What We're Reading ~ Analytical Links 3/6/13

Book that changes the way you do business: The Innovator's Dilemma [Clayton Christensen]

The short case on Boulder Brands (BDBD) [Prescience Point]

Why are most people terrible investors? [Phil Pearlman]

12 cognitive biases that endanger investors [Minyanville]

Interview with Paul Lountzis on investing & scuttlebutt research [Simoleon Sense]

On doing less [Capital Observer]

Dow hits record high with household income at decade low [Atlantic]

Verizon (VZ) said to seek to resolve Vodafone (VOD) relationship [Bloomberg]

Cash levels in brokerage accounts approach lowest levels ever [Kimble]

Study reveals most at-risk retailers for Amazon showrooming [Placed]

Shorts battle longs over Fairpoint Communications (FRP) [Forbes]

Want to short the student loan bubble? Now you can [Zerohedge]

Getting schooled by Career Education (CECO) [Barel Karsan]

Vornado selling chunk of J.C. Penney (JCP) stock [WSJ]

America Movil (AMX): time to buy in bulk? [FT]

Imagining cable TV if bundles unravel [WSJ] and News Corp creates sports network [NYT]

Google (GOOG) is building a same-day Amazon Prime competitor [Techcrunch]

Cree (CREE) introduces LED lightbulb [Yahoo Finance]

Why getting an MBA isn't worth it [WSJ]

Crimson Wine Group (CWGL): Bull Case on a Unique Spin-off Opportunity

The following is a guest post by Tsachy Mishal of TAM Capital Management who presents the bull case on Crimson Wine Group (CWGL) which was recently spun-off from Leucadia National (LUK).  Tsachy also runs the blog, Capital Observer.

Crimson Wine Group: A Unique Spin-off Opportunity

Crimson Wine Group (CWGL) is a unique spin-off opportunity. Crimson Wine was separated from Leucadia National Corp (LUK) prior to its acquisition of Jefferies. The stated reason for the spin-off is as follows:

“Jefferies has advised Leucadia that Jefferies’ management deemed Crimson as less strategically relevant than Leucadia’s other subsidiaries, ascribing a value to Crimson no greater than approximately its book carrying value. As such, in assessing and negotiating the terms of the transaction with Leucadia, Jefferies’ management advised Leucadia that Jefferies viewed the pre-transaction divestiture of Crimson through the Leucadia winery business separation an efficient and desirable method of divesting Crimson, as compared with a post-transaction sale or other divestiture. It was therefore agreed between Jefferies and Leucadia that that the separation occur prior to consummation of the transactions, without reducing the book value of Leucadia by more than $197 million and that it be effected without Leucadia retaining any material liability with respect to Crimson.”  

My interpretation of this is that there was a disagreement about the value of Crimson between Jefferies and Leucadia. Jefferies did not believe Crimson was worth more than stated book. That would imply that Leucadia management believed it was worth more than stated book value since they decided to spin this off. If Leucadia management were willing to accept stated book as the valuation than there would be no reason for the spin.

Leucadia management owns a significant portion of the company with Chairman Ian Cummins owning 8.7% of the shares and Joseph Steinberg owning 9.7% of the shares. I believe it is significant that they felt it important to carve out this asset rather than to allow it to be valued at book value. This is especially important because this asset only makes up about 2% of the combined company. If it were worth anywhere close to stated book it would hardly be worth it to spin this off.

It is also worth noting that Leucadia management is in a much better position to value these assets as they have owned some of them for over twenty years. The Jefferies position is understandable in the context of a large financial company. Pro forma for the deal, Crimson would represent approximately 2% of book value. Financial companies are generally valued based on book value. It is unlikely given how small Crimson is relative to Leucadia that the market would ascribe value above book. So even though Leucadia thought it was worth much more than book, Jefferies thought they would never get credit for it in a large financial company.


