In the past, we've provided updates regarding the Chartered Hedge Fund Associate (CHA) designation. And, we've even secured an exclusive $50 discount for MarketFolly readers. Today we're here to update you that the CHA is now known as the Certified Hedge Fund Professional (CHP). They have rebranded the certification because they have expanded participation from 200 associates each session to 350 professionals in order to accommodate the large amount of hedge fund managers and senior traders signing up for the program. The program still has all the same benefits, only the name has changed. Additionally, to celebrate the rebranding, they've added free workbooks, educational videos, and access to all the networking events. Best of all, Market Folly readers can still get the exclusive $50 discount by entering their information below! There are only 14 spots left for this session so act quickly if you're interested.
The CHP is like the CFA or CAIA except that it focuses exclusively on hedge funds. It is a great tool to expand your knowledge, further your certification, and make yourself stand out from the crowd if you're applying for jobs. Not to mention, it's a great networking tool. (You can read more about it here). We highly recommend it and you can read numerous testimonials here. Participants include hedge fund managers, traders, analysts, financial advisors, asset managers, consultants, students, and more.
Don't worry, you can still receive the Market Folly discount on any of the old sign-up forms as well as the one below. But remember, you have to enter your information through our form in order to receive the exclusive discount. There's only 14 spots left so hurry before the window closes. The CHA is now the CHP.
(RSS & Email readers: You'll have to come to the blog to sign-up).
Friday, September 4, 2009
Certified Hedge Fund Professional (CHP): 14 Spots Left
What a Short Squeeze Feels Like (Video)
Going into the holiday weekend, we thought we'd post up two fun Friday videos that we are going to call, "what a short squeeze feels like." Don't worry, both videos are work safe. (Email readers make sure you come to the blog to view the videos).
Firstly, here's what it feels like to be squeezed as a short:
Secondly, here's what it's like when you're not the one being squeezed. Instead, in this video you're riding the waves of those shorts who are getting their faces ripped off below you:
Oh, and for those of your curious/puzzled/in denial: yes, the second video is fake. It was edited together and used in a Microsoft Germany advertisement and you can read more about their viral marketing video at Tech Ticker here. Remember that US markets are closed on Monday (Sept. 7th) so have a non-laborious Labor day!
Overcoming Madoff In Fund Management
A few weeks back, we bought you a guest post entitled, 'The Future of Hedge Funds.' Dwelling somewhat along the same lines of that topic, we have another guest post today for you examining how funds will overcome the sour taste Bernie Madoff and his ponzi scheme has left in investors mouths.
Below is a guest post by Elizabeth Harrin of TheGlassHammer.com, an "award-winning blog and online community created for women executives in finance, law, technology and big business."
“We have definitely seen a deterioration in potential investors because of Mr. Madoff’s activities,” says Tonya Powell, Principal at ELP Capital, Inc, investment company which specializes in real estate-secured assets. “The biggest issue is trust, and the almost automatic assumption created by the media that all fund managers may have participated in the same kind of activities.”
Judi Snyder, Partner at JP Snyder, Inc, a boutique financial planning firm, agrees. “Previously, people blindly trusted advisors and didn’t do their own research. This blind trust led to much of the current economic and investor climate.”
Both women’s firms are using multi-pronged approaches to win back consumer confidence. “There’s a fundamental shift – clients are demanding more education,” says Snyder. “I believe, however, Wall Street doesn’t necessarily want people to be educated.” This is a problem that Snyder’s firm is tackling head-on. “We give our clients homework,” she says. “We want them to do research, become educated and ask questions. We want them to take as long as they need to be comfortable with the investment options that we recommend.”
Communication is Key
To educate your clients you have to talk to them. “Even if the news is bad news, investors appreciate hearing from you,” says Nevada-based Powell. “We have done and will continue to conduct a series of webinars on our portfolio and consistent updates via mail and email so that everyone feels included. In addition, our CEO has literally been going through each and every investor with a personal call. Just hearing his voice has helped calm and reassure nearly every person.”
Powell advises that fund managers need to work out in the open. “Don’t hide,” she says. “Even though it may be easier to not want to take calls, answer emails, etc, if investors feel you are avoiding them, they will become even more nervous and potentially angry. Take their calls, answer their questions, pass along all news to them as best you can. By stepping up, assuming responsibility for that which you can, but also making sure boundaries are understood where you cannot fix the situation; it helps to create a much more friendly and smoother relationship between your company and your clients.” She also suggests that if investors want to meet face to face at the office and look through files for example, that this option – and anything else you can think of – is made available to them.
