If you missed the news yesterday, we're now posting linkfests twice a week:
- 1 set of news links focused on hedge fund/finance updates
- 1 set of analytical links focused on security analysis, investment process, etc.
You can view yesterday's analytical links here, and without further ado, below are the hedge fund links:
Hedge Fund Links
10 lessons from investing in small & start-up hedge funds [CFA Institute]
Bridgewater's best and worst trades revealed [ZeroHedge]
Baupost Group profits from Madoff claims [Forbes]
Insight from some great people: in 2012 I learned that... [ReformedBroker]
Top hedge fund industry trends predicted for 2013 [All About Alpha]
2013 investor outlook from SkyBridge, MorganCreek & more [HFIntelligence]
10 trends to watch in finance for 2013 [Washington Post]
Jeff Gundlach's predictions for 2013 [AdvisorPerspectives]
Top 100 finance blogs [SuitPossum]
Icahn takes stake in Transocean (RIG) [Yahoo]
Hedge funds squeezed with shorts beating S&P 500 [Bloomberg]
Returns at hedge funds run by women beat the industry [Dealbook]
Doug Kass' 15 surprises for 2013 [TheStreet]
Private equity: it's not a bubble, it's a pyramid scheme [PEHub]
Friday, January 18, 2013
What We're Reading ~ Hedge Fund & Finance Links 1/18/13
Thursday, January 17, 2013
What We're Reading ~ Analytical Links 1/17/13
By popular demand from readers, we're expanding the "what we're
reading" linkfests to twice a week, starting now. To differentiate the
lists, we'll be posting:
- 1 set of news links focused on hedge fund and finance industry updates
- 1 set of analytical links focused on security analysis, investment process, etc.
If
you come across (or have written) something interesting, please don't
hesitate to email it over: marketfolly (at) gmail (dot) com. Today
we'll post the first installment of the 'analytical links' and tomorrow
will feature the 'hedge fund links.' Enjoy!
Analytical Links
The Success Equation: Untangling Skill & Luck in Business, Sports and Investing [Mauboussin]
A checklist to qualify and disqualify ideas [SimoleonSense]
Curating your financial life [Abnormal Returns]
AIG downgraded as shares appreciate [ValueWalk]
Finding value in HMO's [Contrarian Edge]
Notes on visiting Herbalife (HLF) [Bronte Capital]
12 cognitive biases that prevent you from being rational [io9]
Don't go to business school unless it's a top school [Daily Beast]
Bargain hunting at JC Penney (JCP) [Contrarian Edge]
Ensco (ESV): Drilling deep for value [Barrons]
Indecent proposal for SuperValu (SVU)? [Stone Street Advisors]
Actually worth a read: Jim Cramer's 10 themes for 2013 [TheStreet]
Michael Dell's grand plan? [Term Sheet]
Why console gaming is dying [CNN]
How America drinks: water and wine replace cheap beer and soda [Atlantic]
Mohnish Pabrai on Checklist Investing: Learning From Mistakes
Value investor Mohnish Pabrai sat down for an interview with The Motley Fool to talk about his approach and how he uses checklists in his investment process.
Checklist Investing & Learning From Mistakes
Pabrai had an epiphany after learning from concepts discussed in Atul Gawande's book The Checklist Manifesto. Essentially, he tries to learn from his mistakes by figuring out what went wrong with certain investments and how he could have prevented losses/a specific outcome.
But he also looked at some of the best investors in the world and incorporated their mistakes as well (looking at Warren Buffett, Charlie Munger, LongLeaf Partners, Third Avenue, etc).
Pabrai's Investment Checklist
Pabrai says that, "And what was stunning to me is that in almost all cases where I could figure out the reason for the loss, it was very apparent before the investment was made, number one. And the second is the reason was very basic. It wasn't some esoteric reason that you had to do some higher math to the fifth decimal to figure out this wasn't going to work. It was very basic."
While Pabrai has never revealed his checklist, he notes that there's about 98 questions on it that examines before making an investment. He does drop a few hints as to what he looks for though:
"So for example, we have a set of questions which relate to leverage. Debt covenants, how levered and all kinds of different issues related to leverage, because that has caused a lot of investments to go south. We have another set which relates to moats, the lack thereof, right? And so all kinds of things. There's another set of questions which relate to things like unions and labor relations. There's another whole set of questions on management and ownership. Just all kinds of nuances of whether they own stock, do they act like owners and all those sorts of things that come up. And then there are a few miscellaneous ones."