Valuation

There are two ways to tackle the valuation of Crimson. The first is by book value and the second is through earnings power. I will attempt to do both starting with book value. Below is the pro forma balance sheet given by Crimson. Stated book value is $7.82:

-->

ASSETS
Current assets:
	Cash and cash equivalents		21,329
	Accounts receivable, net		5,287
	Inventory		41,487
	Other current assets		663
	Total current assets		68,766
	Property and equipment, net		108,485
	Goodwill		1,053
	Other intangible assets, net		20,403
	Total		198,707

-->

LIABILITIES
Current liabilities:
	Accounts payable		857
	Accrued expenses		5,393
	Customer deposits		1,178
	Total current liabilities		7428
	Total liabilities		7428
EQUITY
Common shares, par value $1 and $.01 per share			245
Additional paid-in capital			277,176
Retained deficit			-86,142
	Total equity		191,279
	Total		198,707

Breakdown of Wineries 

Crimson Wine Group is in the winery business and owns several vineyards. Crimson lists the value of its property and equipment on its balance sheet as $108,485, which includes the vineyards it has acquired. Crimson has acquired its vineyards over twenty plus years. The land is listed at cost even though the price has appreciated materially. Below is a breakdown of the value of their vineyards:

Pine Ridge Archery Summit - Pine Ridge and Archery Summit are Crimson Wine Groups most valuable wineries.  Pine Ridge Vineyards was acquired in 1991 and has been conducting operations since 1978, Archery Summit was started in 1993. In 2001 they were put on the market by Leucadia for $150 million as seen in this Wine Spectator article. Napa Valley winery prices trade at record prices and at significantly higher prices today than they did in 2001. I believe that this property is worth at least $150 million.

Seghesio Family Vineyards- Seghesio was acquired for $86 million in May 2011.

Chamisal Vineyards- Chamisal acquired for $19.2 million in August 2008.

Double Canyon- Crimson acquired 611 acres in Horse Heaven Hills, Washington for an undisclosed price in 2005 and 2006. A conservative estimate of their land and equipment there is $10,000,000.

The table below summarizes the value of Crimson’s wineries:

-->

Winery	Value
Pine Ridge Archery Summit	$             150,000,000
Seghesio Family Vineyards	$               86,000,000
Chamisal Vineyards	$               19,200,000
Double Canyon	$               10,000,000
Total	$             265,200,000

By assigning a value of $265 million to Crimson’s property & equipment and zero value to its intangible assets the book value becomes $326.3 million or $13.34 cents a share.

By looking at Crimson’s past earnings it is difficult to justify the current price. For the first nine months of 2012 Crimson reported 19 cents of pro forma earnings. However, the future outlook is brighter as earnings are set to ramp up.

Crimson has been significantly increasing production in recent years.  Between 2009 and 2012 it increased production from 117,000 cases to 296,000 cases.  At the same time gross margins have increased from 23% to 52%.  This increase has followed production increases in a relatively straight line as Crimson moves to much higher levels of capacity utilization.  Revenue per case has been between $185 and $235.  After bottoming in 2011 at 185, revenue per case increased again in 2012 as a result of greater contribution from Seghesio which has a higher than average ASP.  During the same period opex has consistently grown slower than sales. 

The Form 10 discloses that in 2013 they will be able to increase production by 58,000 cases at Chamisal and 50,000 at Seghesio.  This leads to total production of 404,000.  Assuming revenue per case of $195 and a slower than historical ramp in gross margins to 55%, this leads to net income of nearly $17 million.  Net income is equal to EBIT because they have no debt and NOLs shield them from cash taxes.  Cash flow will generally be better than net income as maintenance capex is half of D&A.

I estimate that Crimson will earn 70 cents in EPS in 2013 and roughly 79 cents in free cash flow per share. There are two pure play wine companies, Treasury Wine and Concho y Toro. They trade at an average of 20 times 2013 earnings estimates and 14.5 times FCF. Based on these valuations CWGL would be worth $14 on an EPS basis and $12.25 on an FCF basis (once one adds back $22.3 million in net cash). That works out to an average of $13.13, not far from my $13.34 estimate of tangible book value. It is important to remember that CWGL is under earning because its capacity utilization is low.


Conclusion

Crimson Wine Group has all the ingredients of a successful spin-off. The company has savvy management with a large ownership interest, the stock is too small for institutions to hold and there is no sell side following. From the current price of $7.78 the stock has roughly 70% upside to a conservative valuation.


The author is long shares of CWGL. Under no circumstances does this constitute investment advice. Under no circumstances does this information represent a recommendation to buy, sell or hold any security. The information is for educational purposes only. Positions may change at any time without notice.

Lee Cooperman Says Market is Fairly Valued, Talks Some of His Positions

Lee Cooperman, founder of hedge fund Omega Advisors sat down with CNBC this morning to share his thoughts on the market.

Is the Market Fairly Valued?

