record. Most investors are invested in franchise stocks not deep value. They are over-exposed to growth.

Long: Standard Chartered (LON: STAN):  Nick Kirrage’s partner, Kevin Murphy, pitched Standard Chartered at last year’s conference. Since then it’s down 11%. They’ve liked banking for the last five years. They’ve been early and have been adding to existing banking positions. STAN’s valuation reflects a fear of emerging markets. It’s a unique franchise in emerging markets and is one of Kirrage’s and Murphy’s largest positions.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Alex Wright Long Pearson & Bunzl: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Alex Wright of Fidelity Special Situations Fund who pitched two longs: Pearson (LON:PSON) and Bunzl (LON:BNZL)


Alex Wright's London Value Investor Conference Presentation

Long: Pearson (LON:PSON)  Wright said that Pearson was the most exciting stock in his portfolio. His Special Situations Fund purchased shares in 2017, the shares are up around 35% since then. The stock performed poorly between 2015 and 2017 losing about 60% of its value. Analysts are negative on Pearson with 3 buys and 9 sells, the most sell recommendations in the FTSE 100. Low unemployment in the US has pushed college enrollments down. Also, Amazon and marketplace sellers have challenged text book publishers by providing a more effective platform for re-selling second-hand text books.

Pearson is a complex business that primarily sells text books and online resources for education. It is primarily US focused. The company is misunderstood by the market. Education is a structural growth area. Pearson has 40% market share in their core market. Education is changing from being textbook/ analogue in delivery to being online/ digital. The cost of delivering digital education is preventing competition from other players and giving Pearson a competitive advantage. They are twice the size of their nearest competitor.  Digital will go from 50% to 80%. The digital model is access not ownership, more like Spotify or Netflix. It will stop competition from course material resellers. Over time digital will reduce the cost base and create a simpler business - £300m cost savings by 2020. Pearson could become one of the highest quality companies in the FTSE 100.

Long: Bunzl (LON: BNZL):  Bunzl is a global distributor and outsourcer making things like plastic forks, coffee cups, and cleaning products. The US is their major market.  EV/ sales has fallen from 0.85 to 0.7 since 2015. Investors fear that Bunzl’s business will get disrupted by Amazon. Amazon does sell most of the products that Bunzl distributes.  Amazon won’t eat Bunzl’s lunch. Bunzl does not compete primarily on price. Their customers use them because they are a one stop shop. They supply Walmart stores in the US with till rolls, cleaning products and light bulbs. Walmart is their largest customer. Costa is another big customer who Bunzl supply with coffee cups. They are better than Amazon at delivering reliably on time. They offer their customers bespoke solutions that Amazon don’t. 

Investors have also been worried about Bunzl’s reliance on single use plastics, the negative environmental impact and the potential for regulation. Bunzl is beginning to address this issue.  Where they have the use of recycled products and wood products have led to higher profit margins.  Bunzl can grow by acquisition. Wright noted that analysts on the sell side find it hard to model businesses that grow by acquisition.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Stephen Mitchell & Bryan Pilsworth Long Transcontinental & Walgreens Boots Alliance: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Stephen Mitchell and Bryan Pilsworth of Foyston, Gordon & Payne who pitched two longs: Transcontinental (TSE:TCL) and Walgreens Boots Alliance (NASDAQ:WBA).


Stephen Mitchell & Bryan Pilsworth's London Value Investor Conference Presentation

Long Transcontinental (TSE:TCL):  It's Canada’s largest printing company and an emerging N.A packager. It’s a high-quality company that is not broken but it is going through a change process.  The company is well lead by Francois Olivier (President & CEO) and Isabelle Marcoux (Chair). They have been astute at getting out of declining businesses quickly, for example, they exited the textbook market. The remainder of the printing business achieves high margins.

TCL is better and cheaper than peers. For example, it is more profitable than its competitor, Quad.  Unlike printing, packaging is a growth market. The US market is worth $25bn and is growing 2-3%per year. Transcontinental’s printing know-how is transferable to packaging. TCL entered the packaging market in 2014 and by 2017 it had acquired 7 plants. In 2018 it acquired a further 21 new plants with a US focus from Coveris America.  TCL are now No. 7 in packaging in the US. They are No. 2 in cheese packaging.P/E 11.5x (2019); EPS $2.4; EV/EBITDA 7x (2019)


Long: Walgreen Boots Alliance (NASDAQ: WBA):  The shares are cheap because it’s rumoured that Amazon is going to enter the pharmacy business.  70% of prescriptions are recurring. 85% of prescriptions are generic.  People with recurring prescriptions may chose Amazon home delivery. Pharmacies may lose foot traffic which will impact brick and mortar store sales.