On the other side of the United States, in Florida, the story is the same. “Education and communication are the keys to helping the public better understand free market capitalism,” says Snyder, whose company is based out of Tampa.
Investors Must Do Their Homework
Snyder also believes that due diligence for investors is the way forward. “As an investor, if you don’t conduct due diligence, you are putting your life decisions into the hands of other people,” she says. “It takes time and work. We’ve seen the public adopt a victim mentality when they are let down by their advisors or when their investments perform poorly.” Snyder uses the example of someone buying a car to illustrate her point: “Most people do internet research to find the best car to buy,” she says. “A number of ‘consumer reports’ are likely to pop up. Most of the time, however, these studies are not independent, but are sponsored by an organization with a vested interest in the outcome – such as a particular auto manufacturer. The same holds true for financial instruments and strategies.” If potential clients don’t turn to the internet they might look to well-known media sources for information. “It is essential to take an objective look at who the advertisers and sponsors are behind these media giants,” adds Snyder, “and determine if there is an underlying slant or bias toward particular types of investments.”
With confidence in the financial markets at a low, now might not be the time to point out that investors who didn’t do their homework partly have themselves to blame. Powell believes that fund managers are also facing a challenge convincing clients that the firms are entitled to stay in the black when investors themselves may find themselves in financial difficulties. “It is both acceptable and right that a fund management company can and should continue to make money,” she says, “even if the clients have lost a portion of their portfolio.”
“Corporations are not the Godzilla-like monsters people often portray them as,” says Snyder. “They exist to provide goods and services to the world while making a profit. That is capitalism 101. The bottom-line is businesses keep people employed. If you vilify corporate profit – companies will be forced to shut down or move off-shore.”
Snyder advises that corporations should remind the public that they are made up of individual people: the CEO at ELP Capital calling every investor is a good example of this – it’s the human touch. “These people have names, faces and families,” says Snyder. “They are no different than anyone else. Each and every person has the right to make a living. Just as each corporation has the right to make a profit. Profits keep companies going during tough times, pay for research, help launch new products and services and keep the economy humming.” She recalls Citgo’s recent ad campaign. “It successfully focused on locally-owned retailers,” she explains. “By featuring these entrepreneurs in the campaign, it effectively tells the Citgo story by linking the corporation to every day people. These workers have a family, are supporting grandparents and putting kids through college.”
It’s a difficult message, but getting it across to the investor on the street is key to undoing some of the damage done since Madoff. “If there is no company to oversee their investments, then how do they expect to make any of their principal back?” asks Powell. “Hurting the company only hurts themselves, especially if it is small firm such as ours.”
What We're Reading 9/4/09
REITs racing to bankruptcy [Contrarian Profits]
Insider selling hits new highs, buying still non-existent [Pragmatic Capitalist]
Summary of sentiment data for the stock market [Trader's Narrative]
The value of the investment process [zero hedge]
2 part interview with hedge fund manager Joe Ponzio [Simoleon Sense]
Current market move is third biggest PE multiple expansion recorded in shortest time [zero hedge]
Henry Paulson's longest night [Vanity Fair]
Thursday, September 3, 2009
Market Folly Custom Portfolio Rebalanced & August 2009 Performance
We're posting up two quick updates regarding our Market Folly custom portfolio. To those of you newer to the portfolio, it is simply a clone designed to mimic hedge fund holdings created with the help of a great replication tool, Alphaclone. Through hours of clone creation and experimentation, we've used our expertise in tracking hedge fund SEC filings to determine an ideal mix of hedge funds and strategies to create a winning portfolio. We wanted to post up an update to let everyone know that the latest rebalance of our portfolio has just occurred. So right now is the ideal time to head over to Alphaclone to see which positions our portfolio is invested in since everything is fresh. And, you can invest right alongside our portfolio that is seeing 20.5% annualized returns. Our portfolio rebalances four times a year (once each quarter after the new SEC filings come out).
Secondly, since we're posting monthly performance updates of our clone for complete transparency, we wanted to update our August 2009 performance figures.