Since applying the checklist, Pabrai feels that his investment error rate has dropped significantly. Embedded below is the video of Pabrai's interview on checklist investing:
For more from this value investor, be sure to also check out what Pabrai learned from lunch with Charlie Munger and Warren Buffett.
Lee Cooperman's Omega Advisors Discloses Monitise Stake
Leon Cooperman’s hedge fund, Omega Advisors, has disclosed a new position in London listed Monitise (LON: MONI). Due to trading on January 10th, Omega Advisors now holds 5.65% of Monitise’s voting rights.
Following other hedge fund activity in the name, we detailed how Louis Bacon’s Moore Capital recently disclosed a new position in Monitise as well.
Per Google Finance – “Monitise plc is a United Kingdom-based holding company. The principal activity of the Company is as a technology company delivering mobile banking, payments and commerce networks worldwide. The Company’s segments include Live Operations, Investment in future operations and Investment in technology platform. Live operations include both territory deployments and development contracts, which consist of Monitise United Kingdom, Monitise Americas and Global accounts. Investment in future operations segment represents the Company’s operations which are not live operations covering both pre-sales and start-up period. Investment in technology platform segment comprises the ongoing development, enhancement and maintenance costs of the Monitise technology platform.”
Wednesday, January 16, 2013
Position Sizing Utilizing the Kelly Growth Criterion
Investing is a continual education and from time to time we like to highlight concepts on refining investment process. Today we present a piece on position sizing utilizing the Kelly Growth Criterion.
The following is a guest post from Kyle Mowery, who founded GrizzlyRock Capital in 2011 as a long / short manager investing in corporate debt and equity securities. He can be reached at kyle@grizzlyrockcapital.com or at www.grizzlyrockcapital.com.
Position Sizing Utilizing the Kelly Growth Criterion
One of the more vexing tasks for investment allocators is position sizing. Regardless whether allocators select investment managers or individual securities, optimal position sizing is paramount to portfolio success. Small allocations to prescient investments minimize their impact while large allocations to poorly performing investments leads to underperformance.
Some allocators elect to equal-weight investments given uncertainty regarding which investments will perform best. This strategy creates a basket of attractive investments that should profit regardless of which investments in the basket succeed. This method benefits from simplicity and recognizes the future is inherently uncertain. Drawbacks of the strategy include underweighting exceptional investments and overweighting marginal ideas.
Another strategy is to allocate large amounts of capital to the investment ideas with the most potential. This methodology suggests investors should invest proportionally according to their ex-ante return expectations. The advantage of this methodology is matching prospective return to investment size. However, this strategy breaks down when allocators are incorrect about future investment return or risk prospects.
Investment allocators determine their methodology through a combination of portfolio mandate, risk tolerance, and confidence level in investment assessments. While the various approaches implemented are directionally helpful, most are mathematically sub-optimal. There is a better way - the Kelly Growth Criterion.
Kelly Growth Criterion
The Kelly Growth Criterion is a simple formula that determines mathematically optimal allocations to maximize long-term portfolio performance given each investment’s probability of success (“edge”) compared to the amount gained or lost (“odds”). The formula assumes a bimodal outcome of success (“base case”) or failure (“stress case”) over a single time period:
Ok, How Can the Formula be Applied to Investing?
When applied to investing, the Kelly Growth Criterion formula has six inputs. First is simply portfolio size. Second is the amount of capital the portfolio will risk in the pursuit of gain. This amount is also called the maximum tolerable drawdown. For a venture capital group this number will be high while a conservative pension plan would be willing to risk much less. Portfolio size and maximum tolerable drawdown remain constant for each portfolio analyzed regardless of specific investment opportunities.
Next comes four factors regarding the investment itself: the probability of gain in a base case, probability of loss in a stress case, percent of projected gain in the base case, and percent of projected loss in the stress case. The formula is below:
We believe General Electric is attractive but are not sure how to size the position within our portfolio. Our team has agreed that our projected gain in the base case is 12% while we would lose 8% in the stress case. Further, the team has agreed the probability of gain to be 55% (base case) and a 45% probability of loss (stress case). Ok, so how much capital do we allocate to General Electric stock?
