Julian Robertson on What Stocks He Likes Now: Interview

Tiger Management founder Julian Robertson made his rare television appearance for the year on CNBC yesterday and talked about how now is a time to put money to work in the market.

He thinks the economy and overseas worries are having a big effect on investors.  So many investors are frightened about Asia and Europe that they've almost "lost their way" without realizing that many great companies are trading at great prices.

He feels that this market is good for hedge funds because their namesake allows them to hedge against uncertainty and these potential risks.  However, he worries that some managers have hedged too much and they won't benefit unless there's a big fallout in the world economy.


What Stocks Robertson Likes

Robertson cited Apple (AAPL) as great company trading at a great value, something he says rarely happens.  He said, "Apple is now probably somewhere around 14-15 times next year's earnings, it's very, very reasonable for the kind of growth you can get."

Facebook (FB) was another stock Robertson mentioned as he likes the social media exposure and admires Mark Zuckerberg.  However, he does not "really know enough about the stock" to own a position.  He cited "younger people" that he's in partnership with as having owned Facebook early on back when it was private.  We'd assume he's referring to Chase Coleman's Tiger Global.

Robertson says he's looking for great companies and he's invested in a European airway company: Ryanair (RYAAY) as they're the low-cost provider.  He also likes Rolls Royce (LON:RR or RYCEY on the pink sheets) because many people see it as a luxury automobile when in reality it is a great supplier to the aerospace and other industries.  Steve Mandel's Lone Pine Capital has been an owner of Rolls Royce.

In terms of financials, Robertson cited Capital One (COF) and Ocwen Financial (OCN).  The latter, he says,  is a mortgage servicing company that he thinks has a lot going for them.

Robertson argues that steel companies AK Steel (AKS), US Steel (X), etc are overvalued and we'd need to see the economy really takeoff to warrant those multiples.


Embedded below is the video of Julian Robertson's interview:



For more on this legendary investor, head to Julian Robertson's thoughts on the hedge fund industry past & present as well as his past extensive interview with Columbia Business School.

East Coast Asset Management on Investment Process: Q3 Letter

Christopher Begg is out with East Coast Asset Management's third quarter letter to investors.  Entitled "Inventing a Flying Machine," the letter discusses investment process, something we try to focus on in addition to tracking hedge funds.

On Investment Process

Market Folly is a big proponent of saying that "investing is a continual education" and so today we learn from Begg who writes that, "In order to produce superior compounded returns over time I believe one must not only have a differentiated view but more importantly a differentiated investment process."

East Coast uses checklists to 'invert' their thinking and how they see an investment.  While they will be drawn to something that has cheap valuation, they want to look at why it's priced cheaply.  This falls directly in line with what Charlie Munger likes to say: "invert, always invert."

East Coast looks for a margin of safety in each investment and try to drill down an investment to the critical data points that drive the company's underlying fundamentals.


3 Types of Investments They Focus On

East Coast categorizes their investments in three ways:

1. Compounders - These typically have the longest duration and highest return potential.

2. Transformations -  These benefit from tailwinds either due to secular dynamics or a business' competitive advantage.  They note that many investors often don't have the patience or investment timeframe for these to pay-off.  These could also be labeled 'time arbitrage' plays, a type of investment the likes of John Griffin at Blue Ridge Capital makes.  East Coast has more than two-thirds of their portfolio allocated to compounders and transformations.

3. Work-outs -  These are investments that trade at a discount for whatever reason and they look for this gap to close.  These types of names typically have catalysts and are often invested in by various hedge funds.  East Coast allocates less than a third of their portfolio to these ideas.


Where East Coast Looks For Ideas

Here's their list of places to start:

- Market sell-offs
- Post-bankruptcy reorganization
- Spin-offs
- Industry transformations
- Political and economic clouds

We'd also toss in that in addition to during proprietary research, it doesn't hurt to look at what other investors are doing as well.  Bruce Berkowitz of Fairholme Capital has recommended this as it's a great place to find ideas to do further due diligence on as well.  Tracking hedge funds is the main purpose of MarketFolly.

Lastly, East Coast emphasizes the importance of thorough research.  They recommend finding competitors of the company you're looking at and talking to people involved in each respective industry to gauge the dynamics and competitive landscape.