"Bernanke's told us everyday since 2009 that he wants higher inflation, more economic growth, lower unemployment,  he wants to create high stock prices to create wealth, to create consumption ... you have to ask yourself as a money manager: has he gotten the market to a zone of overvaluation?"

Cooperman thinks the market is now fairly valued and he thinks every bull market ends at overvaluation.  He concluded that, "So the market's still ok, but it's not a bargain anymore."


On Stocks With Yield

He says he has around 90 holdings and touched on  how investors are looking for yield, so he highlighted some of his positions that fit this mold:

- KKR Financial (KFN): 7.4% yield, growing 5% a year
- Chimera (CIM): accounting issues that he thinks will be resolved this year
- Atlas Pipeline (APL): 7% yield, growing
- Linn Energy (LINE): good yield and growing
- Transcoean (RIG): 4.2% yield and notes Carl Icahn's presence in the name as well

He made an interesting comment on yield as well, saying: "Almost half the S&P 500 right now yield more than bonds."


Growth Stocks He Likes

Cooperman also rattled off some of the stocks he likes that fit under the growth category:  Express Scripts (ESRX), Google (GOOG), and Qualcomm (QCOM).


On Short Selling

Cooperman was asked about Herbalife (HLF) and short selling in general.  He does not have a position in the company but made these comments about shorting: "It's not a wise thing to publicize your short position, and I would not publicize being short 20% of a company."

He also went on to say: "I have no problem with short selling, I think short selling adds some discipline to the market.


Embedded below are the videos of Cooperman's interview:

Video 1


Video 2



Video 3


We've published the rest of Omega's portfolio in the new issue of our Hedge Fund Wisdom newsletter.

Coatue's Philippe Laffont on Apple, Google & Technology/Media Trends

Coatue Management's founder Philippe Laffont appeared on Bloomberg TV today to talk about tech stocks, including Apple (AAPL), Google (GOOG), and others.  He says that tech stocks are 'historically cheap' and he's always on the lookout for the new trends.


On Apple (AAPL)

"It’s cheap by any measure. The key is not to think whether stock will be up $50 in the next few months. The key is what would it take for Apple to get to $800. It would be a great return if just from today it went back to $600. To me, the company has to take back the offense. The company has been a little bit put on defense. Samsung and Google have been very strong competitors... at some point Apple is going to take back the offense."

Laffont was asked why he is still bullish on the name and while Coatue still owns shares, our Hedge Fund Wisdom newsletter flagged that the hedge fund sold 55% of its AAPL stake at the end of 2012 so that's worth keeping in mind.  They've been a long-term bull on the name. 

Laffont wants to see the company make product moves and make better use of cash, saying:

"The company is so big that how they use the cash is going to determine value, there’s no way about it. But there are going to be some new products coming in. I think they have some things up their sleeve."

Coatue reportedly hosted AAPL's CFO at their investor day earlier this year.  Laffont hinted that AAPL should make some acquisitions as well as he wants the company to bring on some new talent and ideas.


On Google (GOOG) 

Laffont thinks the tech giant could be a triple in 5-7 years from now, trading at just 5x earnings.


On Storage & "The Cloud" 

He sees storage as a long-term trend as data continues to move to the cloud.  One of his largest investments in public markets is datacenter provider Equinix (EQIX).  Coatue has recently started making private investments and Box.net was one of their first (another play on this trend).


Talking Other Tech Companies 

He also commented on how there's a new 'four horsemen' of tech: Google, Apple, and Amazon.com (AMZN), original members of the group remain, but he would add Samsung and Twitter to that bunch.  He says Twitter has huge strategic value, but little revenue so it's hard to value.  On Facebook (FB), Laffont feels that in an increasingly mobile world, advertising is a lot harder.


On Tech Value Traps & Shorts

The Coatue manager went on to note that while many investors in other sectors look for bargains and 'cheap stocks,' tech isn't necessarily the best place to do that because a lot of times in this sector these cheap stocks are actually value traps.  He listed Hewlett Packard (HPQ), Microsoft (MSFT), and Intel (INTC), citing a rising mobile computing world.

He also mentioned his firm was exploring a concept on the short side he called a 'paperless office' where people are all using iPads and people don't need/use paper as much.  He says that, "A lot of the companies stuck in the desktop/printer world are going to have a tough time going forward."


On Media & Content

Laffont's content theme focuses on smartphones and how everyone will have one eventually and want to consume content on those devices (citing Netflix (NFLX), HBO Go, ESPN).  He thinks the world will move towards content being monetized in very different ways.  He said he likes Time Warner (TWX), CBS (CBS), and News Corp (NWSA).


