George Soros Raises InterOil (IOC) Stake

Soros Fund Management just filed an amended 13G with the SEC regarding their position in InterOil (IOC). Per activity on October 25th, George Soros' hedge fund now shows an 11.9% ownership stake in IOC with 5,257,422 shares. This comes after we just disclosed that Soros boosted stakes in two other positions.

Of this total, 1,200,000 shares are represented by call options. Since the second quarter ended, Soros has increased their position size by 53.5%. Interestingly enough, InterOil just yesterday afternoon announced that they would offer convertible senior notes due 2015 and common shares to raise proceeds of up to $280 million.

InterOil has been somewhat of a controversial stock in the hedge fund world. While Soros has amassed a hefty long position, Whitney Tilson's hedge fund T2 Partners has been an ardent detractor of the company as they are short IOC. Soros has clearly been the winner on this play thus far and we'll have to see what happens in the future.

Taken from Google Finance, InterOil is "an integrated energy company operating in Papua New Guinea and its surrounding Southwest Pacific region. The Company operates in four business segments: upstream, midstream, downstream and corporate."

For a complete update on Soros' entire equities portfolio, subscribe to our Hedge Fund Wisdom newsletter as the new issue will be released in two weeks detailing his latest holdings.

Chase Coleman's Tiger Global Reveals TAL Education (XRS) Stake

Chase Coleman's hedge fund Tiger Global has filed a 13D with the SEC regarding TAL Education (XRS). Per activity on October 25th, Tiger has disclosed a 51.2% ownership stake in TAL Education with 23,475,000 collective shares.

Their activist ownership stake is slightly complex as the majority of these shares are actually represented by Class B common shares which may be converted into Class A shares within 60 days of the filing date. They also own the new American Depositary Shares (ADR's) recently acquired in the initial public offering of ADR shares.

This is not a new position for the hedge fund, but it is the first time they've disclosed it and we'll get into that below. Tiger purchased shares of XRS (the ADR shares) in the IPO. TAL Education just IPO'd this month and shares have surged 50% to $15 after being priced at $10 each, at the higher end of its $8-10 per share range. Twelve million shares were offered, raising the company $120 million.

Tiger's ownership of TAL Education shares actually goes back to August 2009 as they purchased various Class B shares. They have not had to disclose a position in the company because it was traded in foreign markets and not in the United States. Now that the company has IPO'd its ADR shares in the US, Tiger has revealed the full extent of their stake and you can read all the fine print of their filing here.

In terms of other portfolio activity out of Coleman's hedge fund, we've detailed how Tiger Global has purchased a portfolio of web companies. Taken from Yahoo Finance, TAL Education "together with its subsidiaries, provides K-12 after-school tutoring services in the People's Republic of China."

What We're Reading ~ 11/5/10

What we do and don't know about Berkshire's succession planning [Rational Walk]

Financial blog wars [Reformed Broker]

Notes from the ground in China [Eric Jackson]

Sell in May & go away or the seasonal switching strategy [World Beta]

An interview with Alice Schroeder, author of The Snowball, re: Warren Buffett [Simoleon Sense]

Hedge fund FrontPoint alleged to have gotten illegal tips [Reuters]

Checking in on William von Mueffling's new-look Cantillon Capital [WSJ]

On advocating separate accounts and the death of the hedge fund structure [Leigh Drogen]

A look at how different sized hedge funds have fared [AllAboutAlpha]

13D filings: Big investors appear out of thin air [NYTimes]

Swiss money manager Felix Zulauf says gold could reach $2,500 [Big Picture]

Fortune Brands (FO) is planning a meeting with Bill Ackman [Bloomberg]

We previously detailed Ackman's activist position in Fortune Brands [MF]

A recent talk with Warren Buffett [CNNMoney]

Al Pacino to play hedge fund manager in movie Arbitrage [Variety]

Marc Andersen & Eliav Assouline's Axial Capital Buys More QLT Inc (QLTI)

Eliav Assouline and Marc Andersen's hedge fund Axial Capital have just filed a Form 4 with the SEC regarding transactions in shares of QLT Inc (QLTI). They purchased shares on October 29th, November 1st, and November 2nd. Cumulatively, they bought 171,000 shares with the bulk bought at $5.62 and $5.70. After their recent transactions, Axial now owns 6,786,036 QLTI shares.