Embedded below is East Coast Asset Management's Q3 letter:




For more from this firm, we've also posted up East Coast on what defines a great business as well as their past letter on mispricings.

Larry Robbins Buys More Tenet Healthcare Shares

Larry Robbins' hedge fund Glenview Capital filed another Form 4 with the SEC revealing further purchases in Tenet Healthcare (THC).  We just posted up about how Glenview was buying THC shares last week.

The latest filing indicates that Glenview purchased an additional 200,000 shares of THC on October 19th at a weighted average price of $23.53.  This brings their total ownership to 13,839,339 shares.

To see why this hedge fund has been buying, check out why Glenview likes Tenet.

The company recently completed a 1:4 reverse stock split and confirmed they'd be buying up to $500 million in stock, issue $800 million in new debt, and use $400 million toward potential acquisitions.

It's worth noting that Glenview has also owned other hospital/healthcare plays, including HCA (HCA), Lifepoint (LPNT), and Health Management (HMA).

Per Google Finance, Tenet Healthcare is "an investor-owned health care services company whose subsidiaries and affiliates own and operate acute care hospitals, ambulatory surgery centers, diagnostic imaging centers and related health care facilities. Its core business is focused on providing acute care treatment, including inpatient care, intensive care, cardiac care, radiology services and emergency medical treatment, as well as outpatient services."

Seth Klarman on Leadership: Video Interview

Baupost Group's Seth Klarman gave an intriguing guest lecture at Harvard's Psychology of Leadership course back in 2006.  Given his rare appearances, we wanted to highlight his thoughts on this topic below:

On Leading An Investment Firm

His most relevant thoughts were perhaps where he talked about leading an investment firm.  He noted that he talks with the non-investment team every quarter to make sure they're kept afloat about the firm's investment strategy.

He does this in order to make sure everyone in his organization is on the same page.  Klarman wants a business culture where people are willing to spend extra time to keep an eye out for mistakes.

Klarman says a good leader isn't afraid to fail.  Klarman also recommends finding a good mentor.  The latter is evident all through the hedge fund industry as you often see analysts and portfolio managers learn from talented investors and then go off to start their own firms.

The Baupost man also noted that turnover is a hidden cost in running a business since it takes time and effort to train them.  In the past we've posted up a profile of Baupost Group for those interested.


Moral Values For Leaders

Klarman also touched on moral values for leaders, noting that you have to play by the 'news test.'  What he means by that is you should live in a way that you would not be embarassed if something appeared on the front page of the news.  Fellow hedge fund manager Lee Cooperman also touched on this in his recent presentation on hedge funds and life.


Mistakes He's Made As A Leader

As an investor, it's obvious that learning from mistakes is a must.  Given Klarman's ability to do so as an investor, it should come as no surprise that he's also learned from his mistakes as a leader.  He advocated not to tolerate a "difficult person" for very long, even if they are talented.  It's clear that Klarman places a lot of value/emphasis on the moral character of his firm.


Embedded below is the video of Klarman's interview on leadership:



Hat tip to Valueprax for flagging this video.

For more from this legendary investor, be sure to check out notes from Klarman's book Margin of Safety as well as Klarman's recommended reading list.

John Griffin's Blue Ridge Capital Boosts Owens Corning Position

John Griffin's hedge fund firm Blue Ridge Capital recently filed a 13G with the SEC regarding shares of Owens Corning (OC).  Per the filing, Blue Ridge has revealed a 5.63% ownership stake in OC with 6,670,000 shares.

This marks a 162% increase in the amount of shares they own as the firm has added over 4.1 million more shares since the end of the second quarter.  This disclosure was required due to portfolio activity on October 9th.

Blue Ridge has purchased a few industrial and economically-sensitive stakes as of late and we posted about how Blue Ridge bought shares of Colfax (an industrial manufacturing company) and also increased its stake in Martin Marietta Materials (a materials producer).

Per Google Finance, Owens Corning is "engaged in composite and building materials systems, delivering a range of products and services. The Company’s products range from glass fiber used to reinforce composite materials for transportation, electronics, marine, infrastructure, wind-energy and other markets to insulation and roofing for residential, commercial and industrial applications. The Company operates in two segments: Composites, which includes its reinforcements and downstream businesses, and Building Materials, which includes its insulation and roofing businesses."


For more from this hedge fund, be sure to check out Blue Ridge's recommended reading list.