Walgreens is the largest retail pharmacy, health and daily living destination across the US and Europe. Market Cap $63bn. Global sales of $118bn, over 13,200 stores in 11 countries. Over the last 10 years, sales and EPS growth of 8%. Average ROE of 16%.  Two reasons why pharmacy/ store networks have a moat against Amazon.  1. Convenience: 70% of seniors chose pharmacy over mail order due to convenience.  2. Compliance: Managed Care Operators (MCOs) need pharmacies to ensure proper patient drug usage.  So far chains have taken share at the expense of mail order and independents.

High margin beauty products provide an opportunity to improve front-of-store sales and expand margins. Customers like in-store demonstrations before purchase. On-line sales are only 8% but growing.  Walgreens already has an omni-channel offering - a multi-channel sales approach – and a mobile offering. The mobile channel has 88m users in the US. Half of digital sales come through mobile. 50% of users use an app in-store. 20% of users are 55 years or older.  PE 10.3x CY 2018; ROE 19.8% CY 2018; Net debt / EBITDA 1.5x; dividend yield 2.5%.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Adrian Warner Long HCA Healthcare: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Adrian Warner of Avenir Capital who pitched long HCA Healthcare (NYSE:HCA).


Adrian Warner's London Value Investor Conference Presentation

Prior to founding Avenir Capital in 2011 Adrian Warner worked in private equity.

Long: HCA Healthcare (NYSE: HCA):  HCA is a private hospital provider in the US with 179 hospitals, 38K staff, 47K beds. It has a strong  financial track record of growing revenue and margin stability. Margins have averaged 19% for over  20 years. It has leveraged 5% annual revenue growth into 15% annual EPS growth.

The bulk of the industry is not-for-profit hospitals or state/ local govt owned. Only 20% of hospital are for-profit in the US. In terms of inpatient costs per day for-profit hospitals have 24% lower costs, than not-for-profit. HCA is the dominant hospital provider in the for-profit sector with x2 the market share of the nearest competitor, Tenet Healthcare (THC). HCA’s scale and geographic focus provide a competitive advantage. It focuses on large urban markets which allows a greater focus on high-end subscribers. It has also focused on the sunbelt states which have large elderly populations.

Its industry leading capex allows it to attract the best physician groups. Its competitive advantage is demonstrated by long-term margin superiority, 19% Vs 10% for the industry average.  The hospital sector is expected to grow at around 6% per year. Even though there is a lot of regulatory noise, the Republicans failed attempts to pass health care reform in 2017 - with a majority in both houses - shows that radical change in the sector is unlikely.

HCA has grown through acquisition. The CEO believes the pipeline for potential acquisitions is good. Weak competitors provide M&A opportunities. HCA has bought back 20% of its shares since 2013.  EBITDA 7.7x; PE 10.7x; FCF yield 5.5%.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Stephen Anness Long National Oilwell Varco: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Stephen Anness of Invesco Perpetual who pitched a long of National Oilwell Varco (NYSE:NOV).


Stephen Anness' London Value Investor Conference Presentation

Oil stocks have sold off because of the fear of the challenge from electric vehicles and new supply from US shale.  Going back to the 1950s, Energy stocks are trading at a 40% discount to their average price to book value.  The death of oil has been exaggerated. Battery technology has been slow to develop and is not about to replace oil. Batteries are not good at storing energy compared to oil. Petrol is a 50x better store of energy than the best lithium-ion batteries.

Cobalt is a critical component for the cathode. Current production of 130Kt per year is sufficient for only 5.4m vehicles. If all the potential cobalt mines were opened that would allow only 12m EV vehicles in 5 years’ time.  The move to battery power creates serious security issues because 60% of the world’s supply of cobalt is located in one country, The Democratic Republic of Congo.  Because of the growing demand for cars generally, even if a quarter of those were EVs by 2025 – a high estimate - there would still be demand for a growth in ICE vehicles. ICE car sales are therefore likely to rise in the coming years.  Only 20% of oil demand comes from cars anyway. Trucks 24%; other transport (aircraft, ships) 12%; Industry 28%; power 5%.

Oil consumption is still rising whilst net reserves are falling. Increased demand will come from China, Latin America, India. Last year was the worst year for conventional oil discoveries since 1940. In the recent downturn the industry has reduced capex by about $700bn.