August 2009
MF clone: -1.5%
S&P 500: +3.6%
Year-to-date 2009
MF clone: +9%
S&P 500: +12.4%
Obviously we've hit some rough water lately as our 50% portfolio hedge has weighed on the clone's overall performance. We put the hedge in place due to the fact that we think we aren't out of the woods yet and that there is a possibility of further downside to come. Additionally, we wanted to run a truly hedged portfolio like a hedge fund in the 'old school' sense of the definition. While the portfolio is underperforming in the near-term, we think this is the right decision and we will be quick to point to the clone's long term outperformance.
(click to enlarge)After all, we created the portfolio with the goal of generating solid returns over the long haul. Since 2000, our clone has seen a total return of 515% versus the S&P return of -18.4%. The outperformance there is uncanny. Not to mention, the MF portfolio is seeing 20.5% annualized returns compared to -2.1% annualized returns for the S&P. Again, no contest. Our Sharpe Ratio comes in at 0.8 while the S&P's comes in at -0.4. Admittedly, our clone's performance comes with more volatility than the S&P due to it's concentrated nature. However, with Alpha of 16.8, we aren't going to complain.
For more background on our Market Folly custom portfolio, check out our introduction in part 1 here and part 2 here. Those posts go on to explain the hedge funds we've selected for our clone, the strategy used, and the performance it has been able to generate. Now head over to Alphaclone to see our Market Folly portfolio's latest holdings after the rebalance and to check out all the performance metrics and data.
Thomas Steyer's Farallon Capital Fancies Capitalsource (CSE): 13F Filing
This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.
Today we're covering Thomas Steyer's hedge fund Farallon Capital Management. Founded by Steyer in 1986, Farallon employs risk arbitrage strategies. Previously, he was an analyst for Morgan Stanley in their Mergers & Acquisitions department and also an associate on Goldman Sachs' risk arbitrage desk. Farallon typically invests in equities, debt (public & private), private investments, and real estate. Steyer graduated Summa Cum Laude from Yale University and went on to receive his MBA from Stanford.
Despite their typically solid record, 2008 was a rough year for Farallon as they suspended withdrawals after receiving requests for up to 25% of their main fund's capital. In order to keep hold of investors, they offered no typical management and performance fees but instead shifted to accounting fees. The activity of 2008 landed them in the pool of top 10 asset losers. Nevertheless, they were still ranked third in Alpha's 2008 hedge fund rankings. In terms of recent activity, we posted up when Farallon filed a 13D on Global Gold (GBGD).
The following were Farallon's long equity, note, and options holdings as of June 30th, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.
Some New Positions (Brand new positions that they initiated in the last quarter):
MSCI (MXB), Apollo Group (APOL), iShares Russell 2000 (IWM) Puts, Oracle (ORCL), Select Sector Financials (XLF) Puts, Qualcomm (QCOM), Moodys (MCO), Metavante Tech (MV), Lucent Technologies DBCV 2.75% 6/1, Arch Capital Group (ACGL), Carrizo Oil & Gas Bond, Sirius Satellite Note 3.250% 10/1, Kendle International Bond, Amdocs (DOX), Con-way (CNW), Solutia (SOA), Interval Leisure (IILG), and CTC Media (CTCM).
Some Increased Positions (A few positions they already owned but added shares to)
Discovery Communications (DISCA): Increased by 82.7%
Freightcar America (RAIL): Increased by 59.1%
America Movil (AMX): Increased by 36.3%
Priceline (PCLN): Increased by 22.2%
Some Reduced Positions (Some positions they sold some shares of)
Pinnacle Entertainment (PNK): Reduced by 98.1% (was previously only a tiny position for them anyways)
Sherwin Williams (SHW): Reduced by 79.4%
Fidelity National (FIS): Reduced by 54%
Mastercard (MA): Reduced by 39.4%
Burlington Northern (BNI): Reduced by 36.9%
Visa (V): Reduced by 28.1%
Capitalsource (CSE): Reduced by 8.2%
Removed Positions (Positions they sold out of completely)
Cablevision (CVC)
The rest of their removed positions were less than 0.25% of their reported holdings each:
Affordable Residential Cmnty Note 7.5% 8/1
D&E Communications (DECC)
Magna Entertainment (MECA)
Top 15 Holdings by percentage of long portfolio as reported on the 13F Filing *(see note below regarding calculations)
- Capitalsource (CSE): 13.98%
- Burlington Northern (BNI): 5.22%
- America Movil (AMX): 5.11%
- Visa (V): 4.87%
- Lucent Technologies 2.750% bond: 4.8%
- MSCI (MXB): 4.22
- Discovery Communications (DISCA): 3.89%
- Knology (KNOL): 3.84%
- Apollo Group (APOL): 3.78%
- iShares Russell 2000 (IWM) Puts: 3.77%
- Oracle (ORCL): 3.65%
- Select Sector Financials (XLF) Puts: 3.57%
- Qualcomm (QCOM): 3.48%
- Priceline (PCLN): 2.73%
- Moodys (MCO): 2.66%
Interestingly enough, Farallon shares their top position with that of Seth Klarman's Baupost Group. Both hedge funds have Capitalsource (CSE) reported as their top holding via the 13F filing which is intriguing. Clearly these two saw value in the company when shares were down big and they both continue to hold this name.