Carl Icahn Files 13D on Motricity (MOTR)

Corporate activist Carl Icahn has filed a 13D with the SEC regarding shares of Motricity (MOTR).  Per the filing, Icahn now owns a 30.73% ownership stake in the company with 17,466,277 shares.

This marks a 158% increase in the amount of shares he owns since the end of Q2 as detailed on his previous 13F filing with the SEC.  The new 13D was filed per activity on October 11th.


Breakdown of Icahn's Position

The purpose of the transaction is disclosed in the filing quoted below:

"On October 11, 2012, certain of the Reporting Persons were issued an aggregate of 44,098,926 units (the "Units") by the Issuer by exercising subscription rights to purchase Units, which subscription rights were distributed by the Issuer, for no consideration, in a rights offering to all of the Issuer 's stockholders on July 23, 2012 (the "Rights Offering").

Each Unit consisted of 0.02599 shares of the Issuer’s 13% Redeemable Series J Non-Convertible Preferred Stock (the "Series J Preferred Stock") and 0.21987 warrants, each warrant entitling the holder to purchase one share of the Issuer 's common stock at an exercise price $0.65 per share. The exercise price per Unit was $0.65. Therefore, in the Rights Offering, such Reporting Persons paid an aggregate cash exercise price of $28,664,301.90 to the Issuer and received an aggregate of 1,146,131 shares of Series J Preferred Stock and warrants to purchase an aggregate of 9,696,030 shares of the Issuer’s common stock."


And Icahn's ownership stake is further broken down in an additional section of the filing that further explains the securities his investment entities own:


"In connection with the Rights Offering, the Reporting Persons were issued an aggregate of 1,146,131 shares of Series J Preferred Stock.  See item 4 above.  The Series J Preferred Stock is not convertible into Shares or any other series or class of capital stock of the Issuer.  The shares of Series J Preferred Stock generally do not vote with the Shares but have limited rights to vote as a separate class on any amendment to its terms and to certain transactions in which the shares of Series J Preferred Stock would receive or be exchanged for consideration other than cash or similar securities.  The Series J Preferred Stock also has the right to 40 votes per share and vote together as a single class with the Shares on the certain measures to protect the Issuer’s net operating losses and a change of the Issuer’s name, in each case, brought before the Issuer’s stockholders for a vote by April 9, 2013.

On a quarterly basis, the Issuer’s board of directors may at its sole discretion, cause a dividend with respect to the Series J Preferred Stock to be paid in cash to the holders (i) until October 11, 2017 in an amount equal to 3.25% of the liquidation preference, as in effect at such time (initially $25 per share) and (ii) thereafter in an amount equal to 3.5% of the liquidation preference, as in effect at such time. If the dividend is not paid in cash, the liquidation preference will be adjusted and increased quarterly by the amount of such dividend.  The Issuer may, at its option, at any time, redeem the shares of Series J Preferred Stock at a redemption price equal to 100% of the liquidation preference per share in effect at such time (initially $25 per share). The Series J Preferred Stock is also redeemable at the option of the holders, if the Issuer undergoes a Change in Control (as defined in the certificate of designations governing the Series J Preferred Stock)."


About Motricity

Per Google Finance, Motricity is "a provider of mobile data solutions and services that enable wireless carriers to deliver mobile data services to their subscribers. It provides a suite of hosted, managed service offerings, including mobile Web portal, storefront, messaging, and billing support and settlement, which enable wireless carriers to deliver customized, carrier-branded mobile data services to their wireless subscribers."

Carl Icahn was one of the top 25 highest earning hedge fund managers of 2011.

Third Point To Buy Stake In Greek Property & Land Company

Daniel Loeb’s hedge fund Third Point has entered into a deal to buy up to euro 45m worth of new shares in AIM listed property company, Dolphin Capital Investors (LON: DCI) . 


A Play on Greece

Dolphin Capital Investors are a large private owner of developable seafront land in Greece and Cyprus. Dolphin also holds a 50% stake in Aristo Developers, the largest holiday-home developer in Cyprus. 

This isn't Third Point's first foray into the mess that is Greece.  Loeb is long Greek government bonds, a position revealed in their Q3 letter.