(click to enlarge)
Given both a strong “edge” (55% probability of success) and advantageous “odds” (12% projected gain in the base case is greater than 8% projected loss in the stress case), the formula suggests we allocate 3.75% of our portfolio to GE. If the “edge” was even, the formula would recommend a 2.50% allocation – again due to the disproportionate odds of success (12% vs. 8%).
What strikes many allocators initially is the magnitude of the size. Is 3.75% really optimal under a scenario with only a 55% probability of success? Mathematically speaking, yes. Why does this seem high?
The recommended 3.75% investment in GE seems high due to the commonality of diversification by funds and investment allocators. Let’s again work an example with our $100 million fund with a 15% maximum tolerable drawdown. Let’s further assume this fund has 100 investments therefore averaging 1.0% per investment. If an allocator takes the view that the “edge” is a coin flip (i.e. probability of success is equal to probability of failure). What would an allocation of 1.00% imply about the expected “odds”?
As shown above, a 1.00% allocation to a position implies just an 11.54% gain in the base case versus a 10.00% decline in the stress case assuming equal odds. These odds are hardly the makings of a scintillating investment.
Why is the Kelly Growth Criterion Rarely Used for Investment Allocation?
Given the formula is mathematically optimal and simple to implement, one might think allocators would embrace the tool. However, investment allocators are not aware of this tool primarily because academic finance has not fully embraced the tool. Secondly, there are a few key weaknesses of the tool.
How Can Inherent Limitations of the Kelly Growth Criterion Formula be Overcome by Investment Allocators?
(1) Ex-ante input assumptions are inherently precise: As with any model, the formula is only as good as its inputs. How can allocators know beforehand whether an investment has a 50% or 55% chance of success? This input must be estimated without an ability to determine the efficacy of the estimate ex-post facto.
The simplicity and power of the formula is a double-edged sword. If investment allocators systematically overestimate the probability of success, long run return will be hampered. The offset of this risk is to estimate projected gains and success probability conservatively. If allocators error on the conservative side, the model will allocate smaller amounts to each investment. This is perfectly acceptable given the model’s proclivity to encourage substantial position sizes.
(2) The formula cannot account for correlation: The Kelly Growth Criterion accounts for an investment’s specific edge and odds. As such, the formula cannot address the relationship between portfolio investments and thus does not account for correlation.
Ask anyone who invested during 2008, correlations rise during a stress environment. If the probabilities of investment success (“edge”) in a given portfolio are correlated, a portfolio allocated strictly according to the Kelly Growth Criterion would be susceptible to risk factors which increase correlation.
There are two mitigants for this risk: (1) Invest in securities with divergent risk factors. If your edge in each investment is not correlated, the formula will provide a strong outcome at a portfolio level. (2) Akin to the mitigants for imprecise input assumptions, estimating a conservative edge and odds for each investment will decrease position sizing in any one security. By avoiding the weaknesses of the Kelly Growth Criterion, the robustness of the formula is enhanced.
(3) The formula assumes a single time period while portfolios are managed more frequently: The Kelly formula assumes a bimodal outcome, success or failure. Portfolio managers often confront prices that meander towards their eventual outcome over time. As prices change, positions sizing will be suboptimal at various times. To compensate for the model’s simplicity, allocators should specify time horizons before entering a position. For example, if hiring a private equity fund manager with an investment horizon of 10 years your Kelly Growth formula will utilize a much longer time frame than if you manage a trading book.
My firm, GrizzlyRock Capital, utilizes long-term, fundamental value methodology. As such, we utilize a period of multiple years when applying the Kelly Growth Criterion. We calculate the value of a business using an upside, base, and stress case and then utilize the base and stress case forecast in the Kelly formula. This conservatism allows the investment to trend towards our base case without our needing to reassess position sizing using the formula.
Conclusion
The Kelly Growth Criterion is valuable to investment allocators given the systematic, repeatable process and mathematically optimal portfolio structure. While a practical tool, the formula is not a silver bullet. When used conservatively, the formula will maximize portfolio growth by allocating capital to the most advantageous investments given both prospective return and risk.