It is also interesting to see Farallon start a brand new position in Moodys (MCO) given that Warren Buffett has sold some shares of his position and David Einhorn (Greenlight Capital) has been short MCO (unknown whether he is still short though) citing a balance sheet with negative shareholder equity and declining relevance in an environment where regulation is anticipated to rise. This just goes to show that there is always two sides to the story and even prominent investors disagree on various positions.
America Movil (AMX) is another position worth pointing out as it sits in third position in Farallon's portfolio. Numerous 'Tiger Cub' hedge funds have had a stake in this name previously. However, many of them sold out of the position, except for Stephen Mandel's Lone Pine Capital who still holds a big stake. Farallon also holds Tiger Cub fund favorites Visa (V) and Mastercard (MA). However, Farallon was out selling part of their position over the past quarter.
Other notable sales include them completely selling out of Cablevision (CVC) which was previously almost 4.5% of their reportable assets on the 13F last time around. They sold off a third of their #2 reported holding, Burlington Northern (BNI) which was interesting. This of course is a long-time Warren Buffett favorite play. They also sold a decent chunk of their Sherwin Williams (SHW) position. In terms of additions, Farallon came close to doubling down on their Discovery Communications (DISCA) stake which we took note of because this stock is widely held by many hedge funds.
*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $1 billion this quarter compared to $494 million last quarter, so they more than doubled their assets invested in long US equities, notes, and options. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. In reality, the percentages are more watered down in their actual hedge fund portfolio. If you were to calculate percentage weightings in the actual hedge fund portfolio, they would obviously be different since you would divide position sizes by their total assets under management.
This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Dan Loeb's Third Point LLC, and Stephen Mandel's Lone Pine Capital, George Soros (Soros Fund Management), Lee Ainslie's Maverick Capital, Philip Falcone's Harbinger Capital Partners, David Stemerman's Conatus Capital, Eric Mindich's Eton Park Capital, and John Griffin's Blue Ridge Capital. Check back each day as we cover prominent hedge fund portfolios.
Top 25 Warren Buffett Quotes
When reading Berkshire Hathaway's annual letters or hearing him speak, one can always take away a few great quotes from value investor extraordinaire Warren Buffett. It should come as no surprise that he is so good at dishing out words of wisdom. After all, he is known as the Oracle of Omaha. We thought it would be prudent to assemble some of his best advice in one cohesive post.
In no particular order, here are 25 insightful investment sayings from legendary investor Warren Buffett:
1. "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1"
2. "In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond."
3. "The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable."
4. "Be fearful when others are greedy. Be greedy when others are fearful."
5. "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
6. "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact."
7. “You only find out who is swimming naked when the tide goes out.”
8. "Risk comes from not knowing what you're doing."
9. "If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that."
10. "Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down."
11. "I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."
12. "Price is what you pay. Value is what you get."
13. "I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over."
14. "If a business does well, the stock eventually follows."
15. "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."
16. "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well."
17. "The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities — that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future — will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands."
18. "Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."
19. "Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results."
20. "Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid."
21. "I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out."
22. "We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely."
23. "In the business world, the rearview mirror is always clearer than the windshield."
24. "The investor of today does not profit from yesterday's growth."
25. "Someone's sitting in the shade today because someone planted a tree a long time ago."