Special Rights Issue

Via a special rights issue, Dolphin Capital Investors are offering Third Point the chance to buy between euro 30-45m shares at GBP 0.195 per share. At the close on October 18th, DCI’s shares were worth GBP 0.265 so Third Point has the chance to buy their shares at a discount.

When the offering announcement was made on October 3rd, DCI’s shares traded at GBP 0.229 but Dolphin’s shares did trade at around the offer price back in mid-September. It appears that the recent rally in Dolphin’s shares has been brought about primarily by Third Point’s involvement. 

If the rights issue is successful, Third Point will hold between 19-28.5% of DCI’s outstanding shares. If Third Point keep more than 15% of DCI’s outstanding shares they will be able to appoint a non-executive director. 

Only shareholders on the register as of October 10th are eligible to participate in the offering which is expected to take place on October 25th. The minimum investment will be £100,000. Members of the public are not eligible to participate. 

Before the offering could take place, existing shareholders had to agree the special Third Point rights issue at an Emergency General Meeting (EGM) that was held today (October 22nd). DCI’s admission document states that they may not issue shares at less than net asset value. As the shares were trading at a massive 78% discount to NAV, shareholders had to grant permission.  This permission was granted as the resolution "was duly passed" today.

The largest shareholders are BlackRock with 16.42%, Dolphin Capital (the manager) with 15.16% and Fortress Investment Group with 12.16%. 


About Dolphin Capital Investors

Taken from Dolphin Capital Investor’s website – Dolphin is a leading global investor in the residential resort sector in emerging markets and one of the largest real estate investment companies quoted on AIM in terms of net assets. Dolphin seeks to generate strong capital growth for its shareholders by acquiring large seafront sites of striking natural beauty in the eastern Mediterranean, Caribbean and Latin America and developing sophisticated leisure- integrated residential resorts.

Since its inception in 2005, Dolphin has raised €898 million of equity, has become one of the largest private seafront landowners in Greece and Cyprus and has partnered with some of the world's most recognised architects, golf course designers and hotel operators. 

Dolphin's portfolio is currently spread over approximately 63 million m2 of prime coastal developable land and comprises 14 large-scale, leisure-integrated residential resorts under development in Greece, Cyprus, Croatia, Turkey, the Dominican Republic and Panama and a 49.8% strategic participation in Aristo Developers Ltd, which is one of the largest holiday home developers in south east Europe with more than 60 smaller holiday home projects in Cyprus. Dolphin is managed by Dolphin Capital Partners, an independent real estate private equity firm.


For more on this hedge fund's activity, we've posted up Third Point's Q3 letter.

What We're Reading ~ 10/19/12

Sir John Templeton's 16 rules for investment success [Big Picture]

Hedge funds correlation with S&P 500 extremely high [ValueWalk]

The greatest risk of all [Above the Market]

10 lessons from the 1987 stock market crash [Marketwatch]

Black Monday 25 years later [HFI]

A write-up on Chimera [Capital Observer]

Moore Capital's Coffey bows out [BusinessWeek]

Hedge funds reach record size thanks to recent strong returns [Reuters]

Lifting ad ban a boon for hedge funds, less so for advertisers [WSJ]

PDT Partners launches with 3% management & 35% performance fee [HFI]

Caxton Associates to lower fees on macro fund [WSJ]

SEC charges hedge fund with exaggerating returns [MarketWatch]

China's sovereign fund favors big hedge fund managers [BusinessWeek]

Emerging market hedge funds stand out in mediocre year [Reuters]

Some hedge funds seem like pirates, this one actually stole a ship [TheAtlantic]

Good writing is good for business [Investment Writing]

Glenview Capital Buys More Tenet Healthcare (THC)

Larry Robbins' hedge fund Glenview Capital has filed a Form 4 with the SEC regarding their position in Tenet Healthcare (THC).  Per the filing, they've disclosed ownership of 13,639,339 shares.  This share total also reflects the 1:4 reverse stock split the company completed on October 10th.

Glenview purchased 34,649 shares on October 15th at a weighted average price of $23.91 and 398,734 shares on October 16th at a weighted average price of $23.99.  We've previously highlighted why Glenview likes Tenet.

In addition to the company's reverse split, Tenet also this month confirmed they would buy back up to $500 million in stock, issue $800 million in new debt, as well as use $400 million toward potential acquisitions.

