Dan Loeb's Recommended Investing Books

Third Point hedge fund manager Daniel Loeb recently outlined his recommended books on investing.  He says that, "everybody has to read" the following books:


- Edwin Lefevre's Reminiscences of a Stock Operator. Loeb says this is a classic and we definitely agree, as it has graced our recommended reading lists before. This book takes you inside the mind of a trader and provides you with insight, wisdom, and anecdotes from the financial world. "Let your winners run and cut your losses quickly" as well as "the trend is your friend" are legendary pieces of advice to come out of this book.

- Joel Greenblatt's You Can Be a Stock Market Genius. Dan mentioned that this is, "probably the best book ever." It details the niches of risk arbitrage, spin-offs, bankruptcies, mergers and the like as it relates to investing. Citing that these areas are often 'overlooked' by analysts, Greenblatt argues that you can exploit inefficencies. Loeb certainly agrees with that as Third Point's investment style is often centered around these types of strategies.

- Howard Schilit's Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud. This book takes an in-depth look at accounting fraud and how to identify warning signs of a company's impending problems. Obviously this book makes sense for anyone looking at balance sheets, 10-Q's and 10K's on a regular basis.

- Kathryn Staley's The Art of Short Selling. Loeb calls this "another good book" and he is not the only hedge fund manager that thinks so. In the past, we've covered Blue Ridge Capital's recommended reading lists and The Art of Short Selling was one of their top picks on the analytical side of things. This book covers a topic essential to those in the hedge fund game.

- *Updated* with new 2020 recommendation from Loeb - Quality Investing: Owning the Best Companies for the Long Term by Lawrence Cunningham.  Recommended in a recent quarterly letter from Loeb reflecting his current investment focus in 2020.

- *Updated* 2020 recommendation - No Rules Rules: Netflix and the Culture of Reinvention by Reed Hastings - The new book by Netflix's founder.

While that wraps up Loeb's favorite investing and finance reads, he did mention he had another favorite "non-investing" book. Jim Loehr's The Power of Story piqued his interest, as the book deals with how you can "change your destiny in business and in life." Hopefully you all enjoyed this collection of Dan's favorite reads, as there are definitely some good ones listed.


As always, you can check out our recommended reading lists in the following categories for further insightful books on the topics of investing, trading, and finance in general. Our recommended reading lists:

- Fundamentals / Valuation

- Technical Analysis / Charts

- Hedge Fund Blue Ridge Capital's Picks

- Overall good Investing & Trading Books

- Books By Stock Market Gurus

Chase Coleman's Tiger Global Sells More Longtop Financial (LFT)

The hedge fund firm ran by Chase Coleman continues to sell shares of Longtop Financial Technologies (LFT). Tiger Global is now showing a 12.3% ownership stake in LFT with 6,313,181 shares as per an amended 13D filing. The filing was made due to activity on July 17th, 2009. When we last covered Tiger's LFT activity, we saw that they owned 14.2% of the company at that time. In the span of about two weeks (July 1st to July 17th), Tiger has sold 980,318 shares. We even covered their initial sales back in late June, so there is obviously a lot of selling going on here. What's interesting to note, however, is the fact that in this most recent filing, Tiger states that "there were no transactions by the Reporting Persons of Issuer's Ordinary Shares in the last 60 days other than the Secondary Sales described below." And then they attach this breakdown showing which fund sold shares on which date and at what price:

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We apologize if the lists are hard to read even after enlarging them, as that is the best we could get it. Tiger has suffered a bit of a rough year so far in 2009 as their financial and REIT short positions hurt them earlier on, as detailed in their quarterly letter where they were -8.1% for the year at the end of April. A meager year thus far aside, Tiger has a great historical track record and that's why we track them here on the blog. In fact, Tiger Global is one of the hedge funds that comprises the Tiger Cub Portfolio created with Alphaclone where you can replicate their positions and enjoy 15.5% annualized returns since 2000. For more on Coleman and Tiger Global, check out their background and focus in the middle of the linked post.

Taken from Google Finance, Longtop Financial Technologies "together with its subsidiaries, provides a range of software solutions and services to the financial institutions in the People’s Republic of China (PRC), including the development, licensing and support of software solutions, the provision of maintenance, support, and other services, and system integration services related to the procurement and sale of third party hardware and software."

Perry Partners Investor Letter: Q2 2009

Here's the latest investor letter from hedge fund Perry Partners presented without comment embedded below. RSS & Email readers will need to come to the blog to view the letter. Alternatively, you can attempt to download the .pdf here assuming that link still functions.

Perry Q2 Letter

Harbinger Capital Partners Sells Shares Of Leap Wireless (LEAP) & Solutia (SOA)

In two separate amended 13D filings made with the SEC, Philip Falcone's hedge fund has disclosed sales of shares of both Leap Wireless (LEAP) and Solutia (SOA). Firstly, Harbinger Capital Partners now shows a 9.7% ownership stake in Leap Wireless (LEAP) with 7,484,000 shares. On July 24th, 27th, and 28th, Harbinger sold a total of 3,041,000 shares at prices ranging from $25.44 to $27.05, with the bulk of their sale coming at $26.70 and $27.05. Upon quick glance, it looks like the vast majority of the selling was done in their Special Situations Fund.

Secondly, we also see that Harbinger has sold even more shares of Solutia (SOA). We've covered this development for a while now, as we detailed their sales of SOA back in late June. Back then, they sold shares around $4.80 per share. Most recently, they've sold shares much higher at $7.50 a share on July 29th. They are now showing a 9.4% ownership stake in SOA with 11,233,573 shares owned in total. This is way down from their previous total of over 16 million shares.

In the middle of July, we also detailed Harbinger's acquisition of a Zap.com (ZPCM) stake through their already large position in Zapata (ZAP). Additionally, Harbinger has also started a new position in Morgans Hotel Group (MHGC). Last year, Harbinger was ranked #1 in the top 10 asset losers, losing 60.8% on a year over year basis as their Offshore fund finished -22.7% for 2008. We then got word that Falcone would be returning to his roots in terms of investing style and would be opening a new fund. As always, we'll continue to monitor the developments regarding their holdings. For further background on Falcone & Harbinger, check out our post on their portfolio.

Taken from Google Finance,

Leap Wireless is "a wireless communications carrier that offers digital wireless service in the United States under the Cricket brand."