Bill Miller of Legg Mason and Ed Thorp of Princeton Newport Partners (now closed) are investors with stellar track records over decades who embrace and advocate the use of the Kelly Growth Criterion in portfolio allocation. In his recent treatise, Antifragile, Nassim Taleb lavishes praise on the Kelly Growth Criterion: “Kelly’s method requires no joint distribution or utility function. In practice one needs the ratio of expected profit to worst-case return – dynamically adjusted to avoid ruin.”
For more detail on the Kelly Growth Criterion, I recommend reading Fortune's Formula by William Poundstone or the Ed Thorp chapter (Chapter 6) in Jack Schwager's Hedge Fund Market Wizards.
At GrizzlyRock, we have found utilizing the Kelly formula eliminates our emotional biases towards certain aspects of investing and provides a stable, repeatable investment allocation of capital. Please drop me a line at kyle@grizzlyrockcapital.com if you wish to discuss further or be added to our distribution list.
Best of luck implementing the formula at your firm!
Friday, January 11, 2013
Charlie Munger & Warren Buffett's Secrets To Investing Success
Value investor Mohnish Pabrai recently sat down for an interview with The Motley Fool and he talked about what he learned from his lunches with Charlie Munger and Warren Buffett.
Charlie Munger's 3 Secrets To Investment Success
Pabrai talked about how Munger revealed 3 things investors can do to be successful:
1. Carefully watch what other investors are doing
2. "Look at the cannibals" - look at businesses buying back huge amounts of stock
3. Carefully study spin-offs
Point number one is quite interesting as Munger flat out tells you to watch other investors (i.e. 13Fs, 13G's, public appearances, etc), something Market Folly's expanded on in our premium newsletter. Rather than blindly copying their picks, we'd assume Munger means to use this as a source of idea generation and a starting place to do more work.
The second point (stock buyback) is something that numerous hedge funds take into consideration when evaluating ideas. Steve Mandel of Lone Pine Capital is said to be a fan of 'share count shrinkers'.
Lastly, the third point (spin-offs) is an excellent place to source ideas and Joel Greenblatt talks about spin-offs in his book. In fact, many hedge funds buy companies that announce a spin-off and then once the split is complete, hold onto one piece of the company that they like most.
An example that many hedge funds played was Expedia (EXPE) spinning off TripAdvisor (TRIP). We'd assume Charlie also meant 'split-ups' and a recent example of that would be Tyco splitting up into PentAir (PNR), Tyco (TYC), and ADT (ADT).
Warren Buffett's Words of Wisdom
Pabrai relayed a story Warren Buffett told him about his former partner Rick Guerin, who fell off the map so to speak. Buffett, Guerin, and Munger used to all invest together but Guerin was in a hurry to get wealthy whereas Munger and Buffett weren't. Buffett's outlined two lessons:
1. Avoid leverage
2. Be patient
Guerin was levered with margin loans in the 1973/74 downturn and received tons of margin calls, so he was forced to sell his Berkshire Hathaway (to Buffett).
So Pabrai described the lesson from Buffett as, "if you're even a slightly above-average investor who spends less than they earn, over a lifetime you cannot help but get rich if you are patient. And so the lesson was, don't use leverage, right? And be patient. These are attributes he's talked about plenty, but I would say that it got seared in pretty solidly after hearing the format in which he put it."
Embedded below is the video of Pabrai sharing what he learned:
For more from these great investors, head to Warren Buffett's recommended reading list as well as Charlie Munger on the psychology of human misjudgment.
Glenview Capital Reduces Spirit Pub Stake
Larry Robbins’ hedge fund, Glenview Capital, has been steadily reducing its position in London listed Spirit Pub Company (LON: SPRT). When Spirit was spun off from Punch Taverns (LON: PUB) in May of last year, Glenview held 18.37% of Spirits voting rights. Due to selling in July, August, November and now January, Glenview now hold only 11.7%.
Despite the selling, Glenview are still Spirit’s largest shareholder. Glenview has not sold any of their Punch Taverns stake though, which stands at 18.77%. It seems Robbins prefers the Punch Taverns side of the business.
Also worth noting: Glenview has a large holding in rival London listed pub group, Enterprise Inns (LON: ETI) where they hold 12.27% of voting rights.
Glenview had a big year in 2012 as they returned almost 30% in their main fund. Robbins has made a big bet on many hospitals and we've highlighted his other recent portfolio activity here.
