What We're Reading ~ 6/17/15

How to judge a business's durability [Gannon & Hoang on Investing]

Make more money by doing less [Abnormal Returns]

Learning to love volatility [Farnam Street]

The struggle to define risk [A Wealth of Common Sense]

Confirmation bias: how intelligent people develop totally incorrect beliefs [PsyBlog]

A look at Heico [Jnvestor]

John Deere: great 'cannibal' or cyclical trap? [Value and Opportunity]

Precision Castparts shares offer a rare bargain [Barrons]

Profile of T-Mobile's John Legere [Fast Company]

US births up after years of decline [AP]

P/E multiples versus (past and future) returns and volatility [EconompicData]

How Hermes' legendary Birkin bag remains dominant [Bloomberg]

A look at Expedia and Dara Khosrowshahi [Barrons]

On tech unicorns [Stratechery]

Andreessen Horowitz: why we're not in the next tech bubble [Fortune]

How Facebook is eating the $140 billion hardware market [Business Insider]

ValueAct Capital Increases Agrium Stake

Jeff Ubben's activist investment firm ValueAct Capital has filed an amended 13D with the SEC regarding its position in Agrium (AGU).  Per the filing, ValueAct now owns 6.8% of the company with over 9.72 million shares.

This marks around a 22% increase in the number of shares owned since the end of the first quarter.  The filing indicates ValueAct was buying AGU in late April, late May, and early June.  They purchased shares between $102.54 and $104.08.  AGU currently still trades within that range.

ValueAct also recently trimmed their large Valeant Pharmaceuticals stake and definitely has more cash on hand to deploy if desired.

Per Google Finance, Agrium is "a Canada-based producer and marketer of nutrients for agricultural and industrial markets. Agrium is a retailer of agricultural products and services in the United States, Canada, Australia, Argentina, Brazil, Chile and Uruguay and a multi-national producer and wholesale marketer of nutrients for agricultural and industrial markets. The Company operates through its two business units: Retail and Wholesale. Agrium Wholesale owns 16 production facilities in North and South America across the nitrogen, potash and phosphate spectrum; two mines; and a distribution and storage network throughout North America and internationally through Agrium Europe. Agrium Retail operates approximately 1,375 retail locations, 57 terminals, 8 plants and 18 distribution centers in North and South America, as well as Australia."

PointState Capital Starts Amaya Position

Zach Schreiber's hedge fund firm PointState Capital has filed a 13G with the SEC regarding shares of Amaya (AYA).  Per the filing, PointState now owns 8.76% of the company with over 11.66 million shares.

This is a newly disclosed equity stake for the firm as they did not report ownership at the end of the first quarter.  The filing was made due to activity on June 11th.

Per Yahoo Finance, Amaya "provides technology-based solutions, products, and services for global gaming and interactive entertainment industries worldwide. It operates through two segments, Business-to- Consumer (B2C) and Business-to-Business (B2B)."

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If you'd like to learn more or subscribe to Singular Diligence, visit SingularDiligence.com.

Farallon Capital Increases Perfect World Stake

Andrew Spokes' hedge fund firm Farallon Capital has filed a 13D with the SEC regarding their position in Perfect World (PWRD).  Per the filing, Farallon now owns 8.6% of the company with 18,950,000 shares.

This marks an sizable increase in their position size after owning only 1.32 million shares as of the end of the first quarter.  The 13D contains the standard boilerplate that they might engage the company, etc.

Perfect World received a takeout offer from its Chairman, Michael Yufeng Chi, to acquire all shares for $20 per ADR share.  Farallon was out buying shares in April, sporadically throughout May, and into early June at prices around $19.90.

You can view additional portfolio activity from Farallon here.

Per Google Finance, Perfect World is "an online game developer and operator in China. The Company develops online games based on its game engines and game development platforms. Its technology capabilities consist of its game engines, game development platforms and real-time anti-cheating, all developed and built by its development team. The Company operates in two segments: PRC operations and International operations."

Corsair Capital Boosts Globe Specialty Metals Position

Jay Petschek and Steven Major's hedge fund firm Corsair Capital has filed a 13G with the SEC on their position in Globe Specialty Metals (GSM).  Per the filing, Corsair now owns 5.01% of the company with over 3.69 million shares.

This marks an increase in their position size of almost 2 million shares since the end of the first quarter.  The filing was made due to activity on May 20th.  They've owned this stock for many years now.

For more from this hedge fund, check out Corsair's Q1 letter here with their thesis on Orbital ATK.