National Oilwell Varco is a US based company. Stephen Anness’s fund started purchasing NOV shares in late 2016. The shares trade at a similar price today.  It would be difficult to build an oil rig without using NOV products. It has 70% market share in some areas.  NOV has a strong balance sheet. They have been free cash flow positive for 14 of the last 15 years.  FCF averaged 11% per year over 15 years.  NOV is seen by analysts as an off-shore business. NOV’s off-shore revenues have collapsed from $21bn to $7bn and they have made some on-shore acquisitions. Today, two-thirds of its revenues come from on-shore. The change has not been recognised by analysts.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Alvaro Guzman & Fernando Bernad Long Buenaventura: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Alvaro Guzman and Fernando Bernad of Az-Valor Asset Management who pitched a long of Buenaventura (NYSE:BVN).


Alvaro Guzman & Fernando Bernad's London Value Investor Conference Presentation

Alvaro Guzman was Francisco Parames' partner at Bestinver 2003-2014.

Long: Buenaventura (NYSE: BVN)  Mining is not a good business. ROCE is low across the cycle.  There are potentially some negative stock specific issues: Buenaventura has all its assets in Peru. It is family owned. The stock is up x4 already.  But if you are going to invest in mining copper is not a bad place to be. Population growth, urbanisation, industrialisation and growth in disposable income will lead to more demand.

Copper use in China is only 30KG/ capita Vs 100KG/ capital in the West. There is a long way to go.  Copper production is getting structurally harder. On a global basis, BVN has the 3rd largest copper mine and the 4th largest reserves. It’s a low-cost mine, open pit and highly mechanised.  A 20% stake in the Cerro Verde mine is worth the entire EV of Buenaventura. You get Buenaventura’s gold assets for free.

Guzman disagrees with Buffett’s negative view on gold as an asset for investment. Owning gold is a good insurance policy at a time when governments and institutions are trying to drive inflation higher.BVN’s management team is unusually good in the mining industry. No capital increases; they hate debt; they own more shares than anybody else; they have successfully negotiated a period of hyperinflation; they are good capital allocators.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Jonathan Boyar's London Value Investor Conference Presentation 2018: AXTA, GOLF, MSGN, BEN, HHC

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Jonathan Boyar of Boyar Value Group who presented five long ideas: Axalta Coating Systems (AXTA), Acushnet Holdings (GOLF), Madison Square Garden Networks (MSGN), Franklin Resources (BEN), and Howard Hughes (HHC).


Jonathan Boyar's London Value Investor Conference Presentation

Long: Axalta Coating Systems (AXTA):  Axalta is the world's 5th largest coatings company. Berkshire Hathaway own a large stake. It’s the no. 1 player in refinish (re-painting autos after accidents). Refinish accounts for 50% of their EBITDA and is the crown jewel. They have turned down two takeover offers. The company appears to be for sale, but they are waiting for the right offer. They are buying back shares. They are currently trading ats ubstantially less than an acquirer would pay at EBITDA 10x 2019. This type of company usually gets bought out for 13x to 15x.

Long: Acushnet Holdings (NYSE: GOLF) Acushnet designs, makes and sells golf products. It is a great consumer franchise. It’s not in a major index. It has minimal sell-side coverage. It generates 40% of revenues from consumer products. It’s a potential takeover target. Nike has left the golf product business.

Long: Madison Square Garden Networks (MSGN):  It’s a broadcasting company that was technically the parent from the spin out of Madison Square Garden (MSG). At the time of the spin-out it was carrying a lot of debt (5x levered). They have now reduced that to 3x. Once Disney, Fox and Comcast conclude their M&A activity one of them might be interested in bidding for Madison Square Garden Networks.  The market believes that cable operators might drop the channel. This is unlikely because sports are too important to cable subscribers and advertisers. The shares are cheap at FCF 7x.

Long: Franklin Resources (NYSE: BEN):  Franklin is an Investment management business. They are buying back a lot of stock. The family owns 40% of the company. If the shares get cheap enough the family might buy it outright.

Long: Howard Hughes Corporation (NYSE: HHC).  The real estate is difficult to value and the company is largely ignored by most investors. It is not in a major index. The CEO recently purchased a warrant for $50m that will expire worthless if the stock does not go up.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Mark Pearson Long Asanuma: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Mark Pearson of Arcus Investment who pitched a long of Asanuma Corp (TYO:1852).


Mark Pearson's London Value Investor Conference Presentation

Mark Pearson co-founded Arcus Investment in 1998.Value investing in Japan has under-performed for 10 years. The coming decade is likely to be exceptionally good. Value gets stored up not destroyed.  Defensive and high-quality companies are surprisingly expensive. In his long/ short fund, the gap between expensive shorts and cheap longs is the same as it was in the internet bubble of 1999/2000.