Embedded below is the Bloomberg TV video of Philippe Laffont's appearance:



To see the rest of Coatue's portfolio, head to the new issue of our Hedge Fund Wisdom newsletter that was recently released.

Dan Loeb's Third Point Reveals Positions in Virgin Media & EADS

Dan Loeb's hedge fund firm Third Point is out with its latest exposure report and they were up 1.2% for February and are up 6% year-to-date.

New Positions Revealed

The major news in their portfolio is newly revealed positions in Virgin Media (VMED) and EADS in Europe.  Virgin Media is set to be acquired by Liberty Global (LBTYA) so this is now a merger arbitrage play.

They did not own a stake at the end of 2012 so all buying has been done in 2013.  And they certainly did a lot of buying as VMED is now their second largest position.  We've also detailed how Philippe Laffont's Coatue Management has been a big owner of VMED (and they also own LBTYA as well).

Third Point's position in European Aeronautic Defence and Space Company (EADS) was listed as a 'top winner' for the month and this is the first time this position has appeared on their sheet.  The Dutch based company is listed in the French stock market and Third Point hasn't had to file with regulators there since it's a large cap and they haven't crossed the ownership thresholds. So, it's hard to say when they actually initiated the position. 

Thomson Reuters' data also lists Andreas Halvorsen's Viking Global as holding 1.44% of shares (although it appears as though they've been selling rather than buying recently.)


Third Point's Top Holdings

As of the end of February, here are Loeb's top positions:

1. Yahoo! (YHOO)
2. Virgin Media (VMED)
3. Gold
4. American International Group (AIG)
5. Ally Financial (Multiple securities held)


Exposure Levels

In terms of equity exposure, Third Point is now 47.3% net long.  This is an increase from the month prior as they were 37.8% net long in January.  One sector they are now net short is healthcare (-0.6%).

Their top winners last month included Morgan Stanley (MS) and Herbalife (HLF).  Their investment theses on both stocks were detailed in Third Point's Q4 letter.

Third Point is 27.1% net long credit, -9.4% and net short macro trades (largely government securities it looks like).

Warren Buffett's Annual Letter: Berkshire Hathaway Annual Report 2012

Many investors consider Warren Buffett's annual letter a must read so without further ado, embedded below is Berkshire Hathaway's 2012 annual report:




You can download a .pdf copy here.

For more wisdom from the Oracle of Omaha, check out Warren Buffett's secrets to investing success.

John Paulson Files 13D on MetroPCS, To Vote Against T-Mobile Merger

John Paulson's hedge fund Paulson & Co just filed a 13D with the SEC on shares of MetroPCS (PCS).  Per the filing, Paulson owns 9.9% of PCS with 36,300,000 shares.  The main purpose of the filing is to say that they sent a letter to PCS saying that they intend to vote against the merger with T-Mobile.

This marks an increase in their position size by around 14% since the end of 2012. The filing was made due to activity on February 28th.


Why Paulson Is Voting Against the Merger's Current Terms

In their SEC filing, Paulson outlines a few reasons as to why they don't like the current deal:

- Too much debt
- Interest rate too high
- Too much equity risk for MetroPCS shareholders
- Unfair equity split
- MetroPCS is performing better than T-Mobile
- PCS better off as a stand-alone company

Paulson believes "in the strategic merits of a transaction but are opposed to the current deal terms."  They would support the deal if the intercompany debt was reduced along with the interest rate.  They also noted they would consider a combination of debt reduction, added cash and/or a higher exchange ratio for PCS shareholders.  You can view Paulson's entire thoughts in their SEC filing here.

Stanley Druckenmiller on Equities, Where to Invest, and Hedge Funds (Rare Interview)

Hedge fund legend Stanley Druckenmiller (formerly of Duquesne Capital) sat down with Bloomberg TV and says he sees "a storm coming, maybe bigger than the storm we had in 2008, 2010."  In this rare interview, he talks about entitlement spending, but also about hedge funds and investing.

He been outspoken on entitlement spending as of late and says there's a demographic bubble and that seniors are essentially stealing from future generations.  But below we wanted to highlight his comments on equities, hedge funds, and investing.