Per Google Finance, Globe Specialty Metals is "is the producer of silicon metal and silicon-based alloys. The Company’s customers include silicone chemical, aluminum and steel manufacturers, auto companies and their suppliers, ductile iron foundries, manufacturers of photovoltaic solar cells and computer chips, and concrete producers. The Company operates in five segments: GMI is a manufacturer of silicon metal and silicon-based alloys and a provider of metallurgical coal for the silicon metal and silicon-based alloys industries; Globe Metales is a manufacturer of silicon-based alloys; Solsil is a developer of upgraded metallurgical grade silicon metal; Corporate segment include general corporate expenses, investments, and related investment income, and the other segment include Yonvey’s electrode production operations, as well as Siltech’s silicon alloy production and certain other distribution operations for the sale of silicon metal and silicon-based alloys."

Pleasant Lake Partners Files 13D on MagnaChip

Jonathan Lennon's hedge fund firm Pleasant Lake Partners has filed a 13D with the SEC regarding its position in MagnaChip (MX).  Per the filing, Pleasant Lake now owns 7.7% of the ompany with over 2.64 million shares.

This is an increase over the 919,211 shares that they owned at the end of the first quarter.  The filing indicates they were out buying throughout April, May, and into June at a wide range of prices from as low as $5.37 to as high as $7.80.  They also bought call options that expire this week as well as in September at a $7.50 strike.  MX shares currently trade around $7.49.

The 13D filing also contains the standard boilerplate about potentially meeting with management, etc.


About Pleasant Lake Partners

Prior to launching his hedge fund, Lennon previously worked as a senior analyst at John Thaler's JAT Capital.  He founded Pleasant Lake in 2012 and runs a long/short equity strategy.


About Magna Chip

Per Google Finance, Magna Chip is "a South Korea-based designer and manufacturer of analog and mixed-signal semiconductor products for high-volume consumer applications. The company operates through three segments: Display Solutions, Power Solutions, and Semiconductor Manufacturing Services. Display Solutions products include display drivers that cover a range of flat panel displays and mobile multimedia devices. Its Power Solutions products include discrete and integrated circuit solutions for power management in high-volume consumer applications. Its Semiconductor Manufacturing Services segment provides specialty analog and mixed-signal foundry services for fabless semiconductor companies that serve the consumer, computing and wireless end markets."

Jeff Saut's Latest Market Commentary: "Rescue Me"

It's been a while since we checked in on market strategist Jeff Saut, so embedded below is his latest commentary entitled "Rescue Me":



You can download a .pdf copy here.

Lee Cooperman on Wall Street Week: Market Not Cheap, But Not Priced To Perfection Either

Anthony Scaramucci and Gary Kaminsky's Wall Street Week recently interviewed Omega Advisors' Lee Cooperman.  He manages around $9.5 billion nowadays.


On the current stock market, Cooperman says, "It's not cheap, but it's not priced to perfection."

He also addressed the potential looming interest rate hikes by noting that historically, the market is higher one year after the first rate hike.  He says you only have to start to worry once rates get high enough that they start to compete with stock market returns.

He noted, "There's no question that every asset has benefited by our interest rate policy.  Having said that, a bubble is not in the stock market... if there's a bubble, it's in the bond market."  This echoes what Carl Icahn said on his Wall Street Week appearance as well.

Two specific stocks Cooperman commented on were Chimera (CIM) as well as Citigroup (C).

He talked about how he first looks at the market to discern whether it's overvalued or undervalued, and then he drills down to specific companies to see where some value might be.  He's always looking for "more growth at a lower multiple" and likes to hunt for mispricings in the market.

Embedded below is the video of Lee Cooperman's interview on Wall Street Week:



Be sure to check out other recent fund manager appearances, such as Jim Chanoss interview on Wall Street Week.

Hedge Fund Links ~ 6/12/15

Understanding business risk [A Wealth of Common Sense]

Crispin Odey's unconstrained approach to hedge funds [Institutional Investor]

Litigation bets burn hedge funds [WSJ]

IRS turns up heat on hedge fund-backed reinsurance [Lexology]

Hedge funds remain a popular choice for institutional investors [FT]

Quincy Lee's Teton Capital Trims Xoom Position

Quincy Lee's hedge fund Teton Capital Partners (Ancient Art LP) has filed an amended 13D with the SEC on its position in Xoom (XOOM).  Per the filing, Teton now owns 4.9% of XOOM with 1,897,323 shares.