Long: Asanuma Corp (TYO: 1852)  Asanuma is an Osaka based construction company. Construction companies in Japan have been through the wringer and have begun a tentative recovery since 2010. They are still in the early stages in terms of revenue growth.  Since 2010 Asanuma’s net debt has been transformed into net cash (16bn Yen of debt in 2010 to 27bn Yen of cash today). PE 6x. There is no analyst coverage.  The construction sector has been one of the slowest to recover in Japan. New building is still at a low level but at the very least there will be maintenance and refurbishment work.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Broyhill's Recommended Reading List

Numerous successful investors have noted how important it is to constantly be reading and learning.  Warren Buffett's business partner Charlie Munger once said, "You'd be amazed at how much Warren reads - at how much I read.  My children laugh at me.  They think I'm a book with a couple of legs sticking out."


Broyhill's Book Recommendations


Recently, we came across Broyhill Asset Management's Book Club where they share their favorite books of the past year.  It's a free curated list of their top recent recommendations.  It's quite comprehensive and had many titles we'd never read or even heard of. You can click here to view Broyhill's book recommendations.

If you're looking for some good summer reads, look no further.  While investing books are obviously useful, you might be surprised what kind of lessons you can learn from biographies and other genres as well.

While we'll occasionally highlight a book in our "What We're Reading" posts, this is a large compilation of recommendations from another trusted source.  They also provide a quick blurb on why a specific book was worth reading or what they learned from it.

Check out Broyhill's book recommendations for investors

13F Filing Summary: New Hedge Fund Wisdom Issue Just Released

Want to find out what stocks top hedge funds have been buying, selling, and shorting?  Our 88-page quarterly newsletter summarizes the latest 13F filings of 25 top funds. 

The brand new Q1 issue is now available.  Subscribers please login at www.hedgefundwisdom.com to download it.


Inside The New Issue

- New Fund Added:  Lou Simpson's SQ Advisors is now included and replaces Blue Ridge Capital, which shut down.  Prior to founding SQ, Simpson managed a portfolio for Warren Buffett's Berkshire Hathaway

- Investment Thesis Summaries of Vista Outdoor (VSTO) and Nielsen (NLSN).  Quickly get up to speed on why two managers were buying these stocks in Q1

- New Consensus Buy / Sell Lists: See the most popular stocks among top hedge funds

- Reveals Latest Portfolios of 25 Top Managers: David Tepper, Steve Mandel, Seth Klarman, Chase Coleman, Lee Cooperman and 20 other top investors (full list here)


Subscribe Below To Read It Now

You'll get immediate access to the brand new issue as well as the full archive of past issues.

1-year Subscription (4 Issues): $299.99 per year (save $60 with this option)

Quarterly Subscription: $89.99 per quarterly issue

Want to pay by check or soft dollar?  Please email us:  info (at) hedgefundwisdom (dot) com

Hedge Fund Links ~ 5/11/18

Inside the strange odyssey of hedge fund manager Eddie Lampert [Vanity Fair]

Do hedge funds profit from public information? [SSRN]

Hedge funds that do the most research will post the best returns [CNBC]

Activist ValueAct sets sights on Citigroup [WSJ]

At short selling conference, hope springs eternal [Institutional Investor]

More hedge funds closed than opened in 2017 [Bloomberg]

Third Point seeks to launch blank check company [Reuters]

Time to go long David Einhorn [Forbes]

Hedge fund manager reportedly owes $1 billion in taxes [CNBC]

A sidelined Wall St legend bets on bitcoin [New Yorker]

The last days of Whitney Tilson's hedge fund [Institutional Investor]

What We're Reading ~ 5/9/18

Factfulness: Ten reasons we're wrong about the world [Hans Rosling]

Retail: is the beauty industry 'Amazon proof?' [FT]

The hyperfragmentation of retail and why the winners are digital ad platforms [Medium]

Attack of the micro brands [Medium]

Big beer struggles to tap into shifting consumer trends [Food Dive]

Morrisons' recovery is underway but is it in the share price? [UK Value Investor]

Behind the rise of activist short sellers [AFR]

Why T. Rowe Price likes Alphabet, Amazon, Facebook [Barrons]

A seed investing framework [Medium]

The Chinese unknown that's making Africa's phones [Bloomberg]

China wants its tech firms back, are CDRs the answer? [Bloomberg]

Why there's a worldwide shortage of vanilla [The Economist]

The Canadian king of New York: inside the rise of Brookfield [Bisnow]

At Uber, new CEO shifts gears [New Yorker]

Mark Zuckerberg on Facebook's hardest year, and what comes next [Vox]

Deep fiber: the next internet battleground [Deloitte]

CRISPR: the gene-editing tool revolutionizing biomedical research [CBS News]

Where's the invisible hand when you need it? [Stanley Druckenmiller]

The importance of high standards [Medium]

Tourbillon's Jason Karp on Invest Like The Best Podcast

Jason Karp, founder of hedge fund Tourbillon Capital recently appeared on Patrick O'Shaughnessy's podcast, Invest Like The Best, and he talked about a range of investing topics.  We posted extensive notes from the conversation with the full audio below.