Robbins' firm has also been long other hospital/healthcare plays such as HCA (HCA), Health Management (HMA), and Lifepoint (LPNT).  Of the basket, THC seems to be their largest bet.

Per Google Finance, Tenet Healthcare is "an investor-owned health care services company whose subsidiaries and affiliates own and operate acute care hospitals, ambulatory surgery centers, diagnostic imaging centers and related health care facilities. Its core business is focused on providing acute care treatment, including inpatient care, intensive care, cardiac care, radiology services and emergency medical treatment, as well as outpatient services."  

For more on this hedge fund, click here for Glenview's activity.

Lone Pine Capital Files 13G on Kinder Morgan: A Quick Look at the Warrants

Steve Mandel's hedge fund firm Lone Pine Capital recently filed an amended 13G with the SEC on shares of Kinder Morgan (KMI).  Per the filing, Lone Pine has disclosed a 9.1% ownership stake in KMI with 71,780,836 shares.

Their ownership stake is actually comprised of just over 17.6 million shares of common stock and over 54.1 million Kinder Morgan warrants (explained below).  This means that their actual position size remains unchanged since the end of the second quarter when they filed their 13F with these same totals.
 
It's worth noting that their stake in Kinder Morgan came by way of the El Paso merger.  Lone Pine originally had a large stake in EP and when the company completed its deal, Mandel's firm received KMI shares, cash and KMI warrants (KMI-WS or KMIIV depending on broker).

Due to the deal, KMI now expects its dividend per share to grow at an average annual rate of 12.5% through 2015, according to their recent announcement.


Kinder Morgan Warrants

Lone Pine owns just over 54.1 million warrants as of this most recent disclosure and this is the same amount of warrants they've owned since the second quarter.

Since completion of the merger between EP and KMI, the warrants have doubled in value to $3.86 while KMI shares are up around 7%.  A warrant gives the owner the right to buy 1 share of KMI at $40 and they expire in May 2017 (KMI currently trades just over $35).

Kinder Morgan in the past announced they were buying back $250 million in warrants.  In their Q3 conference call, they mentioned they have bought back $138 million worth of warrants and will continue to buy up until the $250 million mark.

At the end of Q2, Lone Pine was the largest institutional holder of these warrants.  Other large owners at the time include Brookside Capital, Soroban Capital, Hound Partners, Hutchin Hill Capital, Tiger Management, King Street Capital, Eton Park Capital, and Farallon Capital among many more. 

Lone Pine is also the sixth largest institutional holder of KMI common stock as well.  So, it will be interesting to see what Lone Pine does with their various KMI positions in the future and whether or not other major hedge funds continued to hold in Q3.


About Kinder Morgan

Per Google Finance, Kinder Morgan "owns and manages a diversified portfolio of energy transportation and storage assets. The Company operates in five business segments: Products Pipelines-KPM, Natural Gas Pipelines-KMP, CO2-KMP, Terminals-KMP and Kinder Morgan Canada-KMP."


For more from this hedge fund, we've detailed Lone Pine's portfolio activity here.

Carlo Cannell Adds to Valuevision Media Position: 13G Filing

Carlo Cannell's investment firm Cannell Capital has just filed a 13G with the SEC on Valuevision Media (VVTV).  Per the filing, Cannell has revealed a 5.05% ownership stake in VVTV with shares.

This marks an increase in their position by 121,994 shares.  Cannell owned just over 2.3 million shares at the end of the second quarter. 

The filing indicates the date of trading activity that triggered this disclosure is listed as August 29th, 2012.  The fine print of the SEC filing also points out that Cannell Capital's ownership stake comes as a result of owning shares for various entities it is the investment adviser or general partner of.

Per Google Finance, Valuevision Media is "a multichannel electronic retailer that markets, sells and distributes products to consumers through television, telephones, online, mobile and social media. The Company's primary form of product exposure is its round-the-clock television shopping network, ShopNBC, which is distributed primarily through cable and satellite affiliation agreements, and markets brand name and private label products in the categories of Jewelry and watches; home and electronics; beauty, health and fitness, and fashion and accessories."

You can view past portfolio activity from Cannell Capital here.

Warren Buffett's Berkshire Continues to Buy DaVita (DVA)

Warren Buffett's Berkshire Hathaway has continued to buy shares of DaVita (DVA), according to two separate Form 4's filed with the SEC in recent days.  We've previously highlighted how Berkshire was buying DVA late last month.