Solutia is "a global manufacturer and marketer of a variety of chemical and engineered materials that are used in a range of consumer and industrial applications. The Company maintains a global infrastructure consisting of 25 manufacturing facilities, six technical centers and over 29 sales offices globally, including 14 facilities in the United States."

Atticus Capital Sells Shares Of Unite Group, Their Only UK Holding

Just yesterday, the London Stock Market announced through the Regulatory News Service that Timothy Barakett's hedge fund Atticus Capital had reduced its stake in Unite Group from 4.1% to 3.8%. Unite Group Plc (UTG) is a developer and manager of student accomodation and is Atticus' only disclosed holding in a British company. Unite Group's share price fell significantly during the last couple of years from a high of 549P in February 2007 to a low of 39P in March of this year; that's quite some fall! If Atticus were clever enough to start accumulating Unite Group stock in February or March of 2009, it is likely that they will have turned a good profit on the small amount of shares they have just sold. However, we are unable to know for sure at what price Atticus paid for the first part of their position. This is due to the rules of UK disclosures, as funds are not required to disclose a position until they have acquired 3% or more of any given company.

In terms of U.S. positions, we also disclosed yesterday that Atticus Capital had amended two separate 13G filings. In the filings, we saw that Timothy Barakett's hedge fund was selling shares of Sotheby's (BID) and Transatlantic Holdings (TRH).

This article is a new edition to Market Folly's expanding hedge fund coverage. Typically, we've covered U.S. equity positions as disclosed to the SEC. Now, thanks to a reader's help, we are also detailing the changes prominent hedge funds make to their portfolios in the UK market. We kicked off our coverage in this regard yesterday by detailing the UK positions of Stephen Mandel's hedge fund Lone Pine Capital. And the post above regarding Atticus marks our second article in this new coverage. Stay tuned as we continue to cover both the U.S. and UK holdings of top hedge fund managers.

Below you will find the breakdown of Atticus' transaction. Lastly, for background information on Barakett & Atticus, head to our post here.

Unite Group Plc

Date of transaction	No. of shares	% of total shares	Estimate of price per share
04/06/2009	3852513	3.1	-
18/06/2009	5163291	4.1	125p
31/07/2009	4806652	3.8	128p

Dan Loeb Video: Hedge Fund Manager Of Third Point LLC

Hat tip to Simoleon Sense for this find. Interesting video embedded below featuring a lengthier speech/chat by Dan Loeb of hedge fund Third Point LLC. In the video, Loeb details his background, talks about the investment industry, and gives a lot of great advice. And, since this was pretty recent (June 2009), he details the turmoil his firm suffered in 2008 and walks us through his progress thus far in 2009. A funny quote from the video comes when Loeb talks about his bearish outlook when the new year began, as Third Point was positioned defensively and owned a lot of gold. Loeb said, "if we could have stockpiled guns at Third Point, I probably would have." Good times. But, as we here on Market Folly have already covered, Third Point's gold position was mainly a hedge against uncertainty and they have since moved out of it, as detailed in one of their investor letters.

Third Point is a $2 billion activist and value based hedge fund. Specifically, they deem themselves to be "event driven, value oriented investors." While Loeb actually got his start in private equity, his passion has always been the markets. Loeb founded the firm back in 1995 with $3.3 million in seed capital and is still running the show these days. While Third Point is technically an activist fund, Loeb often has numerous passive investments as well. Loeb himself is quite well known for his searing and critical letters to management of various companies. Third Point has seen annual returns averaging over 15% since inception (including the crazy year that was 2008), a Sharpe Ratio of 0.9, and a correlation to the S&P500 of 0.4. For some of Third Point's hedge fund movements, we covered Loeb's recent activity here.

Here is the video (RSS & Email readers will need to come to the blog to view it:

Market Folly Custom Portfolio Performance: July 2009

As promised, we'll now be giving monthly performance updates from our Market Folly custom portfolio created with Alphaclone. For a background on our hedge fund replicator portfolio, check out the introduction to our portfolio: Part 1 & Part2. Simply put, we've cloned a portfolio based on hedge fund holdings and the performance has exceeded our expectations over the long-term. Let's get right to it:

July 2009 Performance

MF clone: +1.6%
S&P500: +7.6%

Obviously, the 50% hedge our portfolio employs has hurt us this year. Our clone is up 10.5% year to date versus S&P being up 12.6%. However, we will be quick to point out that our hedge fund portfolio is now seeing huge annualized returns with an Alpha > 15 and a Sharpe Ratio approaching 1.0. Since inception, our hedge fund portfolio has seen an over 500% total return compared to an abysmal return for the market in general. Admittedly though, the main drawback about our clone is that it is more volatile than the S&P 500. However, if you ride it through and simply rebalance 4 times a year, the returns are phenomenal. And, we created this portfolio with the sole goal of outperforming over the long-term.

Since this is our first in-depth post purely on performance, we also want to play catch up a little bit and post up the previous monthly performances thus far for 2009. Here is our breakdown:

January: MF clone +5.9% / S&P -8.4%
February: MF clone +1.2% / S&P -10.6%
March: MF clone +1.3% / S&P +8.8%
April: MF clone +2.4% / S&P +9.6%
May: MF clone +1.2% / S&P +5.6%
June: MF clone +-3.1% / S&P +0.1%
July: MF clone +1.6% / S&P +7.6%


Back in June, we posted up a portfolio update and noted that Alphaclone has included our MF portfolio on their list of available clones. As such, anyone using the cloning service can check out our portfolio. To see what positions our Market Folly clone holds, head over to Alphaclone. Be sure to check out their 14 day free trial to the full membership package where you can clone unlimited hedge fund portfolios & groups.

Hedge Fund Lone Pine Capital's UK Positions

We're excited to report that Market Folly is now expanding its coverage to positions that hedge funds hold in foreign markets. Typically, the positions we cover in our hedge fund portfolio tracking series are restricted to long equity, options, and note positions in U.S. markets. Since the hedge funds are filing the 13F's, 13D's, and 13G's with the American regulatory body (the SEC), they are only required to disclose positions in those markets. There are really only 2 major ways for us to find out their holdings in other markets. Firstly, the manager could reveal the positions via investor letter (as David Einhorn of Greenlight Capital has done before). Secondly, one can find the positions by thoroughly searching through each separate country's regulatory body. And, with many thanks to a reader's help for transcribing the information below, we are now prepared to delve into the positions that major hedge funds hold in the UK markets.