Teton recently sold shares in late May and early June between $18.8514 and $21.0973.  Since the end of the first quarter, they've reduced their position size by 336,514 shares.  Year-to-date, XOOM shares have traded from around $18 in January up to recent levels of around $21.64.

Loosely speaking, the thesis on this name is that Xoom can take market share in the money transfer business with their digital offering from traditional players such as Western Union and Moneygram.

About Teton Capital / Ancient Art LP

Quincy Lee founded Teton Capital after working at publicly traded Rackspace.  According to The Economist, Teton returned 21% a year between 2001 and 2011.  Teton/Ancient Art is based in Austin, Texas.

About Xoom

Per Google Finance, Xoom is "engaged in the digital consumer-to-consumer international money transfer business. The Company offers money transfer services from the United States to around 32 countries and its cross-border bill payment services from the United States to approximately five countries. Xoom's solutions offer its customers a way to send money to, and pay bills for family and friends from any Internet-enabled location. The Company's operating platform provides various solutions for transferring funds internationally, such as origination, funding, disbursement and transaction processing. The Company's technology platform includes a customer interface which enables customers to send transactions from its Website, mobile Website or mobile application, using a computer, a tablet or a mobile phone; a risk management system; a transaction processing platform, and a disbursement integration platform."

ValueAct Capital Reduces Valeant Pharmaceuticals Stake

Jeff Ubben's activist investment firm ValueAct Capital today released a statement indicating that they've reduced their Valeant Pharmaceuticals (VRX) position:

"ValueAct Capital Management, L.P. announced today that it has sold 4.2 million shares of Valeant Pharmaceuticals International, Inc. (NYSE: VRX; TSX: VRX) in brokers' transactions on the NYSE.  ValueAct Capital's CEO Jeffrey W. Ubben said: "Mike Pearson and the Valeant team's exceptional performance have once again caused our investment in Valeant to grow in value to well above 20% of our funds' assets, and we are again compelled to reduce our position to rebalance our overall portfolio.  We have owned Valeant shares for over nine years and have sold shares on three previous occasions for the same portfolio management purposes. After this sale, our investment in Valeant will continue to be well in excess of $3.0bn and will be one of the largest investments in our funds. I look forward to continuing to work with Mike and my fellow members of the Board of Directors."

After the sale, ValueAct should still own over 15.1 million shares.  ValueAct was instrumental in bringing Pearson on board as CEO and has benefited greatly.  This has been a consensus hedge fund favorite stock for some time, with Bill Ackman acquiring a VRX stake recently as well.

Valeant also announced a new CFO, Robert Rosiello.  He's a former McKinsey M&A executive and should fit right in given Valeant's acquisitive strategy (Pearson also used to previously work at McKinsey).


Where Does ValueAct Allocate The Proceeds?

The question now becomes: where does ValueAct put this freed up capital to work?  While they could always initiate a new position, or keep it in cash for the time being, it also wouldn't be surprising to see it allocated to some of their existing stakes given where shares of some of these companies currently trade.

The first option is 21st Century Fox (FOX).  They've previously purchased shares numerous times when trading at $32.50 or below and FOX is currently hovering close to those levels.  ValueAct just added to their FOX position in late May and could look to make it even larger after accumulating their position over numerous quarters.  They also just filed an amended 13D on Fox today which shows that their ownership stake is in an LP named Volpe Velox, which is Latin for 'quick fox.'  ValueAct currently owns over 43.5 million shares of FOX, or 5.5% of the company.

CNBC's David Faber today reported that Rupert Murdoch is set to step down as CEO (but retain his role as Executive Chairman) and son James Murdoch will take the helm, with brother Lachlan Murdoch assisting.  It's unclear if this reorganization would occur this year or next and the company's board is set to review succession plans soon.

Faber also notes that COO Chase Carey is supposedly stepping down from his role as well.  There seems to be some uncertainty as to the timing though it's possible Carey will remain with the company in an advisory role.  Some investors will be dismayed by Carey's potential departure or reduction in role.  Others could view it as a potential opportunity for FOX to bid for Time Warner (TWX) again in the future.  With ValueAct's activist involvement behind the scenes here, it will be interesting to see what's next for the company.

Another place ValueAct could allocate their VRX proceeds is to Halliburton (HAL) / Baker Hughes (BHI).  They were out accumulating shares of both during the first quarter and their exposure to both combined was almost $3 billion as of the end of Q1.  Both shares are trading higher than levels in Q1 though, as ValueAct looks for the companies to combine.