The most recent batch of SEC filings show that Buffett's conglomerate now owns 10,547,040 shares.  These trades took place on October 10-12th as well as the 16th and 17th.

Berkshire was buying in the $108.28 to $111.2125 range (using weighted average prices).  The bulk of Berkshire's purchase comes around $109.  In total from the two filings, Berkshire has purchased 281,525 additional shares of DaVita.

While this position size has become much larger over time, it seems likely that new portfolio manager Ted Weschler is responsible for the idea as it was one of his big holdings at his previous hedge fund.  And if you're a reader of our premium newsletter, you would have known that DVA was a consensus buy among hedge funds back in Q2.

Given that Berkshire nowadays focuses on buying great companies at a good price, it's interesting to see them continuing to buy shares even while DVA approaches 52-week highs.  If they assume that DVA will grow 20% annually, perhaps they're less concerned about valuation at current levels.  On the other hand, some investors have pointed to DVA's dependence on government payments as a potential negative.

Per Google Finance, DaVita is "a provider of dialysis services in the United States for patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD)."

For more on Berkshire's leading man, head to notes from Buffett's meeting with MBA students.

Great Investors' Best Ideas Symposium: Einhorn, Ackman, Bass, Chanos & More

Investment conference season is in full swing and up next on the circuit is the Great Investors' Best Ideas Investment Symposium in Dallas, Texas.

The sixth annual event will take place on Tuesday, October 30th, at the Winspear Opera House.  All proceeds will be donated to the Michael J. Fox Foundation for Parkinson's Research and the Vickery Meadow Youth Development Foundation.  You can register for the event by clicking here.

Since inception, the event has raised more than $6 million. Founded by Shad Rowe (Greenbrier Partners) and John Neill (Telesis Company), the event's goal is to "enlighten, inspire and inform attendees while raising much-needed funds for two worthy causes."

The panel of speakers at this symposium features prominent hedge fund managers, all of whom have been featured on Market Folly at one point or another.  Here's your chance to hear all of them speak at one event:

Speakers List

David Einhorn (Greenlight Capital)
Bill Ackman (Pershing Square Capital)
Kyle Bass (Hayman Capital)
Jim Chanos (Kynikos Associates)
Lee Cooperman (Omega Advisors)
Boone Pickens (BP Capital Management)
Michael Price (MFP Investors)
Clint Carlson (Carlson Capital)
Rusty Rose (Cardinal Investment Company)

Moderator: Gretchen Morgenson of The New York Times 


Event Information

Date & Time: October 30th, 2012 from 2:00 p.m. to 6:00 p.m. with a cocktail reception afterwards

Location: Dallas, TX at the Winspear Opera House

Website: www.gibidallas.com

Phone: 214-754-9997

Email: info@gibidallas.com

Registration Form: Click here to download the .pdf


The GIBI registration form is also embedded below:





This should be a fantastic event both for investment ideas and networking.  Market Folly will be attending so we encourage everyone to come say hi and to support some great causes.  You can learn more and register for the event by clicking here.

Jeff Saut: Investing Performance Determined By How You Manage Losses

Market strategist Jeff Saut's latest weekly commentary is entitled "Losses?!" where he focuses on, you guessed it, the importance of managing the red side of your portfolio.  Saut says,

"What determines your stock market performance is not how you manage your winners, but how you manage your losers."

He then cites legendary hedge fund manager Paul Tudor Jones of Tudor Investment Corp, who said that: "I'm always thinking about losing money as opposed to making money; focus on protecting what you have."

Warren Buffett's rules of investing echo these same sentiments and are succinctly summarized as follows:

"Rule number one: never lose money.  Rule number two: never forget rule number one."

What's interesting is that these three investors/traders all have very different approaches, yet they're still preaching the same message.  Saut is more of an active investor, Tudor Jones is a trader, and Buffett is more of a 'buy and hold' investor.  Yet, despite their differences, they all follow this same discipline.

So many times, investors are focused on their winners and the potential upside in an investment.  Great investors, on the other hand, focus on the downside and managing their losers.


Embedded below is Saut's latest market commentary:




You can download a .pdf copy here.

For more from this strategist, we recently posted up Saut's presentation on current economic takeaways.