On The Differences Between Public and Private Investing These Days

Years ago, 40-50% of stock market volume came from fundamental allocators.  Today it's less than 10%, so 90% of trading activity is coming from passive, quant, CTAs, risk premium captures, etc.  The vast majority of trading then is not coming from people who are concerned with 'what does this company do?' etc.  This leads to multi-day or even multiyear dislocations.

"The time for convergence between cashflows and the fundamentals of a business and stock price is usually 3-5 years at worst."

He said private companies tapping venture capital can now gain massive scale (i.e. Uber) without even going public.  Over the past 5 years there's been an 'explosion' of capital via VC's etc. 

"I believe the trends of why people allocating so aggressively privates is because the public markets have gotten harder. And people don't want to deal with daily, monthly mark-to-market."

He thinks there's a lot of edge left in private equity and a "more linear relationship between effort and outcome."  While that's applicable to public market investing, your time horizon has to be around 5 years.  But if you or your investors have a shorter horizon, it's less so.


On His Investment Style

"If I can find deep value, where the cashflows are growing, which is extremely rare, then that's the best case scenario.  My primary first variable is: 'are the cashflows growing?' Because growth solves a lot of sins."  If cashflows are growing, you can be wrong on the valuation.

They'll take the price today and instead of doing a DCF, he'll do it in reverse and try to figure out what's priced in today's stock and what would have to happen for it to be worth x.

He says that with deep value stocks, most have problems.  "All the cheap stocks have things that are very, very wrong with them.  So you're inherently in an adverse selection pool to try and find the frog that you can kiss that turns into a prince, when most of them are frogs and you're going to get warts on your face.  I just think there's an easier game to play."

On general investment advice he's learned over the years: "It's very important for you to keep your consumer hat on at all times, and remember that your gut instinct about how you feel about the product and experience... is so important."  He compared it a bit to a Peter Lynch-esque approach.  It helps you spot trends much earlier.


Talking Stocks

He thinks Facebook (FB) and Alphabet (GOOG) are surprisingly cheap given how entrenched they are in your everyday life.  He says FB's Instagram specifically is going to grow like crazy with businesses.  There's highly cyclical companies that are trading at around the same valuations, which is kind of crazy.

3 types of edge in market:  information edge, which is largely gone.  Analytical edge still exists and it's based on how you process information versus others.  Structural edge is where he sees the most opportunity: being able to stomach volatility via long-term holding etc. 

"There's more opportunity than I've ever seen in my career for duration... ever."  He says there's so many stocks that screen poorly and others that screen extremely well and are getting very crowded.

He thinks quality, safe, low volatility stocks are very overextended and then there's others that are more value and a little hairier... the disconnect between fundamental value and where the price is, is the largest he's seen in his career.


Industries To Watch For The Future

Karp feels health and wellness is one of the most interesting places to be doing research both in public and private markets right now.  The megatrend here is people focusing on less processed foods, not caring about brand, mainly just wanting quality products.  He thinks the trend is here to stay because once people find out about all the chemicals in their food and how it affects test animals or humans, there's no turning back.  And a lot of it will be demographics since millennials are so young and already focused on this.

He also feels cannabis is going to be one of the biggest industries in this country in the next 5-10 years.  He says it's much more valuable to be learning about this than crypto.  Many of these stocks will go to zero but many will also go up ten-fold.  As the tipping point has hit with legalization starting to happen, he thinks there will be alpha there.


On Hiring

He says that knowledge and passion are the two most important factors in hiring people.  The first is easy to find, the second's not.  And it's the more important of the two.  You want the people working for you to actually enjoy what they do. 

The third variable is emotional intelligence and it's the hardest to find.  He thinks it's more important than IQ.  It's about the ability to control yourself, have empathy, see other points of view, and rapidly change your opinion.  In the investment industry, these are crucial. 

He hires a lot of athletes due to the competitive nature (something we've heard from Julian Robertson before), and people from military backgrounds due to training.  He's also found mothers to be spectacular due to their perspective on managing people and conflicts.  Instead of looking at a resume, look at what a person has been through or actually done.