The bad news for the ‘would be’ investor in UK companies is that most of the US hedge funds that are tracked here on Market Folly are not all that active in the UK. The good news, however, is that a handful are involved with UK listed companies (including a few of the brightest managers). It’s exciting to report that Stephen Mandel's Lone Pine Capital is an active participant in the London market. Just yesterday, in U.S. market news, we revealed that Lone Pine had significantly boosted its stake in Vistaprint (VPRT). Today, we'll take a look at some of their UK positions.

Why get excited you might ask? Well, as we've pointed out before, Lone Pine has returned over 25 percent annually since its inception in 1997. Before setting up Lone Pine, Mandel worked as a consumer/retail analyst for Tiger Management under the leadership of Julian Robertson. Mandel has a reputation for the quality of his investment research. Seth Klarman recently singled Mandel out for praise in an interview as someone who does exceptionally detailed and high quality work on companies. Mandel looks for undervalued companies but tends to favor high quality businesses with good management. Once Mandel commits to buying stock in a company, he tends to hold onto his investment for a relatively long period of time. And, for these very reasons, Lone Pine is an excellent candidate for hedge fund portfolio cloning with the Alphaclone replication tool.

Lone Pine currently has six disclosed long positions in UK companies:

1. Intertek Group Plc (ITRK)
Intertek is Lone Pine's biggest position at nearly 38 percent of its total UK portfolio. Lone Pine holds 12 percent of Intertek's total equity. (American readers, please note that the date column listed on the tables below is in European format. European readers: everything is normal for you, carry on).

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Intertek provides testing, inspection and safety services to a range of companies involved in consumer goods, building, telecoms, autos, oil, chemicals, pharmaceuticals, mining and agriculture. It also provides trade services to public standards bodies and governments.


2. Autonomy (AU.)
Autonomy is Lone Pine's most recent purchase in the UK with the last two disclosures coming on the 1st and 20th of July 2009. Lone Pine holds 4.26 percent of Autonomy’s equity. Autonomy makes up 22 percent of Lone Pine's UK portfolio.

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Founded in 1996, Autonomy is a dramatic growth story. The company has a market cap of $4 billion, the second largest pure software company in Europe. Autonomy is a market leader in corporate search software which is capable of capturing information from the workplace in the form of documents, presentations, videos, phone conversations and emails. Autonomy’s software aims to help enterprises to understand and extract the value from this sea of data. Their software can also help companies meet reporting obligations and prepare for legal investigations. Autonomy has been profitable in every quarter for over six years and has no net debt. It has a global presence with dual headquarters in Cambridge, UK and San Francisco and offices throughout the world including North America, Western Europe, Australia, Asia Pacific, Japan and China.


3. Ashmore Group Plc (ASHM)
Lone Pine holds 6.2 percent of Ashmore's total equity. Ashmore makes up 16 percent of Lone Pine's UK portfolio.

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Ashmore is an investment manager that specializes in emerging markets. It is involved with emerging market external debt, local currency, special situations, corporate high yield and equity. As of June 2009 it managed $24.9 billion in pooled funds, segregated accounts and structured products.


4. Michael Page Plc (MPI)
Lone Pine holds 6 percent of Michael Page’s equity. MPI constitutes 10 percent of Lone Pine’s UK portfolio.

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Michael Page is a recruitment consultancy. Its specialist areas include accounting, tax, banking and financial services, strategy and change, engineering and manufacturing, healthcare, human resources, information technology, legal, marketing, oil and gas, procurement, property and construction, retail and hospitality, sales and secretarial. The Company has 163 offices in 28 countries.


5. Rightmove (RMV)
Lone Pine holds 10 percent of Rightmove’s stock. RMV constitutes 8.72 percent of Lone Pine's UK portfolio.

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Rightmove’s principal business is the operation of the Rightmove.co.uk website which provides residential home buyers with properties to search online. Its customers include estate agents, letting agents, new homes developers and overseas homes agents who pay fees for the right to display properties on the website. The company provides data to property professionals and property related businesses. It also provides support services including property valuation for lending purposes.


6. Ishaan Real Estate (ISH)
Lone Pine holds a very large stake in Ishaan at 39 percent of Ishaan’s equity. Ishaan constitutes 4.5 per cent percent of Lone Pine’s UK portfolio.

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Ishaan is a real estate investment company invests in development projects in southern and western India. It holds interests in real estate projects in and around the cities of Mumbai, Hyderabad, Pune and Bangalore.


That about sums up Lone Pine's larger long positions in UK markets. The data that has been provided here on Lone Pine’s holdings comes from the London Stock Exchange (LSE). The initial trigger point for a disclosure to be made in the UK occurs when a fund acquires 3 percent of a company’s stock. Given that Mandel is a long term investor, Lone Pine may have additional unseen holdings including holdings that represent less than 3 percent of a company’s equity. For American readers, this disclosure is most similar to a 13G filing in which a company acquires a large amount of shares in a company, breaching a threshold. In the UK's case, that threshold is 3% of the company's shares. In the U.S., the threshold is 5%. We've covered numerous 13G filings here on the blog, including Lone Pine's most recent 13G filing.

Our many thanks again to a reader for diving into this information and helping Market Folly continue our hedge fund portfolio tracking efforts. For more on Stephen Mandel's Lone Pine Capital, you can check out their U.S. portfolio here. However, be advised that new portfolio filings are due in only a couple of weeks time and their portfolio has most likely been shifted around a bit.

Timothy Barakett's Atticus Capital Sells Shares Of Sotheby's (BID) & Transatlantic Holdings (TRH): 13G Filings

Atticus Capital has amended 2 separate 13G filings recently. In a 13G filed due to activity on July 31st, 2009, Timothy Barakett's hedge fund is now showing a 3.9% ownership stake in Sotheby's (BID) with 2,612,942 shares. They have decreased their position from a previous 5.4% stake when we covered their initial 13G filing on Sotheby's. That original disclosure was made due to activity on June 11th, 2009. So, in a little over a month, Atticus has sold 971,168 shares of BID.