Per Google Finance – “Spirit Pub Company is a United Kingdom-based company. As of July 1, 2011, the Company’s business comprised the managed pub business and the leased pub business comprising, 803 managed pubs and 549 leased pubs, which were carried on within the Punch Group by Spirit Pub Company (Holdco) Limited and its subsidiaries. In April 2011, Punch Taverns plc announced its plans to demerge its Managed business to create a business, Spirit Pub Company.”
Ross Turner's Pelham Capital Buys Vesuvius Stake
Ross Turner’s hedge fund, Pelham Capital, has disclosed a new position in London listed Vesuvius (LON: VSVS). Turner, previously the youngest partner at London hedge fund Lansdowne Partners, established his long/short fund in 2007, raising $500m.
Due to trading on December 19th, Pelham now holds 5.9% of VSVS’s voting rights. Vesuvius and Alent , both FTSE 250 midcap companies, were formed by a de-merger of Cookson Group in December last year.
Per FT.com – “Vesuvius PLC is engaged in metal flow engineering, developing, manufacturing and marketing ceramic consumable products and systems to the global steel and foundry industries and in industries that require refractory materials for high temperature, abrasion resistant and corrosion resistant applications such as the aluminium, cement, glass and solar industries. It has three business segments: the Steel and Foundry businesses, both of which are providers of engineered ceramics, and Precious Metals Processing business. Its products are specialised ceramics, including shrouds, stoppers, nozzles, slide gates, lining refractories and fluxes for the steel production industry and filters, feeding systems, coatings and binders for the foundry industry. On May 1, 2012, the Company disposed the United States business of the Precious Metals Processing business to Richline Group Inc. In November 2011, SERT was acquired by the Company. On March 29, 2012, it acquired Metallurgica.”
Wednesday, January 9, 2013
Dan Loeb Buys Herbalife, Morgan Stanley & Tesoro: Third Point Q4 Letter
Let the battle begin. Dan Loeb's hedge fund Third Point has started a long position in Herbalife (HLF), he revealed in his Q4 letter to investors. He also filed a 13G with the SEC disclosing that Third Point owns 8.24% of the company as of January 3rd.
Loeb Long Herbalife
Readers will recall that we recently posted up Bill Ackman's short presentation on HLF where he called it a pyramid scheme. Brian Sullivan tweeted that Andrew Ross Sorkin spoke with Third Point, who believe there's no evidence HLF is a pyramid scheme in their research.
Third Point believes in the compounder thesis that the stock was trading at an attractive discount (after Ackman's short presentation). Third Point writes,
"Applying a modest 10-12x earnings multiple suggests Herbalife's shares are worth $55-68, offering 40-70% upside from here and making the company a compelling long investment ... Given that the company has historically traded more in the 12-14x range (and traded at 16-20x earnings through much of 2011 and early 2012), the opportunity for the company to tell its side of the story tomorrow at its Analyst Day in New York, and the significant short interest, we believe shares could even trade well about our current price target."
So, you now have two hedge fund heavyweights: 1 long, 1 short. Who wins? Only time will tell. Now all we need is David Einhorn to toss his hat in the ring as well. After all, in May of this year Einhorn popped up on a HLF earnings call and started asking questions. However, he has not disclosed a position long or short.
Third Point Starts Morgan Stanley & Tesoro Positions
While the HLF position will get all the focus, we also wanted to highlight that Third Point disclosed a new position in Morgan Stanley in their Q4 letter as well. They feel the company is a turnaround story and point to the stock trading at a 20% discount to tangible book, down from the 35% discount when they acquired shares at an average price of $16.77 per share.
The hedge fund also bought shares of refiner Tesoro (TSO). They write, "we see Tesoro generating about $9 per share in annual excess FCF on a normalized basis and our expectation is that shares can double from the current price of $40. We believe the Q3 story was only the beginning, and are happy to own Tesoro for its next few chapters."
Embedded below is Dan Loeb & Third Point's Q4 2012 letter to investors:
For more on this hedge fund manager, we just yesterday posted up how Third Point ramped up net long equity exposure.
Odey Discloses Regus Stake
Crispin Odey’s hedge fund, Odey Asset Management, has disclosed a new position in London traded Regus (LON: RGU). Due to trading on January 4th, Odey now own 5.15% of Regus’s voting rights.