Market Folly has cited Axial's previous QLTI purchases as the hedge fund seems happy to buy shares around the $5.60-5.75 level. Some investors have categorized QLT Inc as a 'cigarette butt' type of value investment as it's mainly a play on the company's royalty stream. Detractors argue that this stream is likely to decline. Assouline and Andersen see some value here though as evidenced by their continual buying.

Their hedge fund, Axial Capital, was seeded by Julian Robertson in 2005 and they share the same address as Tiger Management. Robertson has seeded/spawned a network of hedge fund managers which you can view at the Tiger family tree.

Taken from Google Finance, QLT is "biotechnology company. The Company is engaged in the development and commercialization of therapies for the eye. The Company focuses on its commercial product, Visudyne, for the treatment of wet age-related macular degeneration (wet AMD), and developing its ophthalmic product candidates."

Carlson Capital Goes Activist on Phoenix Technologies (PTEC) Amidst Takeover Bids

Hedge fund Carlson Capital has filed a 13D with the SEC regarding shares of Phoenix Technologies (PTEC). Due to portfolio activity on October 21st, Carlson disclosed 5.3% ownership stake in PTEC with 2,153,800 shares and paid $8,861,372 for the stake. This is a brand new position for Carlson as they previously did not own any shares. In terms of other recent portfolio activity out of the hedge fund, they recently sold Cano Petroleum shares (CFW).

The activist 13D on PTEC is intriguing due to the multiple bidders pursuing an acquisition of Phoenix Technologies. Per the SEC filing, "On August 17, 2010, the Issuer issued a press release announcing entry into a definitive merger agreement with affiliates of Marlin Equity Partners (“Marlin”) pursuant to which Marlin will acquire all outstanding shares of the Issuer's stock for $3.85 per share in cash. In addition, on October 28, 2010, affiliates of Gores Capital Partners III, L.P. (“Gores”) submitted a definitive offer and proposal to acquire all of the securities of the Issuer for cash consideration of $4.05 per share."

And just yesterday, Phoenix received another definitive offer from Goes Group to acquire all shares outstanding at $4.20 per share. So it will be interesting to see if Carlson has already achieved their end-game with a higher bid, or if they have other plans here.

Taken from Google Finance, Phoenix Technologies "designs, develops and supports core system software, operating system software and application software for personal computers and other computing devices."

For more of our coverage of this hedge fund, head to our posts on Carlson Capital.

Larry Robbins' Glenview Capital Increases Position in Punch Taverns (PUB)

Larry Robbins' hedge fund Glenview Capital has disclosed an updated stake in Punch Taverns (LON: PUB) due to trading on October 28th. Per UK regulatory filings, the hedge fund now owns 16.77% of PUB shares outstanding and this is an increase from their previous ownership of 13.01%. We'll be updating the rest of the latest changes in Glenview's portfolio in our Hedge Fund Wisdom newsletter when our new issue comes out in two weeks.

This is the second time we've seen Glenview raise its stake in Punch. We originally highlighted their additional purchase of shares in July. In fact, Robbins seems to like the UK pubs theme in general, as he's also invested in Enterprise Inns (LON: ETI) last we checked.

Taken from Google Finance, Punch Taverns is "engaged in the operation of public houses under either the leased model or as directly managed by the Company. The Company operates in two business segments: punch partnerships, a leased estate and punch pub company, a managed estate. Punch Partnerships is the Company’s leased division, comprising 6,841 pubs nationwide. Punch Pub Company is its managed division, comprising 835 pubs nationwide."

To see Glenview's other investments in the second quarter (and soon to be updated with the third quarter), head to our newsletter.

Collection of Benjamin Graham's Papers: Common Sense Investing

Valuehuntr just posted up an excellent compilation of papers by Benjamin Graham from 1930 to 1974. Graham, the author of pioneer value investing books such as Security Analysis and The Intelligent Investor, also penned numerous papers that were not included in his books.