In a second 13G filing made due to activity on July 29th, 2009, Atticus is also now showing a 2.4% ownership stake in Transatlantic Holdings (TRH) with 1,589,800 shares. This is a decrease from their previous 5.6% ownership stake reported when they filed their initial 13G on TRH in early June of this year. So, yet another position that Atticus has been selling down. Between June 8th and July 29th, Atticus sold 2,099,800 shares. To see what else Atticus holds, you can view the rest of their portfolio.

This is yet another development on the rollercoaster of a ride otherwise known as: "tracking Atticus' portfolio." In the past, we've detailed how Atticus has ramped up their portfolio, only to drastically scale it back... and then ramp it up again. These filings are the perfect illustration of that. They assembled large positions in both BID and TRH in early June and are already selling sizable pieces of their stake just over a month later. If you think about it, you can't really blame them as they will have locked in some nice profits over a short period of time. Still though, the whipsawing and rollercoastering is making us a bit seasick. Either things are still not quite totally stable over there after their rough 2008, or they are more concerned about locking in solid gains while they have them. Either way, the portfolio turnover game at Atticus plays on.

Atticus was ranked #2 on the Top 10 Asset Losers for 2008 in hedge fund land. And as we mentioned above, their portfolio has been all over the place. Over the course of 3 quarters, they've gone from selling a ton of long equities exposure one quarter, loading up on options positions the next, then most recently only reporting 5 material long equity positions. In two weeks time when the next round of 13F filings come out, one can only guess what their portfolio will look like next.

Timothy Barakett received both his BA in Economics and his MBA from Harvard. It's very evident that Barakett employs macro based investment theses. Once he has decided on what the trend is, he will find the best company within that trend and he will place a big bet. And, when needed, he will step in and take an activist role, ensuring the company is performing to his liking. A fun fact about Barakett is that he was a Harvard hockey teammates with Philip Falcone of Harbinger Capital Partners, whom we also cover.

Taken from Google Finance,

Sotheby's is "an auctioneer of fine art, antiques and decorative art, jewelry and collectibles. The Company’s operations are organized into three business segments: Auction, Finance and Dealer. In addition to auctioneering, the Company’s Auction segment is engaged in a number of related activities, including the brokering of private purchases and sales of fine art, jewelry and collectibles."

Transatlantic Holdings "conducts its operations principally through its three operating subsidiaries: Transatlantic Reinsurance Company (TRC), Trans Re Zurich (TRZ) and Putnam Reinsurance Company (Putnam). The Company offers reinsurance capacity for a range of property and casualty products on both a treaty and facultative basis. These products are offered directly and through brokers, to insurance and reinsurance companies, in both the domestic and international markets."

Image courtesy of NewYorkSocialDiary

Lone Pine Capital Boosts Vistaprint (VPRT) Stake (13G Filing)

In a 13G filed with the SEC, Stephen Mandel's hedge fund Lone Pine Capital has disclosed a 5.6% ownership stake in Vistaprint (VPRT). The filing was made due to activity on July 21st, 2009 and they now own 2,365,511 shares. This is up massively from the last position they disclosed in VPRT as of March 31st, 2009 when they previously owned 258,100 shares. So, somewhere between April and July, Lone Pine has significantly increased their VPRT holdings.

Stephen Mandel's hedge fund has been quite busy over the past few months and we've covered all their moves. At the end of June, Lone Pine filed a 13G on Smithfield Foods (SFD). In terms of other big bets Lone Pine has made recently, we saw that Mandel likes Strayer Education. He presented this choice at the 2009 Ira Sohn Conference where numerous hedge fund managers each presented an investment idea. You can check out the rest of Lone Pine's portfolio here.

His $7 Billion fund has returned over 25% annually since its inception in 1997, but had a rough year in 2008. The term 'Lone Pine' comes from Mandel's days at Dartmouth College, where the school has a historical lone pine tree. He is well versed in the ways of finding undervalued companies and he typically likes to sniff out solid companies with good management that are trading below their intrinsic value. In Alpha's 2009 hedge fund rankings list, Lone Pine was ranked 21st.

Taken from Google Finance, Vistaprint is "an online provider of coordinated portfolios of customized marketing products and services to small businesses worldwide. The Company offers a spectrum of products and services ranging from business cards, brochures and post cards to apparel, invitations and announcements, holiday cards, calendars, creative design services, copywriting services, direct mail services, promotional gifts, signage and Website design, and hosting services."

Check back at MarketFolly.com tomorrow because we will be running a special piece that details some of Lone Pine's holdings in foreign markets.

Coatue Management Discloses Stake in ETrade (ETFC)

In a 13G filing made with the SEC late last week, Coatue Management has disclosed a 5.03% ownership stake in E*Trade Financial (ETFC) and they own 56,057,572 shares. This is a brand new position for them, as they did not show a holding in ETFC as per their last 13F filing which disclosed positions as of March 31st, 2009.

While we don't usually cover Coatue here on Market Folly, we wanted to highlight this filing as we came across it while reading some other SEC activity. Longer term readers will already know that ETrade's largest shareholder is none other than Ken Griffin's hedge fund Citadel Investment Group. So, it looks like ol' Ken has some company in this position now. We're keeping tabs on this since it's a pretty large position for them and they had a rough year in 2008. But, they seem to have bounced back as they are up 32% as of the end of June (noted in our hedge fund performance update post).

E*Trade recently offered $600 million worth of shares at a price of $1.10 per share. As of last Friday, ETrade was trading around $1.50. Taken from Google Finance, ETrade is "a financial services company, that provides online brokerage and related products and services primarily to individual retail investors, under the brand E*TRADE Financial. The Company’s products and services include investor-focused banking primarily sweep deposits and savings products and asset gathering."

British Pound Long Term Cycle: Chart

Wanted to highlight an intriguing chart from Kevin. He points out that the British Pound is essentially trading in cycles over an extended time period, hitting a pivotal low every 8 years or so. Under this premise, the GBP has hit one of those 'bottoms' a few months ago and should trade higher for an extended period. It will however be interesting to see if it can sustain such a cyclical movement given the extremely unique macro environment we are currently seeing. At any rate, take it for what it's worth:

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Late last week we also looked at the chart of gold for those of you who may have missed it. And, as always, there are plenty of good reads on our technical analysis recommended reading list.

Best Performing Stocks In 2009

Great bit of research from Bespoke Investment Group that shows how crazy things are getting in the markets thus far in 2009. So far, there are 15 stocks up 100% or more and 73 stocks that are up 50% or more. Below they list the top performing stocks thus far in 2009.