Odey hold the equivalent of 1.88% of Regus’s voting right via contract for difference (CFD), something we've explained in the past via that link for those unfamiliar.
In terms of shorts positions in the UK property sector, Odey also has a -0.91% short in Capital Shopping Centres (LON: CSCG). CSCG is a real estate investment trust (REIT) that owns 14 regional shopping centres in the UK.
For more information on Odey’s recent activity in UK markets see our posts on their stakes in Shanta Gold (LON: SHG) and fellow hedge fund, Man Group (LON:EMG).
Per Google Finance – “Regus plc is a provider of global office outsourcing services. Its primary activity and business segment is the provision of global workplace solutions. There are three parts to the Company’s business: Mature, New and Third Place. The Company’s products and services include outsourcing, workplace recovery, business lounges, businessworld, meeting rooms, video communications, offices and virtual offices. It offers bespoke packages for starting a business, home based business, mall and medium business, international business and corporate workspace solutions. It has some 1,203 locations across 550 cities in 94 countries serving more than a million customers. Its principal geographical segments include Americas; Europe, Middle East and Africa (EMEA); Asia Pacific; and the United Kingdom. During the year ended December 31, 2011, it opened 139 locations, and added 62 centers, including a center in Omaha, Nebraska. In September 2012, it opened a new business center in Rwanda, Kigali.”
Howard Marks: Fixed Income Returns Not Worth The Risk (Latest Memo)
Longtime readers will know we're big fans of Howard Marks' commentary mainly because he often tackles investment process and other key concepts of investing. The latest memo from the Oaktree Capital chairman is entitled "Ditto" outlines how history doesn't repeat itself but it does rhyme and he outlines some of these repeating themes in financial markets:
- Importance of risk and risk control
- Repetitiveness of behavior patterns and mistakes
- Role of cycles and pendulums
- Volatility of credit market conditions
- Brevity of financial memory
- Errors of the herd
- Importance of gauging investor psychology
- Desirability of contrarianism and counter-cyclicality (we've highlighted an excerpt from Marks' book on contrarianism in the past)
- futility of macro forecasting
As you'll notice, many of the above are related to behavior/emotion (see recommended reading on the topic here). Because while fundamentals, technicals, or whatever metrics you follow matter, you also have to worry about the two factors that seemingly move markets the most: greed and fear.
He goes on to write, "The good news is that today's investors are painfully aware of the many uncertainties. The bad news is that, regardless, they're being forced by the low interest rates to bear substantial risk at returns that have been bid down. Their scramble for return has brought elements of pre-crisis behavior very much back to life."
The key here, is that he's referring mainly to fixed income securities. After the financial crisis, everyone was looking for "safety." And then during the low interest rate years, everyone began to stretch for yield.
Marks reiterates something he said in 2004 by saying that, "there are times for aggressiveness. I think this is a time for caution. Here as 2013 begins, I have only one word to add: ditto."
Marks' latest memo "Ditto" is embedded below:
You can download a .pdf copy here.
For more wisdom from this manager, be sure to check out Marks' previous letter.