The piece starts with a brilliant comparison of investment versus speculation. Graham writes that, "It is indeed ironical (though not surprising) that common-stock purchases of all kinds were quite generally regarded as highly speculative or risky at a time when they were selling on a most attractive basis, and due soon to begin their greatest advance in history; conversely the very fact they had advanced to what were undoubtedly dangerous levels as judged by past experience later transformed them into 'investments' and the entire stock-buying public into 'investors'."

It's fascinating how early on Graham was able to pick up on a trend that still entangles investors today. The general investing public seems most prone to buy when they're comfortable with the markets, buying 'high' when instead they should be examining their complacency and doing the exact opposite.

Equally disappointing, Graham observes, was the inability for many investors to purchase stocks when they were trading at the largest discounts. This comes down to human emotion interfering as greed and fear get in the way of rational decision making. The most intriguing thing about all this is that behavior Graham identified decades ago still holds true today.

Embedded below courtesy of Valuehuntr is Common Sense Investing: The Papers of Benjamin Graham:



You can download a .pdf copy here.

If you enjoyed Valuehuntr's compilation, keep in mind that Market Folly readers receive an exclusive 15% discount to their Value Edge newsletter, a monthly publication where they generate investment ideas based on various stock screens for both long and short ideas. Some of the screens include: contrarian, cheap franchises, potential activist targets, overvalued companies with poor business prospects and more. We've posted up a sample issue of their newsletter for you to check out as well. Click here to receive the discount.

George Soros Boosts Platinum Group Metals, Female Health Company Stakes

Soros Fund Management, George Soros' hedge fund firm, recently filed two 13G's with the SEC. Due to portfolio activity on October 21st, we see that Soros has disclosed a 5.11% ownership stake in The Female Health Company (FHCO) with 1,404,931 shares. This is only a marginal increase in their position at best because they held 1,319,422 back on June 30th of this year. So in the past four months, their position size has only increased 6.4%.

Secondly, George Soros' hedge fund also has disclosed a 9.73% ownership stake in Platinum Group Metals (PLG) with 15,500,000 shares. The above was due to portfolio activity on October 22nd and marks a massive 933% increase in their equity position size since the second quarter.

In other related portfolio activity, we saw that Soros also increased his Plains Exploration & Production position (PXP). Additionally, we highlighted that in early October, Soros Fund Management also bought more Exar (EXAR).

Taken from Google Finance, Platinum Group Metals is "an exploration and development company conducting work primarily on mineral properties it has staked or acquired by way of option agreement in the Republic of South Africa and Ontario, Canada."

The Female Health Company "manufactures, markets and sells the FC2 female condom. FC2 provides dual protection against unintended pregnancy and sexually transmitted infections (STIs), including human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS)."

David Einhorn & Greenlight Capital's Q3 Investor Letter

Dealbreaker has posted up the latest investor letter from David Einhorn's Greenlight Capital and in it we see that Greenlight is 98% long, 63% short and their largest disclosed long positions in alphabetical order are:

1. Arkema (AKE on foreign exchange, ARKAY on the pink sheets)
2. CIT Group (CIT)
3. Ensco (ESV)
4. Gold (physical)
5. Pfizer (PFE)
6. Vodafone (VOD)

Overall, Einhorn's top positions are largely unchanged and we've detailed the respective thesis on each investment in the past. In particular, we highlighted the case for Ensco (ESV) in our newsletter Hedge Fund Wisdom. Additionally, we've outlined Einhorn's Vodafone thesis as well.

Possibly the most notable change in Greenlight's portfolio in the third quarter was the sale of their Ford debt position as it had been a top holding in the past. They also sold longs in ATP Oil & Gas (ATPG), EMC (EMC), Lockheed Martin (LMT), and Nestle (NSRGY).

On the short side of the portfolio, we see that Greenlight had been short Corinthian Colleges (COCO) in the for-profit education space. Many hedge funds have been short this sector and Einhorn admits they covered this position too early (but still saw a 91% return). The hedge fund also covered shorts in Office Depot (ODP) and Royal Caribbean (RCL). Einhorn also recently detailed the short thesis on St. Joe (JOE) at the Value Investing Congress, a position he defends with his latest commentary.

Embedded below is David Einhorn & Greenlight Capital's third quarter investor letter:



You can download a .pdf copy here.