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Most Popular Articles On Market Folly

It's been a little while since we last highlighted the most popular articles on Market Folly, so we wanted to point out the posts receiving the most views as of late:


1. Chartered Hedge Fund Associate (CHA Designation) - Exclusive $50 discount for Market Folly readers

2. David Einhorn's hedge fund Greenlight Capital stores physical gold

3. Free 14 Day Trial of Alphaclone - Our favorite hedge fund portfolio replicator

4. Trader The Documentary: 1987 PBS Film featuring hedge fund great Paul Tudor Jones

5. Crude Oil - Interview with CME Group's Joseph Ria

6. Profile/Biography on Bill Ackman & Pershing Square

7. Hedge fund Blue Ridge Capital's recommended reading lists

8. Performance numbers from hedge funds in June

9. Discounts on financial publications

10. Hedge fund legend Julian Robertson's steepener swap play



Thanks for reading as always. If you enjoy our work, please consider making a donation (via PayPal or credit card). It definitely takes a lot of time to run a site and we appreciate your support!


Last, but not least, make sure you're getting our daily updates for free via email or for free via RSS reader.

Gold Chart: $1000 & $900 Are Key Levels

We're back with some more gold technical analysis. It doesn't take a genius to point out that both $1000 and $900 are the key levels in gold, if nothing more for pscyhological reasons. Gold has stalled out around $1000 in the spot market numerous times and it is a level of extreme resistance. The traders over at MarketClub put out another technical analysis video on gold earlier in the week and we wanted to cover what they're seeing.

They filmed it after the big down day in gold and are now cautionary on the precious metal as their trading signals say to get out and watch from the sidelines for now. They looked at the Fibonacci retracements and identified some potential levels of support/logical areas where gold could bounce. They identified $924 as a possible entry level. They think gold will continue to pull back in the near-term but would like to get long on any sign of a nice reversal. If it drops severely, $900 could be a key support level since it is a round, psychological number that often will act as support. Keep in mind that they are performing technical analysis on spot gold and retail traders can play gold via the exchange traded fund SPDR gold trust (GLD) or the Comex gold trust (IAU). You can watch their latest gold video here.

We also wanted to point out one other thing that we were personally seeing on the gold chart. If you examine it on a multi-year timeframe, there could potentially be an inverse head & shoulders pattern shaping up. For those unfamiliar, this technical pattern is typically pretty bullish. And, since the pattern has been taking many months to shape up, this could eventually merit a big move.

(click to enlarge)

We've outlined the potential inverse head and shoulders pattern with green lines. The first shoulder was around $850 in March of last year, the head is around November of last year at $750, and the most recent shoulder has been taking shape throughout the course of 2009 around $850 and above. As you can see above, the red line at $1000 is pretty solid resistance and any major move in gold will have to break above this huge technical and psychological level. We've been tracking gold on the blog a lot lately simply because there are a ton of hedge fund managers long gold right now. David Einhorn's Greenlight Capital has stored physical gold and John Paulson's hedge fund owns a ton of GLD, among many other prominent managers.

We use technical analysis as one of the many tools in the investing/trading toolbox. After all, you can never have too much information. The fundamentals can tell you the 'why' whereas the technicals can tell you the 'when' and 'how' in regards to entering and exiting positions. We highly suggest checking out our technical analysis recommended reading list to further your knowledge in this area, at the very least to expand your information arsenal.

Amaranth Hedge Fund Investor Letter

Presented without comment is the latest investor letter from hedge fund Amaranth. If you're unfamiliar with this fund, they had previously managed up to $9 billion until they essentially collapsed back in 2006 after a natural gas trading fiasco. The firm was founded by Nicholas Maounis and he is the author of the letter below. Brian Hunter is the trader who became infamous for the natural gas trades and he has since founded a hedge fund, Solengo Capital Advisors. Ah yes, another fine example of the hedge fund boom bust cycle we see so often. When will investors learn?

Anyways, we digress. The document is embedded below and you can also try to download the .pdf here but there's no guarantees that link will still work.

Amaranth-Q1-Q2 Investor Letter (2009)

Commodity Bull Market - Interview With Brett

This week we're exchanging interviews with Brett over at Commodity Bull Market. A few days ago, Brett interviewed us for the first leg of a 2 part interview (you can check it out here). And today, we've done the first part of his interview. Brett has been a friend of ours in the blogosphere for a while now and fills a niche in commodities. Here's part 1 of the interview:

1. Can you give us a little background about your investment
philosophy?

Sure - it's definitely evolved over the years. I started as a pure
fundamental guy, and purely stocks - Benjamin Graham, Warren Buffett were my idols. Buy cheap and sell dear.

Then I started to believe that picking the right asset class was more
important than picking the right asset. I read Jim Rogers' Adventure
Capitalist for the first time in 2004, and it was almost a religious
experience for me. He made investing sound so easy - "just look for money
sitting in the corner, and go pick it up".

Then I bought and read his instant classic Hot Commodities as soon as it
came out and thought wow, this guy is right - commodities are going to boom.
How can I get in on this?

2. So would you still call yourself a fundamentalist, just focused
more on the commodity sector?

For awhile I was - I'd look at the fundamentals of, say, sugar. Big picture
fundamentals, like year over year supply/demand trends. This is what I did
back in 2005, before I made my first purchase. If the odds looked to be in
favor of a supply deficit, I'd buy some futures contracts.

As time went on, for better or for worse, I started paying attention to the
technical picture as well. I sustained some very large losses that could
have been prevented had I employed some basic stop-loss formula. So I did
some more reading up - Winner Take All was a great book that opened my eyes,
along with Trade Your Way to Financial Freedom - and began buying during
uptrends and breakouts, and using protective stops.

Links for book reviews:
http://commoditybullmarket.blogspot.com/2007/12/book-review-winner-take-all-
by-william.html
http://commoditybullmarket.blogspot.com/2007/11/new-trading-outlook.html


3. Cool - so what inspired you to start your blog?

When I started researching commodities in early 2005, there were very few
good resources. There was Rogers' book. And there's the CRB Yearbook. But
not much covering the day-to-day, week-to-week happenings. At that time,
there was just a small blurb about commodities each day in Section C of the
Wall Street Journal - you didn't have oil all over the front pages.