Bruce Berkowitz on Portfolio Concentration & His Investments: WealthTrack Interview

Bruce Berkowitz of Fairholme Capital recently appeared on Consuelo Mack's WealthTrack to talk about his approach and his investments.


Berkowitz on Portfolio Concentration

Berkowitz said that, "The history of success, those who have succeeded well... they are focused on few activities.  He also went on to ask: "Why would you possibly want to buy your 10th best idea, if you can buy more of your best idea?"  He believes it makes sense to diversify more if you have less confidence in your picks though.

The Fairholme man doesn't think you need more than 10 stocks in a portfolio.  He said that you only need "a few good ideas" in a lifetime to do extremely well.  He likes to invest over the long-term and typically looks at investments with a five-year horizon.


Fairholme's Ideas

"Ignore the crowd" is Berkowitz's investing mantra.  At the time he made his AIG investment, he was definitely following that saying.  Nowadays, AIG is perhaps becoming more crowded as investors come around to the name and the government sells down its stake.  We've talked about how various hedge funds have been buying AIG this year.

We've posted up Berkowitz's AIG thesis as well as Glenn Tongue's presentation on AIG from the recent Value Investing Congress for more in-depth color on the name.

Berkowitz also has a large holding in Bank of America (BAC) as well, noting that many investors aren't touching it until "uncertainty" lifts.  Speaking about his financial purchases, he says he bought "systemically important companies at a fraction of their liquidating values."


Fairholme's Portfolio

Here's a look at Fairholme Fund's top three holdings as of the end of September:

1. AIG (AIG): 36.2% of fund
2. Sears Holdings (SHLD): 10.8%
3. Bank of America (BAC): 9.9%

Embedded below is the video of Berkowitz's interview:



For more on this investor, check out the following resources from Berkowitz himself:

- Berkowitz's MBIA investment thesis

- Berkowitz's Sears thesis

- Fairholme's presentation on Bank of America

Steve Romick's Latest Investment Picks (Interview)

FPA Crescent Fund's Steve Romick recently appeared on CNBC's Squawk Box to talk about his approach and his top two stock picks.  FPA has returned 19.7% over the past year and has seen 9% annual returns over the past decade.

Romick's Picks

The fund manager likes Renault (RNO), since it's out of favor in Europe at the time.  He cites the company's stakes in Nissan, Volvo, and Daimler as being worth more than the value of Renault.  They're long RNO and short Volvo & Nissan, saying that "the market is paying us to own Renault."

OmniCare (OCR) was his other pick as he argued the business will benefit from the aging of America and new management.  Sticking with the healthcare space, we've also posted up on potentially why Romick owns WellPoint (WLP) as well.

He also likes farmland is his thesis there is that it will benefit in an inflationary environment (and decline in the US dollar).  He likens it to gold, but unlike the metal, he says it has a positive return and no cost of carry.  They couldn't own as much of it as they want due to liquidity. 

We've detailed in the past how Michael Burry has advocated owning farmland in the past.  Burry, if you're not familiar, was one of the investors that profited from the subprime bubble.


FPA's Investment Approach

He mentioned that his goal is to "provide equity rates of return with less risk than the market."  They invest across asset classes.  While equities are the largest portion of their portfolio, they also do high yield bonds, mortgage home loans, farmland, etc.  They currently hold around 30% in cash as well.

Romick argues against owning bonds at the moment, save for some corporate bonds.  Past posts on this site have highlighted how Omega Advisors' Leon Cooperman has been outspoken against bonds.

Embedded below is the video of Romick's interview with CNBC:



Romick will be presenting new investment ideas at the Value Investing Congress in Las Vegas next May and our readers receive a discount to the event here.

Invest For Kids Chicago 2012: Mandel, Bass, Peltz, Zell & More

We wanted to give readers a head's up that the fourth annual Invest For Kids Chicago conference is coming up on November 7th in Chicago.  Tons of big name hedge fund managers will present their latest investment ideas and 100% of the money raised goes directly to children's charities so if you're in the Midwest it's definitely worth attending.  You can register for the event here.