Last, but certainly not least, Einhorn makes a point to focus on the shift in the Federal Reserve's policy and that they've been expecting the Fed would be forced to monetize the debt. He highlights this as one of the main reasons he owns physical gold. To see Greenlight's upcoming Q3 portfolio changes detailed in full, be sure to subscribe to Hedge Fund Wisdom as our next issue will be released sometime next week.

Barron's & Wall Street Journal Discounts

Just wanted to let our readers know that we came across two solid discounts available right now:

40% off Barron's magazine (with 4 weeks free)

75% off the Wall Street Journal

Enjoy!

Kleinheinz Capital Says Russia is the Cheapest Emerging Market: Q3 Letter

John Kleinheinz founded Kleinheinz Capital Partners in 1996 and manages the Global Undervalued Securities Fund. He has seen a compound annual growth rate (CAGR) of 26.8% since inception and a total compound return of 3,162%. Given the solid performance, we've added this hedge fund to our portfolio tracking series and today we're detailing Kleinheinz's third quarter letter/market commentary.

Kleinheinz's fund primarily focuses on equities but also invests in emerging market debt. They utilize macroeconomic analysis to identify various investment themes across the globe with solid risk/reward profiles. Prior to founding his fund, he worked in the corporate finance unit of Nomura Securities in Tokyo as well as Merrill Lynch. Kleinheinz graduated from Stanford University with a degree in Economics.

Current Market Commentary

Kleinheinz's fund is up over 18% year to date. Interestingly enough, you can replicate Kleinheinz's portfolio at Alphaclone and investing in their top 5 holdings has returned 31.6% year-to-date and their top 10 holdings 19.7% ytd (get a free membership to Alphaclone here). This past quarter, Kleinheinz has lost money on their puts and hedges as the market practically prices in another round of quantitative easing. Their short positions in the energy sector (specifically in high beta natural gas producers) also hurt the fund.

While talk of an emerging market bubble seems to have increased, Kleinheinz is quick to point out that despite the fierce rallies, these valuations are still "within historical norms and economic fundamentals appear favorable relative to developed market peers." He believes that the formation of a consumer society in these emerging markets will be a key investment theme for them going forward.

Currently, their focus is on the geographies of Russia, Africa, China, and Brazil. In China, they like healthcare, telecom and technology. They also believe Russia is the cheapest emerging market and they're honing in on energy and utilities. Kleinheinz is generally focused on markets "with stable banking systems, under-levered consumers with rising disposable incomes and attractive valuations relative to growth prospects."

Specific Investment: Yahoo (YHOO)

Kleinheinz also dedicates a portion of the letter to talk about Yahoo (YHOO). He feels the market is under-appreciating Yahoo's international assets such as Alibaba Group and Yahoo Japan. He writes, "assuming an average multiple of 8-10x EBITDA for its core U.S. internet assets on a sum of the parts basis, we believe Yahoo could be worth $32 per share, more than double the Fund's acquisition cost and about equal to the price Microsoft was willing to pay for Yahoo during its aborted takeover attempt in May 2008."

Top 10 Positions (as of September 30th):

1. Apple (AAPL)
2. China Mobile (CHL)
3. Research in Motion (RIMM)
4. Baidu (BIDU)
5. LUKoil Holdings
6. Hong Kong Exchange & Clearing (HK:0388)
7. Veeco Instruments (VECO)
8. Google (GOOG)
9. Akamai Technologies (AKAM)
10. Chubb Corp (CB)

Embedded below is Kleinheinz's third quarter letter to investors:

*Update: Letter removed per request of representatives from Klenheinz

For thoughts from more great managers we also posted up Lee Ainslie & Maverick Capital's letter as well as Jeremy Grantham's commentary and Corsair Capital's latest ideas.