So I figured I'd start up a blog, and see where it went. If nothing else, I
had made some early money trading futures, and thought that if I ended up
pissing it away, at least I should have a record of the gains to remind me
of the good times!

4. When you started blogging, did you ever imagine it'd take off like
it has?

Not at all! In fact, nobody read it other than a friend or two for the
first year. Slowly and steadily, readership has been building through the
years, and it's been a real blast. Reading about the markets is my favorite
pastime, I'd do it all day if I could! So blogging on these topics is
really a lot of fun, and I'm flattered to have developed a regular
readership.

5. Tell us a little about how you gear Commodity Bull Market towards
your readers - especially as it pertains to your personal research and
investment philosophy.

To be honest, it's something that's constantly evolving. One thing I try to
do is present both sides of an argument. For example, the
inflation/deflation argument - until recently, I'd say I was leaning
inflation, and recently have started leaning deflation. I try to present
both sides of the argument, because, both are certainly valid, and at the
end of the day nobody really knows what's going to happen anyway!

Folks seem to appreciate this, as they've expressed to me they are sick and
tired of financial analysts who insist they know the answer.

So the site, as you can tell from the name, is pretty focused on commodities
- because I still believe that's the last bull market standing. However, I
now think we're due for another potential crash in the sector, so I'm trying
to take a step back and brainstorm about ways to play potential scenarios
that unfold.

But like I said, at the end of the day, nobody really knows for sure whether
it will be inflation or deflation - so we're trying to highlight ways to
protect capital no matter the scenario, and then react profitably where
appropriate.

-----

Thanks to Brett for taking the time out to answer some questions and to give us a better idea as to where he comes from.

What We're Reading 7/31/09

An interview with Market Folly (a.k.a. yours truly) [Commodity Bull Market]

10 iPhone Apps for Investors [ETF Database]

PIMCO's Richard Clarida talks inflation [Pragmatic Capitalist]

Insiders are selling [Marketwatch]

Hedge Fund News Update

This is the latest edition in a new series of posts we're doing here at Market Folly entitled, 'hedge fund news summaries.' And, as as the title obviously states, the goal is to give you the quick hits of everything that is happening in hedge fund land. So far, reader response has been very positive and we thank you for the feedback. As such, we will continue posting them since many have found them useful. You can check out our most recent hedge fund news summary to catch up to speed as well.

Seth Klarman (Baupost Group) - The value master himself has recently been "up to no good." And, by that, we simply mean he has been active making investments. Intriguingly enough, Klarman's latest target has been CIT Group (CIT). Before you avid Klarman-ites become appalled and outraged at this move, settle down... this is a pretty good deal for him. (Obviously, right? Why else would he do it?) Klarman's hedge fund Baupost Group was part of the assembly of funds that provided financing for CIT. Baupost joined Centerbridge Partners, Oaktree Capital Management, Pacific Investment Management, and Silver Point Capital, among others. The reason this deal was so enticing to Klarman and others is that the deal was heavily over-collateralized. Supposedly, the loan is backed by $30 billion worth of assets. Additionally, Klarman and the others will be receiving an enticing interest rate of Libor + 10 points with a 3% floor. Later, it was also revealed that this group of lenders also received an upfront 5% fee. So, what's not to love about that deal? CIT was desparate for help, and they got it. We ponder if this is another situation where a prominent investor gives his 'stamp of approval' to a company in return for a great return on capital. While we think this specific situation is more-so due to CIT's dire situation, we're sure they don't mind being associated with Klarman & Baupost. In other recent Baupost news, we saw that they sold completely out of their Omnova (OMN) position. You can check out the rest of Baupost's portfolio here.

Pav Sethi (Gladius Investment Group) - Pav formerly worked as the head of volatility arbitrage at Citadel Investment Group and will be starting his own firm Gladius. With Pav also goes Rajesh Kedia and Bertrand Divet as Citadel loses a few more team members. They will be focused on what they excelled in at Citadel: volatility.

Paul Tudor Jones (Tudor Investment Corp) - Back in 1987 a documentary was filmed on Paul Tudor Jones and his hedge fund entitled 'Trader: The Documentary.' This film has become scarce and almost a form of trader contraband as Jones reportedly bought almost all available copies in the 1990's since he didn't want the flick floating around anymore. But, as with all great information, this video wanted to be set free. As such, the film was recently leaked onto the web and we posted it up yesterday. So, if you missed it, you can watch and/or download the video here.

5:15 Capital - In our last hedge fund update we mentioned the formation of a new hedge fund by some Brevan Howard alums. Named after a song from 'The Who', 5:15 has recently gotten an injection of $50 million from Man Group, one of the largest hedge fund managers on the globe. As part of the setup, Man Group will take a portion of 5:15's revenue. The Man Group sees 5:15 stepping into a nice niche in terms of hedge fund strategies, as the crisis has left the field relatively empty in their type of arbitrage.

Warren Buffett (Berkshire Hathaway) - We aren't limiting our hedge fund updates to just hedge funds, as we're now also covering gurus and market strategists. Obviously, Buffett falls into this category. Buffett recently filed a 13D on Moody's (MCO) that disclosed he had sold 7,986,300 shares of the company ranging in prices from $26.59-$28.73. Despite the sales, Buffett still owns well over 40 million shares of the company. But, this filing is interesting to note because Buffett had previously championed the ratings agencies in public as solid investments. Has he had a change of heart? We'll continue to monitor the filings to see if he sells even more. Our immediate reaction was to wonder if he had been chatting with fellow value player David Einhorn of hedge fund Greenlight Capital. Einhorn recently presented the case for shorting Moody's at the Ira Sohn investment conference. It's always interesting to see a difference of opinion among smart minds, so that's why Buffett's selling becomes all the more curious. For further interesting reading, you can view Berkshire Hathaway's Annual Report here and investment ideas from hedge fund managers at the Ira Sohn conference here.

John Burbank (Passport Capital) - We just covered Passport's recent investor letter and saw some interesting developments in their portfolio. Most notably, we found out that they had been playing with interest rate bets including a curve steepener. Additionally, they have started to bet on the Japanese Yield Spread via 5-year CMS caps (calls), anticipating a rise in 10-year rates. Passport also likes Healthcare stocks as they are at the highest allocation in the fund's history. To read about the latest from Passport Capital, check out their latest investor letter update.