What We're Reading ~ 1/9/2013
Fund manager search and selection tips [CFA Institute]
Remembering what's important when it comes to investing [Abnormal Returns]
Latest interview with Jim Chanos [Barrons]
Irving Kahn: The 107-year old stock picker [WSJ]
A profile on fund manager Don Yacktman [Fortune]
Interviews with Marc Lasry & Thomas Wagner [Distressed Debt Investing]
Smart money has many forms [Invanoff]
Leading investment indicators [Above the Market]
How would Buffett invest if he started over today? [Geoff Gannon]
When is a hedge fund not a hedge fund [Market Safari]
On implementing the Peter Lynch approach to stocks [Guru Investor]
Hedge funds going nowhere fast [Economist]
Profile of Ryan Morris, a 28-year old activist investor [BusinessWeek]
A rare interview with Google's Larry Page [Fortune]
A qualitative look at Apple (AAPL) [Brooklyn Investor]
Why Bill Ackman is wrong about Herbalife [Kid Dynamite]
A look at Abbott Labs spinoff Abbvie [Stock Spinoffs]
Amazon: The hidden empire [Scribd]
How TV still made money off the internet [The Atlantic]
Mortgage rates won't get much lower [Fortune]
Tuesday, January 8, 2013
What We're Reading ~ 2013 Predictions Edition
Our normal weekly linkfest will be published tomorrow (Wednesday) as usual. But today we wanted to highlight a set of links focused on picks and predictions for the new year. Enjoy 2013:
10 new, must-read investing blogs for the new year [Marketwatch]
Crowd-sourced 2013 stock and market picks [Forbes]
The 2013 buy list [Crossing Wall Street]
Stories to watch for in 2013 [Marginal Revolution]
Byron Wien's 2013 predictions [Zero Hedge]
Walt Mossberg's 2013 tech predictions [WSJ]
Top 10 predictions for 2013 [FirstAdopter]
The 10 best stocks for 2013 [Old School Value]
10 favorite stocks and trends for 2013 [Leigh Drogen]
And looking back on 2012:
Wall Street geniuses and their favorite charts of 2012 [Business Insider]
At the end of the year, a time for reflection [Adam Grimes]
Market Strategist Jeff Saut: Short-Term Conflicted, Long-Term Bullish
It's been a while since we checked in on market strategist Jeff Saut, so now that the new year is upon us, let's see how he's positioned and approaching this market. His latest commentary, entitled "White Noise?" talks about how investors need to filter out the daily noise they hear from media.
As far as his positioning goes, Saut notes that "I am currently short-term conflicted. While the long-term case remains strongly bullish based on a more collegial Congress, a continuation of the housing boom, strengthening auto sales, improving employment, low inflation, liquidity, etc, the short-term is becoming suspect."
The reasons for his short-term concern stem from the McClellan Oscillator remaining overbought and the fact that highly shorted stocks rallied profusely (implying a massive short squeeze in some of these popular shorts).
He thinks the rally will stall at certain technical levels (1475) and pullback in February, a dip he thinks should be bought. He likes all sectors except for Consumer Staples, saying they're too expensive currently.
Embedded below are Jeff Saut's latest investment strategy comments:
You can download a .pdf copy here.
Third Point Ramps Up Net Long Equity Exposure in December
Dan Loeb's Third Point Offshore Fund finished 2012 up 21.2%, managing just over $5 billion. In the hedge fund's most recent December report, we see their exposure levels and latest top holdings:
Exposure Levels
The main takeaway from Third Point's latest exposure report is their sizable increase in net long equity exposure. They went from being 27.7% net long at the end of November to 43.1% net long at the end of December.
They are slightly net short healthcare and their largest net long exposure comes in the TMT (tech, media & telecom) and industrial sectors.
In credit, Loeb's firm is net long 29.5% and their largest allocation there continues to be asset backed securities.
Third Point's Top Positions
1. Yahoo! (YHOO)
2. American International Group (AIG)
3. Gold
4. Ally Financial (multiple securities held)
5. Murphy Oil (MUR)
Compared
to the month prior, there are two notable changes. First, their
position in Greek Government Bonds (GGB's) falls out of their top
holdings. We posted an article about them trimming this position in our weekly linkfest. The second change is that Ally Financial has climbed
up the position sheet.
Top winners for Third Point in
December included GGB's, AIG, Delphi (DLPH), and Nexen (NXY). The
government exited its stake in AIG, one of the many catalysts Third Point
outlined in their thesis on AIG.
NXY has been a big arbitrage play among hedge funds as their merger deal was approved by Canadian authorities. This stock was flagged as a consensus buy among hedge funds in our November Hedge Fund Wisdom issue.
Monday, December 31, 2012
Lone Pine Capital Adds to TripAdvisor Stake
Steve Mandel's hedge fund firm Lone Pine Capital recently filed a 13G with the SEC during the holidays on shares of TripAdvisor (TRIP). Per the filing, Lone Pine has revealed a 5% ownership stake in TRIP with 6,523,653 shares.
This marks around a 13% increase in their position size since the end of the third quarter. The 13G was filed due to portfolio activity on December 12th.
Lone Pine has been busy doing some buying and we've posted up some of their other portfolio activity here.
Liberty Media Also Likes TRIP
It's also worth flagging that John Malone's Liberty Media (LMCA) recently bought a big slug of TripAdvisor as well. Barry Diller sold his stake to Liberty for $62.50 a share (a 40% premium at the time). This transaction gave Liberty 57% of the company's voting shares.