What We're Reading ~ 10/29/10

Latest investor letter from Paul Tudor Jones [Dealbreaker]

If you missed it, we posted up Lee Ainslie & Maverick Capital's latest letter [MarketFolly]

Why is Todd Combs bullish on Western Union (WU)? [Rational Walk]

Are there any catalysts for Microsoft (MSFT)? [AbnormalReturns]

Effects of quantitative easing: which companies have pricing power? [Pragmatic Capitalism]

Investment checklist for stock selection [Old School Value]

Case study on AbitibiBowater unsecured bonds [DistressedDebtInvesting]

Bill Hwang's hedge fund Tiger Asia receives SEC subpoena [Bloomberg]

An interview with Meb Faber of the World Beta blog [Abnormal Returns]

Looking ahead to the Combs era of Berkshire Hathaway [WSJ]

Stocks modestly expensive according to Buffett's favorite valuation metric [Pragmatic Capitalism]

Berkowitz's Fairholme to start stock-bond allocation fund [BusinessWeek]

JPMorgan's Highbridge Capital to buy Brazilian hedge fund Gávea [FINalternatives]

Interesting look at how Apple (AAPL) approaches things [BusinessWeek]

Hedge Funds Reduce Risk Assets

Bank of America Merrill Lynch is out with their latest hedge fund monitor report examining various exposure levels. In it we see that overall, hedge funds were reducing risk assets. Across the board, it seems that hedge funds bought 2 year, 10 year and 30 year Treasuries signaling a flight to safety. This is intriguing considering that equity markets have not seen a massive decline since August, the last time we saw a risk-off trade. Are they exiting before a proverbial near-term top?

Long/Short Equity Hedge Funds

Combine the above with the fact that these hedge funds have largely reduced market exposure and now have a very low 21% net long exposure and you can see the caution. On average, L/S hedge funds are typically around 40% net long. It certainly seems as though many funds are braced for a pullback, at least in the short term. Of the equities they do own, they favor growth, large cap and high quality names. This is a trend in hedge fund positioning that we've highlighted for some time now.

Global Macro

It appears as though this fund strategy is largely pursuing inflation based plays. BofA estimates that macro hedge funds are long the S&P 500, Nasdaq 100 and various commodities. On the short side of things, they've been pounding the US dollar. John Burbank of hedge fund Passport Capital at the Value Investing Congress noted that he currently likes commodities & hard assets.

Market Neutral

Turning to MN funds, we see that their exposure has been pretty much stable at around 50/50 long short. In equities, they've favored small cap, growth & low quality names.


Across various markets, there are a few notable crowded longs including crude oil, the Nasdaq 100, corn, soybeans, copper, and the Japanese yen. Conversely, natural gas remains a crowded short position. Embedded below is Bank of America Merrill Lynch's full hedge fund monitor report:



You can download a .pdf copy here.

We also recently took another look at hedge fund exposure levels for those of you seeking more information on the latest positioning of the 'big money.'

Lee Ainslie & Maverick Capital's Third Quarter Letter

Lee Ainslie's hedge fund Maverick Capital is out with their third quarter investor letter and year-to-date for 2010, they're up 8.2% and have now seen 14.1% annualized returns since inception in 1995. Their Levered fund is doing even better this year, up 17.3% and has seen 22.3% annualized since inception. In total, the firm now manages over $12 billion across their various investment vehicles.

These returns are pretty solid but Q4 might be off to a bumpier start considering that one of their larger holdings has been Apollo Group (APOL), the for-profit education play that's down over 23% in the past month. But on the converse side of things, their stake in Commscope (CTV) is up almost 40% over the past month on news of potential buyout talks. At the recent Value Investing Congress, Ainslie said he believed that technology stocks are cheap. The cheapest, he argues, that they've been in 20 years.

Maverick's Exposure Levels

Given this stance, it should come as no surprise that Maverick has a large allocation of capital to technology stocks. At the end of September, Maverick was 11.7% net long technology. And at the Value Investing Congress, he revealed that Maverick has its highest technology exposure ever.

At the end of September, other notable net long exposure include financials at 13% and the consumer sector at 12.6%. In terms of notable net short positions by geography, they are net short emerging market technology, European technology, emerging market industrials, and Japanese media & telecom. Maverick seems to be betting on US companies and hedging it via shorts in foreign companies to some extent.

Maverick's Portfolio

Regarding portfolio construction, Ainslie's firm currently has 67 longs and 80 shorts. Their largest long represents a 4.7% position whereas their largest short is 2.9%. Overall, Maverick's average position size is 2.1%. As we've detailed in our profile of Maverick Capital, Lee Ainslie implements strict position sizing rules and has a solid focus on risk management. The hedge fund's top 10 investments currently represent 29% of the portfolio.