Embedded below is the podcast interview with Tourbillon's Jason Karp:



And if you haven't already, be sure to check out Patrick O'Shaughnessy's podcast: Invest Like The Best.

Third Point's Q1 Letter: United Technologies, DowDuPont, Lennar & Dover

Dan Loeb's hedge fund firm Third Point is out with its first quarter letter.  During Q1, they returned -0.6%.  The letter talks about their new stake in United Technologies (UTX). 

They're pushing for a split-up into 3 companies: Otis, CCS, and an aerospace company.  They see this driving $20 billion of excess value (>20% of market cap) due to the fact that all three standalone companies should trade at higher multiples based on equivalent peers. 

They write, "Otis peers Kone and Schindler trade on average at 15x forward EV/EBITDA.  CCS peers, Allegion, Ingersoll-Rand, and Lennox, trade on average at 13x forward EV/EBITDA.  The remaining aerospace company would be the only liquid, US large-cap aerospace supplier other than TransDigm, which trades at 15x forward EV/EBITDA."  They also note though that management seems 'less open' to a three-way split than shareholders might want. 

Third Point also provide updates on their positions in DowDuPont (DWDP) and Lennar (LEN).  The former is one of their largest positions and they see a discount to intrinsic value that has widened.  The latter they view as the best homebuilder in the industry with the best set of veterans.  They also updated their Dover (DOV) position, noting the event-driven nature of the company now. 

You can read Third Point's full Q1 2018 letter embedded below:



You can download a .pdf copy here.

New Graham & Doddsville Issue: Mauboussin, Greenwald & More

A new issue of Columbia Business School's Graham & Doddsville newsletter has been released.  It features interviews with Professor Bruce Greenwald as he retires, and Mark Cooper of First Eagle Management.  It also features a conversation with Michael Mauboussin of Blue Mountain Capital and Tom Digenan of UBS Asset Management.

Lastly, it also interviews upcoming fund launch: Rishi Renjen's ROAM Global.  Prior to launching, he worked at Maverick Capital, TPG-Axon, and Glenview Capital.

This time around, Graham & Doddsville also includes student investment pitches from the Pershing Square Challenge. 

1st place this year was a short of Stericycle (SRCL), 2nd place was a short of Credit Acceptance (CACC), and 3rd place was a short of Spotify (SPOT).  The issue also showcases pitches on short CH Robinson (CHRW), short Harvey Norman, and long Digicel credit.

Embedded below is the latest issue of Graham & Doddsville:



You can download a .pdf copy here.

And if you missed it, be sure to check out the recent past issue that includes interviews with Lee Cooperman, David Poppe, and John Harris.

Warren Buffett, Charlie Munger & Bill Gates Interview

Today on CNBC, Berkshire Hathaway's Warren Buffett was interviewed by Becky Quick and talked about a range of topics.  Charlie Munger and Bill Gates later joined the conversation.  Here's some takeaways and quotes:


Warren Buffett's Thoughts

On the market: Stocks aren't in a bubble now.  Though said some private deal valuations are getting high and it's harder to find bargains these days.

On the economy:  Thinks the economy has picked up steam. "Yeah, I see a lot of numbers (from all BRK's businesses).  Business is generally pretty strong."  He cited railcar loadings, etc.  Also notes you've seen some inflation.

Says he thinks it's hard for unemployment to really go much lower as they have a ton of jobs available.  "If a resource is scarce, prices go up."  Says certain job lines are much harder to fill these days (construction cited specifically).

On potential trade wars:   "I don't think we will have trade wars of significance."  He thinks there will be trade movements though.  Says a trade war with China would be negative for all involved as they have a common interest.

On Amazon / Jeff Bezos:  Still laments not buying it in the past, says what Bezos has done is incredible.

On moats: Cited iPhones, Costco, and Elmer's glue as examples

On Apple: Says he doesn't have to do anything because the company will buyback so many shares, so his ownership stake will go up naturally.  He recently bought a ton more AAPL shares.  Said he currently owns around 5% of the company but he'd like to own 100% of it.  The consumer behavior was the main driver behind his ownership, as the device has woven itself into consumer's daily lives and minds, and it's a very useful product.

On owning banks:  Has owned one in the past and loves the banking business but doesn't want to now because of the bank holding co act.  Says Wells Fargo (WFC) was slow to act in addressing bad actions but still has a fundamentally solid business.

On bitcoin:  Compared it to the tulip bubble years ago.  Says it's a non-productive asset and just sits there.

On autonomous vehicles: 'Net it will be bad for the car insurance industry if autonomous vehicles become the norm.'  It will be very hard to pick winners in 5 years.