A third option for Ubben's firm is Precision Castparts (PCP).  As our Hedge Fund Wisdom newsletter highlighted, ValueAct initiated a brand new stake in the company during the first quarter.  While this position is much smaller than their others, PCP shares are still currently trading around levels where Ubben's firm could have been buying in Q1.  So they could easily ratchet up their stake around similar prices now.  Not to mention, numerous other prominent investors were buying PCP in Q1, including Berkshire Hathaway, Third Point, Farallon Capital and more.

Another potential option is shares of WESCO (WCC).  ValueAct initiated a small position in the company during the first quarter.  However, shares are trading slightly higher than Q1 levels now.

While the above seem like the most likely to garner incremental capital, ValueAct also owned stakes in the following companies as of the end of Q1 (in descending order of position size): Microsoft (MSFT), CBRE (CBG), Adobe (ADBE), Motorola Solutions (MSI), Willis Group (WSH), Agrium (AGU), Allison Transmission (ALSN), MSCI (MSCI), and Armstrong Worldwide (AWI).

For more on ValueAct, be sure to check out partner Mason Morfit on ValueAct's approach and Microsoft.

What We're Reading ~ 6/10/15

Focus on the key variables of an investment [Base Hit Investing]

Bias from overconfidence [Farnam Street]

Robert Shiller: things are overvalued [Zero Hedge]

The most important concepts in behavioral economics [StockTwits]

A pitch on Charter/Time Warner Cable [Value Venture]

A look at Precision Castparts [Jnvestor]

Why did John Malone invest in Lions Gate? [Punch Card]

On the looming rental crisis in the US [SoberLook]

Weak consumer spending: the canary in the bear market coal mine [Mauldin]

How Tesla will change the world [Wait But Why]

The state of Chinese social media in 2015 [AdAge]

Why China is blowing an equity bubble [FT]

Xiaomi, China's new phone giant, takes aim at world [WSJ]

Coal woes are spreading but it still has fans [Economist]

Caesars: a private equity gamble in Vegas gone wrong [Fortune]

On the truly exceptional business [Value Investing World]

Japan's economy grows faster than estimated [Bloomberg]

Apple is the new king of bonds [Bloomberg]

What Twitter can be [lowercase capital]

Protections for late investors can inflate start-up valuations [NYTimes]

Eminence Capital Reduces Men's Wearhouse Stake

Ricky Sandler's hedge fund firm Eminence Capital has filed a 13D with the SEC regarding its position in Men's Wearhouse (MW).  Per the filing, Eminence now owns 6.6% of the company with over 3.2 million shares.

This is a decrease from the end of the first quarter when they owned over 4.2 million MW shares.  The filing notes they sold the bulk of shares on June 5th at $57.97.

Eminence also recently disclosed a Yelp position.

Per Google Finance, Men's Wearhouse is "a specialty retailer of men's suits and a provider of tuxedo rental product in the United States and Canada. It operates in two segments: retail, which offers its products and services through its four retail merchandising brands and Internet Websites. The Company's corporate apparel segment provides corporate clothing uniforms and work wear to workforces."

Lei Zhang's Hillhouse Capital Files 13D on Qunar

Lei Zhang's investment firm Hillhouse Capital has filed a 13D with the SEC regarding shares of Qunar Cayman Islands (QUNR).  Per the filing, Hillhouse now owns 12.99% of the company with exposure to over 20.2 million Class B shares. 

Their position is mainly via American Depositary Shares (ADS) of which they own 6.7 million shares.  This marks an increase from the first quarter when they owned 5.7 million ADS shares.

The filing was made due to activity on June 5th as the hedge fund participated in the company's public offering.  They purchased $170 million worth of 2.0% convertible senior notes due 2021 with a closing on June 17th, 2015.

Hillhouse originally invested in Qunar in 2013 and then acquired more in 2014 as well.

About Hillhouse Capital

Lei Zhang started his firm with $30 million and is now one of the largest hedge funds in China, managing around $18 billion.  He runs a concentrated portfolio and performs fundamental bottom-up research on individual companies with a primary focus on the Asia Pacific region. 

Zhang likes to focus on the people and teams behind the business and usually holds longs 3-5 years.  He earned both an MBA and MA from Yale as well as a BA in Economics from Renmin University of China.  Hillhouse is named after an avenue in New Haven, where Yale is located.