We detailed Maverick's second quarter positions in our newsletter, Hedge Fund Wisdom. The next issue (released in a few weeks) will detail Ainslie's third quarter portfolio holdings. In the mean time, we know Maverick has been long Commscope (CTV), Marvell Technology (MRVL), and Adobe (ADBE). Dell (DELL), Intel (INTC), and Microsoft (MSFT) were others he recently talked about. Be sure to subscribe to our newsletter to see what top hedge funds are investing in once our next update comes out.

Bond Market Inflows/Equity Market Outflows

Embedded below is Lee Ainslie and Maverick Capital's third quarter 2010 letter to investors. In it, Maverick's Steve Galbraith talks about the potential bond bubble where he argues that government bonds are essentially trading at a P/E equivalent to 40x. He also addresses a noticeable change in investor sentiment as they prefer bonds to stocks in a knee-jerk reactionary maneuver:

"Since 2007 over seven hundred billion dollars has flowed into fixed income funds while nearly two hundred billion dollars has left equity funds. These flows are staggering; they suggest the (potentially lethal) combination of driving 100 miles per hour while looking through the rear view mirror because the scenery just past looks so good (bonds outperformed stocks by record levels in part of this period), but also being too afraid to look forward in fear that, well, there is no there there."

Here's the letter:



You can download a .pdf copy here.

Be sure to also check out Lee Ainslie's presentation from the Value Investing Congress just a few weeks ago for some more of his recent thoughts. To see what stocks Ainslie owned in Q2 (and in Q3 in our upcoming issue), head to our Hedge Fund Wisdom publication.

Jeremy Grantham: Overweight High Quality Companies, Heavily Underweight Low Quality

GMO's Jeremy Grantham is out with his latest market commentary entitled, 'Night of the Living Fed.' In his previous pieces, Grantham has advocated buying high quality stocks. Oaktree Capital's Howard Marks shares this sentiment and many other hedge funds own large cap blue-chips. What's his stance nowadays?

Equities

This time around, Grantham again extols the benefits of quality US companies which he deems "still cheap in an overpriced world." He likes being long high quality and underweight low quality stocks. Regarding emerging market equities, Grantham feels investors should be moderately overweight while moderately underweight the rest of the world.

Grantham also mentions that stocks as a whole are currently overpriced. At the same time, he notes that bonds are even less attractive. The debate of buying overpriced stocks versus even more overpriced bonds is one he plans to address further in the future. Lastly, he advises extra cash reserves, citing a volatile market with insecure fundamentals.


Federal Reserve

In his latest commentary, Grantham shifts his focus to the Federal Reserve. He pens a decisively anti-Fed piece that critiques and criticizes the various maneuvers they've made. Some of his more salient points include:

- Low interest rates almost always transfer wealth from debt owners/retirees to corporations and the financial industry.

- Quantitative easing, he says, is more of a desperate move than just a low interest rate policy.

- At the same token, these lower rates encourage speculation in markets (emphasis on speculation rather than investment).

Embedded below is Grantham's latest piece from GMO which we recommend reading in its entirety:



You can download a .pdf copy here.

We've posted a ton of additional great market commentary as of late including Lee Ainslie & hedge fund Maverick Capital's latest letter, Corsair Capital's latest investment ideas, as well as East Coast Asset Management's take on the joys of compounding. Like Grantham, many of these managers are finding compelling opportunities in select equities.

Hedge Fund T2 Partners' Largest Long & Short Positions

Whitney Tilson and Glenn Tongue's hedge fund T2 Partners recently held their quarterly conference call and in it we get some meaningful updates to their portfolio. For the year, they're up over 13% versus a 7.9% return on the S&P 500. Most notably, they reveal their "fairly sizable" short position in Capital One (COF) as they feel the company will see putback risk in their mortgage portfolio from the GreenPoint acquisition a couple years ago.