On reading he recommends, Buffett again pointed to Chapter 8 of The Intelligent Investor.  But this time around he also recommended Chapter 4 of Steven Pinker's new book, Enlightenment Now.

Ends his interview by reiterating: "It's very important in life to associate yourself with people that are better than you."


Charlie Munger's Thoughts

On the biggest thing he and Buffett have disagreed on:  Munger wanted to buy the French stake in Costco.  Buffett didn't and says he should have.  "Charlie really wants to wait for the fat pitch."

Munger said, "There's a million ways to be irrational." And while Berkshire makes mistakes, they make them far less frequently than others and he thinks that's their main advantage.

Munger noted: "The Munger family is invested in China substantially.  Since about 14 years ago, and I did it because I respected the man that was going to do the investing (Li Lu) and it looked undervalued and the companies looked very strong."  Today, he says the best companies in China are still cheaper than the best companies in the US.  "I don't think it'd be all that hard for people to find 4 or 5 companies in China to invest in."

He also said he wished Berkshire owned more of Apple.  He likes that it's reasonably priced and strong, a 'very desireable combination' as well as 'very intelligent management.'

On bitcoin, Munger called it worthless artificial gold.  "It's a scumball activity."

On potential trade wars with China: "It would be insane for them not to work together."

On what he's been reading recently:  A book by a Chinese economist, though he didn't mention the name specifically.


Bill Gates' Thoughts

He said that "T-bills set the rules" and he pointed out that since the 10-year yields 3%, you've got that hurdle to get over by taking more risk.  He says asset class returns will be lower over the next 10 years.

On bitcoin: There's some really good technology as far as sharing databases etc, but the coin itself is a speculative thing.  He received some for his birthday a while back but sold it, so doesn't own it now.  Called it a greater fool investment, and said he'd short it if there was an easy way to do so.

Gates says there are tech stocks that are undervalued, but you're going to get very high variance as the winner in some markets gets a high share of the profit pool.

He owns a ton of Microsoft (MSFT) obviously, but revealed he has a 'fantasy stock portfolio' of companies he thinks will do well but doesn't own.  "The top tech companies have a very strong share of the profit pool right now."  He obviously declined to reveal names.

Gates also echoed Munger's China sentiment that it looked attractive.

On tech and data privacy, thinks regulation is inevitable.  But the big companies will handle that.

On Tesla (TSLA): thinks they have a great product but a very high valuation and a lot of competition coming.  Says autonomous and electric vehicles are coming simultaneously and thinks 15 years from now things will be very different.

On what he's been reading recently:  Hans Rosling's book Factfulness.  Says it helps you think about a lot of different things in the world.

Notes From Sohn New York Investment Conference 2018: Einhorn, Robbins, Gurley & More

The annual Sohn New York Investment Conference recently took place and featured top hedge fund managers sharing their latest ideas to benefit charity.  Below are notes from the event.  We've also posted up notes from the emerging manager panel, Next Wave Sohn New York.


 Notes From Sohn New York Investment Conference 2018


John Khoury, Long Pond Capital: Long D.R. Horton (DHI).  He runs a $2.5B long/short fund mainly in Real Estate.  Pitch is DHI is getting asset light by only building on developed lots instead of buying raw land, getting approvals, and building the infrastructure.  So it's an asset-light model with less debt and better ROIC, so deserves better multiple.  They are the biggest US builder based on number of units - average price is $300k, basically entry-level homes, and they built 50k last year.  What about interest rates? Says that is the biggest fear now, but rates could go up 100 bp and housing would still be affordable in relation to current income and net worth of households.  Key is rates would be coming up from such a low place. Says record low inventories.  Expects $5.50 EPS by 2020, uses 13x to get $71.50, or 63% upside.


Li Ran, Half Sky Capital.  Long: GrubHub (GRUB).  2014 IPO.  Felt like the companion pitch to the TKWY pitch in the morning at Next Wave Sohn from Alex Captain of Cat Rock Capital.  Large addressable market, positive unit economics, proof of concept, and support from restaurants.  Painted a pretty rosy picture, didn't really touch on the bear case.  She says $70B TAM on 35% penetration on 110M diners (they have 14.5M now, and many analysts think they are close to fully penetrated in the US.)  She has done surveys of restaurant managers that expect GRUB to keep growing.Price Target $160, on 15x EV/EBITDA, up 60% from here.  Previously worked at Lone Pine Capital.