Speakers List

Stephen Mandel (Lone Pine Capital)
Kyle Bass (Hayman Capital)
James Grant (Grant's Interest Rate Observer)
Nelson Peltz (Trian Fund Management)
Sam Zell (Equity Group Investments)
Steven Romick (First Pacific Advisors)
Jeff Ubben (ValueAct Capital)
Frank Brosens (Taconic Capital Advisors)
Alex Klabin (Senator Investment Group)
David Herro (Harris Associates)


Event Details

Date & Time: November 7th, 2012 from 1:30pm to 5:30pm
Location: Chicago, Illinois at the Harris Theater
Website: www.investforkidschicago.org
Registration Form: You can download the .pdf here

Over the past 3 years, the conference has raised approximately $3 million that has been donated to 19 separate organizations.  100% of the money raised goes directly to children's charities.

Embedded below is the event flyer for Invest For Kids Chicago:





As you can see, the speaker line-up is full of great managers and it should be a fantastic event benefiting great causes.  Click here to register for the event.

TrimTabs/BarclayHedge: Investors Flock to Fixed Income Hedge Funds

TrimTabs and BarclayHedge just released a report that in August, hedge funds saw $5.1 billion in inflows despite the fact that many continued to lag their benchmark indices in August. 

This reverses the $9.2 billion outflow the industry saw the month prior.  Year to date, the industry has seen net redemptions of $13.2 billion.  They estimate now that hedge fund industry assets stand at around $1.7 trillion in August, a decrease of almost 29% from the peak in June 2008.

Money Flowing to Fixed Income Funds

Given many investors' propensity to invest while looking in the rearview mirror and to go where the hot performance is, it should come as no surprise that fixed income funds have attracted the most assets both on a monthly and yearly basis. 

Their research finds that, "fixed income funds significantly bested the hedge fund industry average of 1.3% for the past 12 months.  Fixed Income funds also had the best 12-month returns at 7.1% and the second best y-t-d returns at 6.2%."


Survey of Fund Managers

"The September 2012 TrimTabs/BarclayHedge Survey of Hedge Fund Managers found that sentiment was evenly divided between neutral and bullish on the performance of the S&P 500 for October.  Conducted in late September, the survey of 81 hedge fund managers also found that a majority expect Barack Obama to be re-elected and an even stronger majority expect control of Congress to remain divided."

For more on the industry, check out our other recent post on how hedge funds are handling this market.

Citadel Boosts LSI Corp Stake

Ken Griffin's Citadel Advisors just filed a 13G with the SEC regarding shares of LSI Corporation (LSI).  Per the filing, Citadel has disclosed a 5.5% ownership stake with 30,389,218 shares.

This marks an increase in their position size of 22% as they purchased over 5.4 million shares.  This disclosure was required due to portfolio activity on October 5th.  It's also worth noting that in Citadel's latest 13F, the hedge fund firm also disclosed ownership of both puts and calls on LSI at the end of Q2, though there's no way to know if they still currently hold them.

Per Google Finance, LSI "designs, develops and markets storage and networking semiconductors. The Company offers a portfolio of capabilities, including custom and standard product integrated circuits that are used in hard disk drives, solid state drives, high-speed communications systems, computer servers, storage systems and personal computers. LSI provides products for original equipment manufacturer (OEM), companies, in the server, storage and networking industries."

You can see other SEC filing activity from Citadel here.

Warren Buffett's Berkshire Hathaway Files 13G on DaVita (DVA)

Warren Buffett's Berkshire Hathaway has filed a 13G on shares of DaVita (DVA).  Per the filing, they have disclosed a 10.8% ownership stake in the company with 10,197,569 shares. 

This is more of a formality as their position remains unchanged from when we detailed Berkshire's recent Form 4 filing where they disclosed they had purchased more shares in late September. 

This just goes to show why you should track all SEC filings instead of just focusing on the 13G's and 13F's.  The Form 4 was filed last week and already disclosed everything this 13G does a week later. The 13G was required due to portfolio activity on September 21st.

Hedge Funds Own DVA Too

As we mentioned when Berkshire was buying DaVita late last month, this portfolio activity is most likely attributed to new manager Ted Weschler.  DVA was one of his big holdings at his previous hedge fund.

Also, our premium newsletter flagged that DVA was a consensus buy among hedge funds back in August.  Other top holders of shares at the end of Q2 included Viking Global, Lone Pine Capital, Pennant Capital, and more.

Per Google Finance, DaVita is "a provider of dialysis services in the United States for patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD)."