Here are T2 Partners' largest short positions:

1. Capital One (COF)
2. DineEquity (DIN)
3. GameStop (GME)
4. A basket of for-profit education plays
5. Lululemon Athletica (LULU)
6. Homebuilders via exchange traded fund XHB
7. Moody's (MCO)
8. MBIA (MBI)
9. St. Joe Company (JOE)
10. OpenTable (OPEN)
11. Rosetta Stone (RST)
12. VistaPrint (VPRT)


Of these short positions, we just this morning posted up a potential short thesis on OpenTable (OPEN). David Einhorn's hedge fund Greenlight Capital has also been short two of the same stocks. We've detailed Einhorn's short thesis on Moody's: Curse of the Triple-A and most recently his bearish presentation on St. Joe (JOE) from the Value Investing Congress.

If you've followed T2's short positions on MarketFolly.com, you'll notice that their short positions in Netflix (NFLX) and InterOil (IOC) are not listed as some of T2's largest shorts. However, they do still hold a short position in these names. On NFLX in particular, T2 feels that the company's valuation is extreme at 67x trailing earnings and their transition to a streaming video company is a less desirable business model.


And here are Tilson & Tongue's 10 largest long positions:

1. Automatic Data Processing (ADP)
2. Microsoft (MSFT)
3. CIT Group (CIT)
4. Berkshire Hathaway (unclear which share class, either BRK.A or BRK.B)
5. BP (BP)
6. General Growth Properties (GGP)
7. Iridium (IRDM)
8. Liberty Acquisition (LIA & warrants)
9. Resource America (REXI)
10. Kraft (KFT)

Of these positions, we recently detailed T2's bullish case for Automatic Data Processing (ADP). Additionally, their recent presentation at the Value Investing Congress laid out their stance on BP (BP) and Liberty Acquisition (LIA).

Tilson and Tongue commented on their thesis and relative information regarding their positions in their in-depth conference call. You can hear a replay of the call via the embedded audio player below (email readers will need to come to the site to hear it):

The Short Thesis on OpenTable (OPEN)

Valuehuntr has posted up a quick short thesis on OpenTable (OPEN). We wanted to highlight this because a few hedge funds have been short this stock so it's always good to take a better look at the thesis behind it. In particular, Whitney Tilson's T2 Partners has mentioned their short in OPEN publicly numerous times.

Taken from Google Finance, Open Table is "provides solution that forms an online network connecting reservation-taking restaurants and people who dine at those restaurants. Its solutions include its Electronic Reservation Book (ERB), for restaurant customers and www.opentable.com, a restaurant reservation Website for diners. The OpenTable network includes approximately 12,000 OpenTable restaurant customers spanning all 50 states, as well as select markets outside of the United States."

In short (no pun intended), Valuehuntr suggests that OpenTable is trading at a very rich multiple and is trading at more than 2x their market size. The analysis outlines an extreme set of expectations for the stock in an industry with no real barriers to entry. OPEN currently trades at around $60 and Valuehuntr theorizes that the company is more realistically worth between $15-20 per share, leaving ample room for downside.

As with any short, there are also risks which they identify as a dramatic increase in their online userbase, potential out-performance in their upcoming earnings report, as well as a possible increase in market capacity.

Embedded below is the short thesis on OpenTable, courtesy of Valuehuntr:




You can download a .pdf copy here.

We would mention not to place too much emphasis on the section comparing OPEN to other companies as there's no true comp for the stock. Their analysis compares it to internet travel companies while OPEN is an internet dining reservation company, so it's difficult to determine relative valuation. Overall though, outright over-valuation for the specific company's prospects seems to be the driving force behind this short thesis so we'll have to see if there's any major catalyst behind it.

For potential hedge fund theses on other short positions, we recently highlighted David Einhorn's short position in St. Joe (JOE). You can also scroll through our coverage of other hedge fund shorts here.

Send Us Hedge Fund Letters

Market Folly readers: Now that various hedge funds are sending out their third quarter letters, we need to ask you a huge favor. This site has become largely what it is today due to the generosity of readers willing to share resources. So, we have one simple request: send us hedge fund letters!

Rest assured that every contribution will be treated as anonymous and confidential. Your privacy is our top priority. If there are watermarks or other identifiers on the letter, we will remove them & summarize the letter instead. The more people that share, the more resources we can provide.

Thank you for sharing with the Market Folly community! Click here to send us an email.