Druckenmiller on Hedge Funds, Investing & More

On equities versus bonds: "One of the things that is kinda one of my pet peeves is hearing all these people on TV say, 'Well, you gotta go into equities 'cause they're so cheap relative to bonds and there's no other game in town.'  They are cheap relative to bonds.  But everything is cheap relative to bonds…So just because equities are cheap relative to bonds doesn't mean their price isn't subsidized.  I'm not making a forecast here because the subsidization could go on for a long time.  But real estate, gold, equities, they're all priced off of ZIRP, zero interest rates, and they're all subsidized."


On hedge funds: "Oh, I don't know.  I think the hedge fund's short-term thinking is just a manifestation of our entire society.  Whether it's the fed or whether it's-- the administration or whether it's Congress, no one bothers to think about the long term anymore.  And the hedge funds are just one more manifestation of that."


On where to invest now: "That's hard for me to answer.  Because I have the luxury of a lot of experience in sitting in front of a screen.  And I can go into currency markets where it's at a relative price.  So it's the one area where prices aren't subsidized.  And I'm arrogant enough to think I can time these things.  But I don't really know how to answer that question for public invest-- but let me just say that this idea that you've got go plowing into risk because rates are zero, that they will rue the day one day.  The music will stop.  And I would probably be invested right now thinking I'm smart enough to know that we're quite away from the music stopping.  I don't think Bernanke is about to end these policies for a while.  But let's just know what we're dealing with here."


Embedded below is the video of Druckenmiller's interview with Bloomberg TV on entitlements and we'll update with the rest of the interview once it's uploaded:

Bill Gross' Latest Investment Outlook: Rational Temperance

It's been a while since we've checked in on what the bond king Bill Gross is up to over at PIMCO, so below is his latest investment outlook entitled 'Rational Temperance'.

In it, he touches on how investors are stretching for yield and that "corporate credit and high yield bonds are somewhat exuberantly and irrationally priced.  Spreads are tight, corporate profit margins are at record paeks with room to fall, and the economy is still fragile.  Still that doesn't mean you should vacate your portfolio of them.  It just implies that recent double-digit returns are unlikely to be replicated."

Oaktree Capital's Howard Marks also recently commented on high yield bonds in his latest memo.

Gross then goes on to say that, "the conclusion would be that where high yield prices go, stock markets follow, or vice versa.  Narrow yield spreads in high yield credit markets appear to be accompanied by 'narrow' equity risk premiums in the market for stocks, which is another way of saying that the course of future equity returns may not resemble its recent exuberant past."

Basically, the whole theme of Gross' piece "Rational Temperance" is him saying that investors should lower their return expectations.

Embedded below is Bill Gross' latest PIMCO investment outlook:




You can download a .pdf copy here.

What We're Reading ~ Hedge Fund Links 3/1/13

Lessons from Hedge Fund Market Wizards: Steve Clark [Finance Trends]

Einhorn's Greenlight Re conference call transcript [Santangel's Review]

Looking for alpha? Try women hedge fund managers [Yield of Dreams]

Harbor Investment Conference: picks from McGuire, Ackman & more [HFIntelligence]

Tale of Loeb & Ackman's bike ride [Vanity Fair]

Outlook from Oaktree's Howard Marks [Outlook India]

Loeb sells part of long position in Herbalife (HLF) [CNBC]

Is RenTec falling off the mark? [II]

Tudor said to plan first equity funds since Pallotta left [Bloomberg]

Goldman Sachs: hedgies most bullish on stocks since 2007 [WSJ]

Gross, Dalio, Gundlach... Minerd? [aiCIO]

Deutsche Bank says new hedge fund deposits to triple [Bloomberg]

Hedge funds seen behind likely VIX short squeeze [Hedgeworld]

Ex-Soros CIO courting capital for new fund [Reuters]

ValueAct supports sale of Gardner Denver (GDI) [Reuters]

J.C. Penney's (JCP) poor showing is another retail miss for Ackman [NYTimes]

Ken Heebner bets 21% of his fund against Treasuries [Bloomberg]

Hedge funds grow nervous after credit rally [Reuters]

Pinterest valued at $2.5 billion following investment from Valiant Capital [Bloomberg]

Lessons From Ray Dalio: Hedge Fund Market Wizards

We're pleased to present another guest post from David Shvartsman over at Finance Trends Matter where he has a lot of great posts about investing/trading process, behavioral finance, and more.  You can subscribe to his RSS feed here.  Without further ado:


Lessons From Ray Dalio

In our second installment of "Lessons from Hedge Fund Market Wizards", we'll offer up some trading and macroeconomic insights pulled from Jack Schwager's interview with Ray Dalio of Bridgewater Associates.  