Jeffrey Gundlach, DoubleLine Capital: Long XOP ETF, short Facebook (FB).  His FB pitch seemed to mainly be based on technicals.  He used the fact that FB is below the 200 day moving average at the time as his reason to be short.  He also cited 2 examples of government regulation hurting stocks - one was tobacco. (He didn't mention other examples where stocks were stronger yet, such as credit cards, banks, etc.).  He pointed out a 'head and shoulders' formation on the FB chart, which is usually bearish.       


Chamath Palihapitiya, Social Capital: Long Box (BOX).  He said BOX was an AI play, and he also said you should have an AI basket of AMZN, GOOG, BOX.  He was less enthusiastic about NVDA, because he believed GOOG's TPUs are "ten times better."  On BOX, he said it goes up 10x in 10 years, even though it has 70% of Fortune 500 already.  Core business stable, adding SaaS revenue.  Big Data/AI play, and 4.3x revenue. Only growing 20% CAGR, yet he expects multiple expansion.


Glen Kacher, Light Street Capital: Long Palo Alto Networks (PANW).  Tiger Cub 1993-1997.  He was up 11% through the end of Q1 in 2018.  He talked about cyber warfare, and how firewalls weren't enough and how you need a platform approach.  $19B market cap, biggest in Cyber, ARPU 4x the competition, which is CHKP, CSCO, FTNT, JNPR and others. Compares their attempt to shift to subscription services that ADBE has done (though he didn't mention the difference is that ADBE didn't sell hardware).  He gets a $360 price target using 10.6x Revenue.  He admits products slipped in 2017, but thinks it comes in 2018.


Seth Stephens-Davidowitz, New York Times op-ed contributor, visiting lecturer at The Wharton School and former Google data scientist.  Gave an interesting preview of his book, Everybody Lies.  Basically, a lot of people have secrets and tendencies, even though they don't admit it, but you can find out because of Google searches, which he calls "Digital Truth Serum."


Scott Ferguson, Sachem Head Capital: Long Whitbread (WTB).  Basically "Dunkin Donuts of the UK, with a budget hotel thrown in.  "Hasn't done well, they have been stuck in it for a year, he says the bad news is now priced in.


John Pfeffer, Pfeffer Capital: Long bitcoin.  The other alternative coins aren't great, stick with best of breed.  The pitch was basically that bitcoin is gold 2.0, similar to what the Winklevoss twins have argued.  Used a lot of formulas in the pitch.  Ultimately says could be a 1% chance that XBT goes to $700k if it's used as a Reserve Currency.  Maybe it's only Gold 2.0, then it's worth about $90-180k per coin, up from about $9k today.


Bill Gurley, Benchmark, with Chamath Palihapitiya:  Interesting back and forth between two talented VCs.  Gurley contemplates the idea of "peak car" ownership in the US.  3.2 cars per household now, could never get higher.  Says Uber is getting turned around, culture improving.  Slack, AirBnB are big ones to watch when they IPO.  He says autonomy could be 2 decades away, because the US is such a litigious society.  FB- he would be long, says this is not an existential threat.  AMZN- "of course, long."  GOOG - he's concerned - they have problems, although he wouldn't short (He also told an amusing story how they turned them down for VC money).  TSLA- says Musk is making it too risky to own the stock.  SoFi- "when you are handing out money there is no barrier to entry and the guy doing the highest volume usually has the loosest rule set."  HTZ- he would be short, even against Icahn.  Several issues:"disruption and debt are bad sisters," 5-15x levered, depending on whether you count the car loans.  Ride sharing is a huge substitute for rental cars in many US cities.  Systematic used car problem - if the macro gets hard at all, this business has zero flexibility due to the debt load.


Larry Robbins, Glenview Capital: Long ESRX, MCK, CVS.  Says AMZN is not going to get into their business, the PBMs aren't really gouging, they only make pennies, and drug prices have actually dropped over the last 4 years.  Says they trade at historically low multiples.  Says MCK goes up 91% in 2-3 years after the spin, and share buyback. ESRX deal with CI will happen.


Sohn Idea Contest Winner, Andrew Walker: Long LQM.  Mispricing due to taxable spin, incentive to keep price low.  This is a popular HF play right now.


Nathaniel August, Mangrove Partners: short EROS."Netflix of India" maker of Bollywood films.  He did a long presentation which focused on how he argues the company is cheating on their accounting every way possible.  He's being sued by the company.  Small cap, doesn't trade much.


David Einhorn, Greenlight Capital: Short Assured Guaranty (AGO).  Bond insurer, beset by Puerto Rico bonds and decline in overall muni bond issuance.  Business is also levered, with smaller room for error.


Be sure to also check out notes from the emerging manager segment of the conference: notes from Next Wave Sohn New York.