Jim Rogers (ex-Quantum Fund) - The market guru himself has been out and about in the media talking about his usual theses and positions. So, we don't really have a whole lot of new information to report in this regard. We just want to point out that (yet again) Rogers is very bullish on commodities.

Fortress Investment Group - The massive $27 billion hedge fund Fortress Investment Group is on the prowl for potential investments. However, they're not looking for market investments in the typical sense. Instead, they're looking to acquire other hedge funds and financial firms. Daniel Mudd, Fortress' new CEO, has said they will try to acquire money managers, banks, insurers, hedge funds, and the like. The industry in general has definitely seen a contraction as the weak fall by the wayside during the crisis. Since there have been many opportunities in the markets throughout the course of the crisis, it will be interesting to see if Fortress finds any 'deals' in the hedge fund landscape.

Andreas Halvorsen (Viking Global) - A few days ago we also covered Viking Global's latest investor letter. In the letter, we found out that they had lagged the market in the 2nd quarter of 2009 due to their short positions. More interestingly though, was the fact that they added a ton of new positions over the past quarter, 68 in all. They warned that all the new additions were not a bet on rising markets, but rather a result of their fundamental, bottom-up analysis. Their top 10 long positions as of the end of June were Invesco, Mastercard, Visa, Unilever, DirecTV, Google, JPMorgan Chase, Walt Disney, Bank of America, and Qualcomm. To find out what Viking Global has been up to, check out their portfolio update.

The Fine Violins Fund - No, we are not joking. Florian Leonhard is trying to raise capital for a Fine Violins Fund. Leonhard is a well-known violin restorer from London and has so far raised 16 million euros for the fund. He hopes to raise 60 million euros in total and seeks to invest in pre-19th century violins, primarily from Italy. Leonhard is targeting a portfolio of 50 violins and he will loan the violins out at no charge to musicians. In the past, we've touched on other obscure investment funds, such as a fund that invests in wine, a few funds that are investing in lawsuits, and another fund that invests in guitars. The musical instrument theme seems to be picking up steam and we'll have to see if a Trombone fund pops up next. Let us know if there are any other interesting funds out there that we might be missing out on. These types of funds are the definition of the term 'alternative asset class'.

David Rosenberg (Gluskin Sheff & Associates) - In our last article on Rosenberg, we noted his fondness for corporate bonds and his thoughts that the stock market in general already had a bunch of good news priced in. Rosenberg has been re-iterating his call on corporate bonds, this time saying that "they are still pricing in a very bad economic and financial market scenario. Moreover, the yield spread is still wider than at any point during the 2001 or 1990 recessions of the 1998 LTCM/Russian debt default freeze-up. In fact, history suggests that the corporate default rate would have to rise well above 7% for corporate bonds to deliver negative returns with yields as high as they are at around 7.25%." Additionally, in media appearances over the past month or so, we wanted to point out that Rosenberg indeed sees inflation as a threat. However, he says that threat is many years away. He also thinks we easily go through past unemployment levels of 10.8% and that from March to May, the stock market has essentially seen a 40% 'dead cat bounce'.

Hugh Hendry (Eclectica Fund) - Hugh is focused on the deflation versus inflation debate lately and he notes that he has never seen such a 'crowded trade' with people so confident that inflation is in our future. He favors bonds over equities and he thinks that deflation is the bigger risk here. Hugh says that, "It's almost as if we have this flood, but people are buying fire insurance." He is actually in favor of government bonds and notes that this is due to his contrarian nature. He is not too focused on the equity markets currently but says he will 'prod them' around August or September to see what is really going on there. We've covered Hugh's thoughts on the blog in the past and you can view his past investor letter here.

Michael Steinhardt (WisdomTree Investments, ex-Steinhardt Partners) - Hedge fund legend Michael Steinhardt sat down and talked with Bloomberg back in early June. While this is obviously not as recent as some of the other developments we've pointed out, we are highlighting it due to the excellent content in the interview. He talks about returns in equity markets going forward, the current stock market, the role of hedge funds, and what people should be investing in these days. We highly recommend watching the interview and you can view the video embedded below. (RSS & Email readers will need to come to the blog to view the video). In the past, we've also covered Michael Steinhardt's view on treasuries, as he says they are foolish.




Thanks for checking out our updates and stay tuned for more daily coverage of hedge fund land. In the mean time, make sure to also check out our recommended reading lists and our hedge fund portfolio tracking series.

Passport Capital Details Curve Steepener Play (Investor Letter)

John Burbank's hedge fund Passport Capital has released their latest investor letter and there are quite a few interesting bits of information included. Most notably, we see that Passport likes basic materials, curve steepeners, the Japanese yield spread, and healthcare stocks. We'll get into specifics about each below, but let's first dive into their most recent performance numbers.

Year to date for 2009, Passport Capital is up 25.4% compared to the S&P500 being up only 3.2% over the same timeframe. Passport was up 18.1% for the 2nd quarter of 2009 and now has seen a 26.4% compounded net return since inception. This phenomenal number comes against a -3.1% return for the S&P500 over the same period. Overall, Passport's main fund now has $1.3 billion under management and their firm as a whole manages $2.1 billion. You can view numerous other hedge fund performance numbers in our June hedge fund update.

Portfolio Specifics

We're going to work backwards here and are first going to start with the specific portfolio positions Passport mentions. Because let's be honest, that's what everyone is really curious about anyways. They have increased their short exposure and at the same time have reduced their net exposure. They were basically taking profits from the massive gain they saw in May and decided to hedge their portfolio.

Curve Steepeners

Firstly, we must point out that Passport took profits in their yield curve steepener recently (specifically, the 2-10 year curve). However, they still hold some of the position and are looking to add to it should the curve flatten or if volatility decreases. Currently, they see short-term deflationary pressures that will steepen the curve going forward. Passport purchased 2-10 year curve steepeners in the first half of 2008 for $80.3 million that had a notional value of $24.3 billion. At the most recent quarter end, these positions had a notional value of $11.4 billion. As mentioned earlier, they have taken profits on the position and still remains bullish on the curve steepener as a play. As of June 30th, 2009, Passport had $100 million invested in these vehicles. We point all of this out because previously here on Market Folly we focused on hedge fund legend Julian Robertson's steepener swap play. Although the plays are slightly different, we'd highly recommend everyone check out the article for a better understanding as to what these hedge funds are betting on.