You've probably heard of Ray Dalio if you have even a cursory knowledge of the hedge fund industry (or the Forbes billionaires list), so let's get right to it. These notes will fill in the rest of the story. 


1). Dalio is the founder and former CEO (now "mentor") of Bridgewater Associates, a fund that has returned more money ($50 billion) for investors than any hedge fund in history.   


2). Bridgewater still manages to achieve excellent returns on a huge base of capital and has done so over a long period of time. It is among the few hedge funds with a 20-year track record.  


3). Dalio believes that mistakes are a good thing, as they provide an opportunity for learning. If he could figure out what he (or someone else) was doing wrong, he could use that as a lesson and learn to be more effective. 


4). His life's philosophy and management concepts are set down in a 111 page document called, Principles, which drives the firm's culture and daily operations. Identifying and learning from mistakes is a key theme. It also advocates "radical transparency" within the firm; meetings are taped and employees are encouraged to criticize each other openly. 


5). "The type of thinking that is necessary to succeed in the markets is entirely different from the type of thinking required to succeed in school". Ray notes that school education emphasizes instructions, rote learning, and regurgitation. It also teaches students that "mistakes are bad", instead of teaching the importance of learning from mistakes.  


6). If you are involved in the markets, you must learn to deal with what you don't know. Anyone involved in markets knows you can never be absolutely confident. You can't approach trading by saying, "I know I'm right on this one." Dalio likes to put his ideas in front of other people so they can shoot them down and tell him where he may be wrong.  


7). "The markets teach you that you have to be an independent thinker. And any time you are an independent thinker, there is a reasonable chance you are going to be wrong." 


8). Ray learned in his early working years that currency depreciation and money printing are good for stocks. He was surprised to see US stocks rise after Nixon closed the gold exchange window in 1971 (effectively ending the gold standard). The lesson was reinforced when the Fed eased massively in 1982 during the Latin American debt crisis. Stocks rallied, and of course, this marked the beginning of an 18-year bull market. 


9). From these earlier experiences, Dalio learned not to trust what policy makers say. He has learned these lessons repeatedly over the years (much like our previous "Market Wizard", Colm O'Shea).
  

10). Dalio vividly recalls a time when he was nearly ruined trading pork bellies in the early 1970s. He was long at a time when bellies were trading limit down every day. He didn't know when the losses would end, and every morning he'd hear the price board click down 200 points (the daily limit) and stay there. The experience taught him the importance of risk management - "I never wanted to experience that pain again". 


11). "In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you're not going to make money, and if you are not defensive, you are not going to keep money.".  


12). Bridgewater views diversification and asset correlation differently than most. As Dalio puts it, "People think that a thing called correlation exists. That's wrong.". Instead, he describes a world in which assets behave a certain way in response to environmental determinants. Correlations between say, stocks and bonds, are not static, but are changing in response to "drivers" (catalysts) that can cause assets to move together or inversely. 


13). By studying how asset prices move in response to certain drivers, Bridgewater looks to build portfolios of truly uncorrelated assets. By combining assets that have very slight correlations, they are able to diversify among 15 assets (instead of 100 or 1000 more closely linked assets). This helps them cut volatility and greatly improve their return/risk ratio.  


14). We are currently in the midst of a "broad global deleveraging" that is negative for growth. Since the United States can print its own money, it will do so to alleviate the pressures of deflation and depression. The effectiveness of quantitative easing will be limited, since owners of bonds purchased by the Fed will use the money to buy similar assets. Dalio elaborates on our future economic course and possible policy approaches to these problems throughout the interview.   There's a lot more in Schwager's chapter with Ray Dalio. These notes just scratch the surface on Bridgewater's process and their quest for the Holy Grail of investing.   There is also an addendum to the chapter containing Dalio's big picture view of long-term economic cycles and a historical "stage analysis" of the economic rise and fall of nations.


If you missed it, check out Finance Trends Matter's other guest post: Jack Schwager on Hedge Fund Market Wizards.  

Keith Meister's Corvex Capital Starts New Position in CommonWealth REIT, Proposes Takeover

Keith Meister's hedge fund firm Corvex Management recently filed a 13D with the SEC on shares of CommonWealth REIT (CWH) in conjunction with The Related Companies.  Per the filing, the funds have revealed a 9.8% ownership stake in CWH with 8,175,001 shares.