Per Google Finance, TripAdvisor is "an online travel research company, enabling users to plan and have a trip. TripAdvisor features reviews and advice on hotels, resorts, flights, vacation rentals, vacation packages and travel guides. TripAdvisor’s travel research platform features reviews and opinions from its community of travelers about destinations, accommodations (hotels, bed and breakfasts, specialty lodging and vacation rentals), restaurants and activities worldwide, through its TripAdvisor brand."
Larry Robbins' Glenview Capital Boosts Health Management Associates Stake
Highlighting some relevant SEC filings from over the holidays, we wanted to flag a series of Form 4's and an amended 13G filed by Larry Robbins' hedge fund firm Glenview Capital on Health Management Associates (HMA).
Per the filings, Glenview has revealed over a 13% stake in HMA with 34,059,503 shares. Around two weeks ago, Glenview purchased 5,430,227 HMA shares at prices between $9 and $9.19. This marks almost a 33% increase in their position size since the end of the third quarter.
While those share prices are weighted averages from the SEC filings, HMA is largely still trading around those levels now.
Glenview Continues To Bet On Hospitals
Hospitals and healthcare plays have been a big theme in Glenview's portfolio and Robbins has done extremely well with some of these positions (in particular Tenet Healthcare). Robbins originally pitched going long hospitals back in May and Glenview was also recently out adding to its position in Community Health Systems.
Earlier this month, HMA was profiled on an episode of CBS' show "60 Minutes," which called into question the company's admission policies. HMA defended itself ahead of the investigative journalism piece that aired.
Per Google Finance, Health Management Associates "operates general acute care hospitals and other health care facilities in non-urban communities."
Bill Ackman's Presentation on Shorting Herbalife (HLF)
Playing catch up after the holidays, we wanted to make sure everyone had a chance to see Bill Ackman's presentation on his latest short position: Herbalife (HLF).
The Pershing Square Capital Management CEO gave the pitch at a recent special Ira Sohn event. In a very thorough and detailed presentation (334 slides), Ackman labels the multilevel marketing company a pyramid scheme.
Making the media rounds after his presentation concluded, Ackman noted that he has an "enormous" short position, over 20 million shares and that they began shorting around 7 months ago. While HLF shares originally plummeted from around $40 down to $25 on news of Ackman's short, they've since rebounded up to $32.
Some readers may recall that we also previously flagged when Greenlight Capital's David Einhorn surfaced on an Herbalife earnings call and started asking questions. His brief cameo caused the stock to plummet on sheer speculation that he was going to short the company.
There still has been no word from Einhorn whether he is long, short, or not involved at all in the name. Ackman also commented in a recent media appearance that he had not spoken to Einhorn about the HLF position.
Embedded below is Ackman's presentation on Herbalife (HLF) entitled, "Who wants to be a Millionaire?"
You can download a .pdf copy here.
The Pershing Square founder also created a website for his pitch: www.factsaboutherbalife.com if you want to see the full webcast of his talk as well as other resources he's posted up.
For more from this hedge fund manager, we recently posted up Bill Ackman's presentation on everything you need to know about finance and investing.
Friday, December 28, 2012
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Wednesday, December 19, 2012
What We're Reading ~ 12/19/12
Tiger Cubs' gains largely thanks to a handful of stocks [II Alpha]
In-depth research on how TV is set to change [SumZero]
Soon quarterly window-dressing won't work [Dealbreaker]
On investment analysis: invert, always invert [Psy-Fi]
A pitch on Las Vegas Sands [HedgeFundIntelligence]
The bull case on Q-Logic [Graham Disciple]
Update on the latest activity from Karsch Capital [ValueWalk]
The best fund manager you've never heard of [Bronte Capital]
Third Point makes $500m on Greek bonds [Telegraph]
Different kind of Black Friday coming for physical retailers [Fortune]
More hedge fund managers optimistic about 2013 [P&I]
Supercycle for forest products expected to send lumber prices up [VancouverSun]
How not to create your own hedge fund [Seeking Alpha]
Tiger Asia to pay $44 million for illegal trading [SEC]
Prime reason why Amazon's sales may be falling behind this holiday [AllThingsD]
Best places to work [Cnet]
24 things I know now that I wish I knew then [Moz]