About Qunar

Per Google Finance, Qunar is "engaged in offering mobile and online commerce platform for travel in China. The Company offers a range of travel products, including flights, hotels, vacations packages, attraction tickets and other travel related offerings. The Company has developed Qunar Travel, its mobile application, which enables its users to search for and purchase travel products."

Howard Marks' New Memo: Risk Revisited Again

Oaktree Capital's Chairman Howard Marks is out with his latest memo entitled "Risk Revisited Again."  In it, he expands upon a previous memo on the subject.

He harps on an important point that risk is not necessarily defined as volatility, as academics would argue.  Instead, Marks points out that instead of fearing volatility, investors fear the possibility of permanent loss of capital.  This is an important distinction.

He also touches on the subject of uncertainty, noting that, "The answer lies in the fact that not being able to know the future doesn't mean we can't deal with it."  He says that the best way to deal with this is to construct a range of possibilities and the probability of each occurring.  

His memo also details the various types of risks and is really worth reading in full below.  The main takeaway here is that he says, "Today I feel it's important to pay more attention to loss prevention than to the pursuit of gain."

Embedded below is Howard Marks' latest memo, Risk Revisited Again:



You can download a .pdf copy here.

If you've missed it, check out Marks' recent memo on liquidity too.

Tiger Global Files 13G on Etsy

Chase Coleman's hedge fund Tiger Global has filed a 13G with the SEC regarding shares of Etsy (ETSY).  Per the filing, Tiger Global now owns 8.9% of the company with 10 million shares.

The company recently completed its initial public offering (IPO).  After trading as high as $36 on its opening day, shares have since plunged down to $15.95 over the past two months.

Keep in mind that Tiger had already invested in Etsy at a lower valuation (pre-split value of $5.30) while the company was still a private entity back in April 2014.

We've also recently highlighted some other Tiger Global portfolio activity as well.

Per Google Finance, Etsy "operates a marketplace where people connect, both online and offline, to make, sell and buy goods. The Company operates at the center of macroeconomic trends in online and mobile commerce, employment, consumption and manufacturing. Its sellers offer goods in online retail categories, including jewelry, stationery, clothing, home goods, craft supplies and vintage items."

Soros Fund Boosts MaxLinear Stake

George Soros' family office Soros Fund Management has filed a 13G on shares of MaxLinear (MXL).  Per the filing, Soros Fund now owns 5.19% of the company with over 2.68 million shares.

This marks an increase in their position size of over 1.9 million shares. The filing was made due to activity on May 26th.

Per Google Finance, MaxLinear is "a provider of integrated, radio-frequency (RF) and mixed-signal integrated circuits for broadband communications and data center, metro, and long-haul transport network applications. The Company offers semiconductor products, such as RF Receivers, RF Receiver systems-on-chip (SoCs), Laser Modulator Drivers, Transimpedance Amplifiers, and Clock and Data Recovery Circuits. The Company's products receive and process RF and digital signals and enable the display of broadband video and data content in a range of electronic devices, including cable and terrestrial and satellite set top boxes, data over cable service interface specification (DOCSIS) data and voice gateways, hybrid analog and digital televisions, satellite low-noise blocker transponders or outdoor units, and optical modules for data center, metro, and long-haul transport network applications."

Hedge Fund Links ~ 6/5/15

Pershing Square reveals stake in Nomad [ValueWalk]

Summary of hedge fund picks at Sohn Hong Kong conference [WSJ]

More from Sohn HK [China Money Network]

Activist investor takes aim at Samsung [NYTimes]

Ex-SEC chair Mary Schapiro signs on to activist hedge fund [ValueWalk]

Women are scarce among fund managers [Morningstar]

Elliott anticipates a bigger short in bonds [ii alpha]

Coatue hunts for investments in India [IndiaTimes]

On side letters and the Caymans [All About Alpha]

What happens when you pick a fight with activist hedge funds [All About Alpha]

Olive Garden's hedge fund bosses waited tables to aid turnaround [Bloomberg]

Peltz's Trian Fund Reduces Wendy's Stake

Nelson Peltz's activist investment firm Trian Partners recently filed a 13D with the SEC regarding their stake in Wendy's (WEN).  Per the filing, they will be reducing their Wendy's (WEN) stake.  The company is buying back shares, including $211 million from Trian.

Trian's plan is to reduce their stake in Wendy's down from their current almost 25% to between 17% and 19.68% in the next couple of months.  In addition to selling shares in the buyback program, they'll also divest shares via the open market or other transactions.

Per Google Finance, Wendy's is "a quick-service restaurant company in the hamburger sandwich segment."