Corvex/Related vs. CommonWealth

Corvex outlined its desire to meet with management to address the various opportunities that exist for value creation.  They also were appalled that the company hasn't canceled its previously announced underwritten public offering of up to 31,050,000 shares.

Corvex thinks it's "preposterous" that the company would do such a thing with shares trading at such a large discount to intrinsic value (they believe it's approximately $40 per share).  If the company doesn't announce intent to cancel, Corvex said it's prepared to file litigation.

The funds' 13D filing with the SEC also includes a proposal to take the company over for $25 per share, a 58% premium at the time), but management hasn't responded.  As such, Corvex and Related pursued the following:

- Sent additional letters to the board
- Filed a complaint for injunctive and declaratory relief and rescission alleging that CWH breached its fiduciary duty to shareholders

The company said today that they're still going forward with the planned stock offering and has refused to meet with Corvex and Related.  So, it will be interesting to see how this one plays out.  You can read all the various letters Corvex/Related have sent here.  


Corvex & Related's Presentation on CWH

Also embedded below is the presentation on CWH that Corvex & Related attached to their SEC filing:



Per Google Finance, CommonWealth REIT is "a real estate investment trust (REIT). CWH’s primary business is the ownership and operation of real estate, including office and industrial buildings and leased industrial land."

This isn't the only activist investment from Meister as we've also detailed Corvex's activist presentation on ADT (ADT).

Larry Robbins' Glenview Capital Buys More Lifepoint Hospitals (LPNT)

Larry Robbins' hedge fund firm Glenview Capital filed a 13G with the SEC regarding its position in Lifepoint Hospitals (LPNT).  Per the filing, Glenview has revealed a 6.79% ownership stake in LPNT with 3,186,280 shares.  The filing was made due to portfolio activity on February 14th.

This marks a 32% increase in the amount of shares they own since the end of 2012.  Hospitals are a big theme for Robbins, as Glenview's portfolio is revealed in the newly released issue of our Hedge Fund Wisdom newsletter.

Per Google Finance, LifePoint Hospitals "operates general acute care hospitals in non-urban communities in the United States."

What We're Reading ~ Analytical Links 2/27/13

2013 comprehensive review of the best online brokerages [StockBrokers]

Vodafone's (VOD) European troubles: bad news = good news? [MicroFundy]

Investing: rules of the game [Dasan]

On buying near 52-week lows or 52-week highs [World Beta]

You're not as good an investor as you think you are [WSJ]

What Barnes & Noble (BKS) retail arm might be worth [NYTimes]

Mastercard (MA) aims at mobile payment market [Yahoo Finance]

Best Buy (BBY) takeover attempt by founder in jeopardy [Reuters]

Leveraged loan market on fire [SoberLook]

USA Mobility (USMO): Cheap, but for how long? [Barel Karsan]

The new MLP landscape [Barrons]

How to find the next Michael Kors (KORS) [The Street]

Loyalty programs, share buybacks drive Safeway (SWY) [Bizjournals]

Reed Hastings on the future of Netflix (NFLX) [GQ]

3-D printing is on the fast track [NYTimes]

Why medical bills are killing us [Time]

Discount to the Value Investing Congress in Las Vegas Expires in 2 Days

Just wanted to pass along our discount to the Value Investing Congress in Las Vegas to our readers.  This is the first time the Spring event is in Vegas so it should be a great time.  You can take advantage of the discount here using code: S13MF6.  Hurry because the discount expires in 2 days.

Event Details

When: May 6th & 7th, 2013
Where: Encore (Steve Wynn's hotel/casino) in Las Vegas, Nevada

List of Speakers

- Steven Romick (FPA)
- Guy Gottfried (Rational Investment Group)
- Philip Goldstein (Bulldog Investors)
- J. Carlo Cannell (Cannell Capital)
- John Hempton (Bronte Capital)
- David Nierenberg (D3 Family Funds)
- Zeke Ashton (Centaur Capital)
- Chris Mittleman (Mittleman Brothers)
- Cara Jacobsen (D3 Family Funds)
- Whitney Tilson (Kase Capital)
- Vitaliy Katsenelson (Investment Management Associates)
- Geoffrey Batt (Euphrates Advisors)
- Albert H. Yong & Chan H. Lee (Petra Capital)
- Chris Mayer (Capital & Crisis)
- Marcelo Lima (Heller House)
- Zack Buckley (Buckley Capital)
- Isaac Schwartz (Robotti & Company)
- Jeff Pinter (Pintar Investment Company) 
- Amitabh Singhi (Surefin Investments)
- Ori Eyal (Emerging Value Management)
- Jeff Greene (Investor & Philanthropist)
- Tim Eriksen (Eriksen Capital)
- Joe Altman & Chris Kyriopoulos (COMPOUND Capital)
- David Hurwitz (SC Fundamental
- Harris Kupperman (Mongolia Growth Group)