Japanese Yield Spread

John Burbank's hedge fund also focused on another interest rate trade, but this time in Japan. Passport has purchased 5-year CMS caps (calls) on the Japanese yield spread of the 5-10 year. Their position will become profitable should 10-year rates rise over the upcoming five years. They have risked $40 million to gain anywhere from $88 million to $240 million should things go as planned. Their rationale behind such a play is as follows: "Given these ratios and Japan's witches' brew of cyclical downturn, secular stagnation, the effects of aging on productivity and risk tolerance, the 1.36% yield on a 10-year Japanese Government Bond may surprise the uninitiated. For over fifteen years Japan's citizens and corporations have retreated from risk while easily financing their government's fiscal largesse with their significant savings and trade surpluses. Given the absence of inflation, currency risk, and compelling alternatives for most JGB investors, very low yields made sense. Looking forward, however, we assign a high probability to the prospect of persistent deterioration of fiscal and trade balances. With deteriorating finances come an even higher debt/GDP ratio, yen weakness, and rising dependence upon foreigners. Mounting financial stress means political pressure on fiscal policy and GDP. Each of these forces should place upward pressure on JGB yields and volatility, and their confluence could produce a step-function change." Whew, everyone got that?

Healthcare Stocks

Although their fund has only 11% of their NAV dedicated to healthcare, it is the highest weighting in their fund's history. And, that should say something. They like this sector due to the uncorrelated market returns and the fact that there is a bullish case for both the short-term and long-term. They also cite demographics, political realities, and profitable business models as compelling reasons to own healthcare names.

Basic Materials

Passport has been bullish on natural resources/basic materials for a little while now and it has been a large part of their long portfolio. When we last covered Passport's portfolio, we noted that they had a lot of exposure to base metals, fertilizer, and gold. And, specifically, we saw them add massively to their gold stake. For a current look at gold's situation, check out this technical analysis video that says we could see the metal rally up to $980 before cooling off. We have covered gold a lot on the blog recently solely because we've seen a ton of hedge funds in it. David Einhorn's Greenlight Capital recently moved to storing physical gold. John Paulson's hedge fund firm Paulson & Co owns a ton of gold via GLD, and there are many other prominent hedge fund managers that own the metal. Additionally, hedge fund firm Sprott Asset Management recently harped on the 'real assets' theme in their July market commentary.

Technology

Lastly, we also wanted to highlight the fact that Passport sees the technology sector as ripe for the picking. Specifically, they like internet business models around the world on the long side.

Short Positions

Passport is short companies within the financial and consumer sectors. They say they are short companies that have deteriorating fundamentals and highly indebted capital structures/customers. They have also bought put options on indexes which could be classified either as a hedge or a short position, depending on how you look at it. As volatility has come down, these options have become priced very cheap and David Einhorn of Greenlight Capital also pointed this out in his latest investor letter. Additionally, Passport has also hedged some of their basic material and technology exposure. They were net short the consumer to the tune of -13%. In the technology sector, Passport likes short opportunities in companies that relate to product cycle technology since they are more susceptible to economic downturns.

Portfolio: General Information

Okay, so let's dive right into the other good stuff. Passport has 94 long positions, 122 short positions, and 12 private investments. They were 88% long, -59% short for a gross exposure of 147% and a net exposure of 28%. Their top 10 long positions were 34% of their exposure. They are long basic materials, India, healthcare, energy, and emerging market financials. Their longs were +34.5% for the quarter while their shorts lost -15.7% gross. Passport was net long basic materials to the tune of 25% and India to the tune of 13%. Those two long sector bets were their largest wager. On the short side of the portfolio, they were net short the consumer and 'other' as previously mentioned (where 'other' constitutes index puts among additional positions).

Commentary

Passport also goes on to say that the "legacy of the financial crisis is asset-price deflation. The credit bubble drove overproduction of goods and services that the downturn has exposed as overcapacity. Now the world is eliminating capacity while relying upon fiscal stimulation of demand. This process will take time." They continue believe that inflation will be the long-term outcome of all of this. However, they are actively managing positions and are being nimble for the time being, as there is no telling how long this could take to play out. They believe inflation will prevail due to "the political appeal of inflation in the context of daunting unfunded liabilities, the political and practical difficulty of tightening historically loose fiscal and monetary policies, and global understanding of the problematic position of the US dollar." They go on to note that the market will overreact to both deflationary and inflationary signals and that focusing on the long-term strategy here is essential.

Passport again harps on their desire to be long the economies of China, India, and the emerging world, preferring those to that of the Western world. Among many reasons, they like the fact that there is a growing demand for natural resources; resources that there are a finite supply of. As such, they are obviously bullish on commodities as well. They go on to point out that, "market economics eliminate excess capacity while government subsidies maintain it. The Darwinian existence of commodity producers means that their pricing power is improving while their industries' ability to satisfy longer-term, normalized levels of commodity consumption is deteriorating."

Additionally, John Burbank's hedge fund sees negative consequences for the US dollar going forward. They point out that the rise in the dollar through the crisis was due to high demand during a period of extreme deleveraging. Passport instead likes currencies such as the Australian and Canadian dollars, the Chinese renminbi, Norwegian krone and some Middle Eastern currencies. They favor these because of trade surpluses and higher returns.

Turning now to specific fund matters, we see that Dipak Patel has resigned from Passport after the trading scandal involving their India Fund. John Burbank will continue to manage the fund. In terms of redemptions, Passport saw 7% of fund assets go out the door in the second quarter ($105 million). However, the second quarter also marked the first significant inflows in capital since 2008. Due to their poor performance in 2008, they still have a high-water mark and current investors looking to add to their stake in the fund will be charged no performance fee until the carry forward losses have been recouped.

For more information on John Burbank and Passport, make sure to check out our background information and portfolio update on the fund. Additionally, for more in-depth performance metrics, check out their June 2009 performance attribution sheet. Their top 10 public long positions as of the end of June were Riversdale Mining (RIV.AU), Financial Technologies (FTECH.IS), Jordan Phosphate Mines (JPH.JR), Mosaic (MOS), Potash (POT), EFG-Hermes Holding (HRHO.EY), China Lotsynergy (8161 HK), Shuaa Capital (SHUAA.UH), London Mining (LOND.NO), and AK Steel (AKS).

Those of you interested in reading Passport's latest investor letter can try to download the .pdf here as long as the link works.