Corsair Capital Bullish on Innophos (IPHS): Q3 Letter

Jay Petschek and Steven Major's Corsair Capital Management is out with their third quarter investor letter and they are up 6.9% net year-to-date. Since inception in 1991, Corsair has seen an impressive 15.1% annualized return so let's dive into their latest market commentary.

Like many investors we've highlighted on the site, Corsair points to equities as more attractive than bonds in the current environment by writing, "many stocks are currently trading at 11-12 times next year's expected after-tax earnings. This equates to approximately 8-9 times pre-tax earnings or (calculated inversely) an earnings yield of 11-12% which is looking more and more attractive in a 3.8% 30-year Treasury bond world."

Petschek and Major also note that the Fed's low interest rate environment has forced investors (and even savers) to chase yield and take on more risk, a potential reason for the market's recent rally. In terms of Corsair's specific portfolio, their letter features an in-depth writeup on their investment in Innophos (IPHS) which they believe will see P/E multiple expansion as it recently restructured debt and cut interest expense in half.

Opining that mergers and acquisitions (M&A) activity will pick-up, the hedge fund manager points to their stake in Globe Specialty Metals (GSM) as a position poised to benefit from this trend. They feel higher silicon metal prices are to come as the industry has high barriers to entry and tight supply.

In their first quarter letter, Corsair Capital Management previously laid out their bullish case for Expedia (EXPE) and this time around they continue to hold it as their TripAdvisor service continues to be a high quality asset. Additionally, Corsair again re-visited their investment in LyondellBasel (LYB), a post reorganization equity. The stock recently listed on the NYSE under the ticker LYB and they expect institutional investors to finally 'discover' the stock again, leading to inflows of new investment. In the past, we've also highlighted how Jamie Dinan's York Capital had been fond of LyondellBasel.

Embedded below is Corsair Capital's Q3 letter to investors:



You can download a .pdf copy here.

To read Corsair's previous letter, we've also posted their bullish case for Aon (AON) as well. For more manager commentary, scroll through the collection of hedge fund investor letters we've posted recently.

Jeff Saut Expects Near-Term Pullback, Sees It As Buying Opportunity

It's been a while since we checked in on Jeff Saut, Chief Investment Strategist at Raymond James, so let's dive into his latest market commentary. Over the past few weeks, Saut has started to advocate a neutral/cautionary stance, pointing to various near-term overbought signals in the market. Saut now feels that stocks are "searching for some kind of trading peak between now and the FOMC meeting."

The market strategist believes that the Fed will announce quantitative easing round two and that the Republicans will take back the House. While these should be stock-market friendly events, he feels that they could already be discounted. That said, Saut also highlights that portfolio manager anxiety could possibly build amongst those who are materially underweight equities. If stocks were to take off, there would seemingly be a wave of new money behind it as performance anxiety sets in.

On any upcoming pullback, Saut presents the following list of stocks to look into as they've recently beaten earnings estimates and guided higher for the next quarter: Polaris Industries (PII), Select Comfort (SCSS), Stanley Black & Decker (SWK), Tempur-Pedic (TPX), Chubb (CB), UnitedHealth Group (UNH), and Altera (ALTR), the last of which was named as an analyst best pick for 2010 and is up over 33% year-to-date.

Specific sectors that tickle Saut's fancy include technology and energy. At the Value Investing Congress, Lee Ainslie of Maverick Capital said technology stocks are cheap. Overall though, Saut is cautious in the near-term as he points many technical indicators signaling a near-term top. While he feels a dip will occur in the next few weeks, he thinks it is a buying opportunity.

Lastly, the market strategist offers bank loans as an enticing place to park some cash as per recommendations from numerous respected portfolio managers. At the Value Investing Congress, Harch Capital's Michael Lewitt also advocated bank loans as an attractive investment. Saut offers the Pioneer Floating Rate Fund (FLYRX) and the Mainstay Floating Rate Fund (MXFAX) as ways to play this.

Embedded below is the latest market commentary and investment strategy from Jeff Saut:



You can download a .pdf copy here.

For more insight from the strategist, head to Saut's risk management principles as well as his outline of the businessman's risk portfolio.