As you can see, there are a TON of speakers so you're bound to hear a lot of differentiated ideas.  You can register here with MarketFolly's discount code: S13MF6.  This should also be an excellent networking opportunity.  And since the conference starts on a Monday, we'd recommend getting to Las Vegas during the weekend as it's a great excuse for a mini vacation.


Discount Expires in 2 Days

The discount expires on February 28th (in 2 days) so be sure to take advantage before it disappears.  Click here to save $1,600 off the event by using the special discount code: S13MF6.

Viking Global's Andreas Halvorsen: Rare Interview on Investment Process

Viking Global's founder Andreas Halvorsen spoke at the Milken Institute where he shares wisdom on investment process and numerous investing topics.  This is a rare opportunity to learn from this hedge fund manager.


On the importance of management teams:  He says that good management teams are extremely underappreciated in their ability to take market share, even in low growth environments.  He equally believes poor management teams are underappreciated in that they can destroy things quicker than you think.


On short selling: "It's a heartwrenching activity, because you can lose a lot of money doing it."  He says you can't short a bunch of underperforming stocks because the risk is too high if you're wrong.  And when you are wrong, "you have to get out very quickly, which means you can't have very large positions."


On Viking's approach to investing: They start by looking at industries/sectors and talking to competitors, suppliers, etc.  He talks with management to see how they think about the competitive dynamics of the industry.  He likes to bet on a management team that has a view of the underlying dynamics similar to what Viking believes.


On hedge fund fees:  He said he is fascinated by investors' focus on fees, arguing that they should instead be focusing on the net return after fees.  While he is obviously biased here since he runs a hedge fund, he make a very good analogy, comparing fees and returns of funds to expenses and revenues of any business: Index funds all have the same revenues (return) while they have different expenses (fees).  Active managers, on the other hand, have both different returns and different fees.  So focusing just on the fees doesn't make sense.



On patience:  Lastly, Halvorsen also harped on the value of having patience. He says you have to have patience in any business, and hedge funds are no different.


This is a fantastic interview and we highly recommend watching it in its entirety.  Embedded below is the video with Viking Global's Andreas Halvorsen:



To see Viking's latest portfolio, check out the brand new issue of our Hedge Fund Wisdom newsletter that was just released.

Jeff Saut's Latest Commentary: A Permanent Investment

Market strategist Jeff Saut is out with his weekly market commentary, this time entitled "A Permanent Investment." 

He touches on how his mentor once told him to put one quarter of his portfolio in stocks, one quarter in bonds, one quarter in precious metals, and one quarter in farmland.  The reasoning was that such a non-correlated asset allocation could preserve and grow capital through various cycles.

Saut also offered a great quote from his father: "If you're going to be wrong, be wrong quickly with a deminimis loss of capital."  He then details his thoughts on the current market, which you can read below.

Embedded below is Saut's commentary, "A Permanent Investment":




You can download a .pdf copy here.

For more from Saut, check out his other commentary: don't just do something, sit there.

Howard Marks' Latest Memo: High Yield Bonds Today

Oaktree Capital's Chairman Howard Marks is out with his latest letter entitled "High Yield Bonds Today."  As implied by the title, it deals with the distressed manager's take on an asset class frequently talked about these days:

He notes,

"While we believe spreads are attractive given the risks we see in our portfolios, it is true that there is little room for price upside, making the reward for risk taking limited.  In this type of environment, superior returns are more likely to be earned through minimizing mistakes than through stretching for yield.  Rather than behaving aggressively, the search for return should involve risk control, caution, discipline and selectivity."

Marks concludes that investors shouldn't sell their bonds and wait for a better time to invest, arguing that market timing is near impossibility (especially in less liquid markets like high yield).

Embedded below is Howard Marks' entire memo, High Yield Bonds Today:




You can download a .pdf copy here.

For more from this manager, see Marks' other recent commentary on fixed income returns not being worth the risk.