Great investing advice as always from Warren Buffett. And, in spirit of the market crisis, we wanted to toss this nice bonus quote in as well: "When you combine ignorance and leverage, you get some pretty interesting results. " Some of the investment banks (and even Warren himself) should have listened to that sound advice.
To learn more about Buffett and his investing ways, we highly recommend perusing the following reads:
- The Essays of Warren Buffett by the Oracle himself: Lessons from Warren Buffett over the years.
- The Warren Buffett Way by Robert Hagstrom: Outline of Buffett's tenets for investing.
- The Intelligent Investor by Benjamin Graham. If you had to own one book about value investing, this would most likely be it. Benjamin Graham was a legendary investor who helped pioneer the ways of value investing and taught Warren Buffett a lot of what he knows today.
- Security Analysis by Graham & Dodd (a staple on our fundamentals recommended list): Hands down THE book on fundamental analysis. Also authored by Buffett's mentor.
- The Snowball: Warren Buffett and the Business of Life by Alice Schroeder. She was hand picked by Buffett to be his biographer.
As far as our coverage on Buffett goes, we touched on some of his recent moves in our hedge fund / market guru update. Additionally, we covered Berkshire Hathaway's Annual Report. We'll continue to track the Oracle of Omaha's latest moves so stay tuned for future updates.
Bill Gross September 2009 Commentary (PIMCO)
Here's the latest commentary from PIMCO's bond boss, Bill Gross. He entitles it, "On the 'course' to a new normal." In addition to the text below, you can also download it in .pdf version here. Analyzing why people play golf is like exploring the intricacies of string theory – there are so many permutations lacking scientific observation that physicists or golfers can pretty darn well say anything they like and the explanation might stick. When it comes to whacking that little white ball, the possibilities are nearly endless: People play to relax, to be with friends, to get close to Mother Nature, to enhance business connections, to compete and excel. Gosh, I don’t know, the Zen explanation for why we play golf could even resemble the old saw about climbing a mountain: People golf because it’s there. Whatever the reason, it is the most frustrating, damnable game ever conceived – alternately elevating and depressing you within the span of mere minutes. I love golf. No, I hate it. Personally, the reason that golf draws me to its intricate web of psychological entrapment is epitomized by a simple six-inch trophy: a chartreuse ball resting on top of its ebony base, preening on a bookshelf in the family room at our desert home. Its inscription reads, “Hole in one, March 15th, 1990, 14th hole Desert Course, 155 yards.” Well and good, I suppose – the ace of my life – except it wasn’t. It was the ace of my wife. Above the inscription rests the name Sue – not Bill – Gross. It was a great shot but it wasn’t my shot, and I guess therein lies the explanation for why I continue to tee it up. Actually, two years ago I did tee it up in the sweltering 105° June heat of the Palm Springs desert. No one, of course, was crazy enough to be with me including my “ace” role model wife who was sipping a cool lemonade in the comfort of our air-conditioned home. Now, there is an “unwritten” rule in golf that in order to be official, a hole-in-one has to be witnessed, and that you have to play a full 18 holes. Otherwise, I suppose, you could stand on the tee with a bucket of balls and hit hundreds or thousands until one of the little guys went in – whatever. The fact is, on this particular day, I was playing only one ball, but I was alone, and – good God! – it went in! The trophy with ebony base and spanking white Titleist ball would read: “Hole in one, June 7th, 2007, 17th hole, Mountain Course, 139 yards.” Or was it? Does a falling tree make a sound in the middle of a forest if no one’s there? Is a hole-in-one a hole-in-one if no one else saw it? I say emphatically – yes! That damn ball went in and later that day Sue agreed with me (although she had a funny look in her eye – especially since she didn’t know a thing about the rules of golf). No one else though. No one else agrees with me. Not a soul. I suspect they’re jealous and, in fact, I’ve seen a few of them hitting buckets of balls at dusk from that very same tee when they think nobody’s looking. I’m watching, though, which brings up a funny question. If they sunk one, would theirs be a hole-in-one because I was a witness? Like I said – a damnable game. “Is a hole-in-one a hole-in-one” may not strike you as the most critical question of the hour, and I would readily agree. “Will we have a New Normal global economy (and investment market)?” would probably usurp it on even Tiger Woods’s top ten list. This “new” vs. “old” normal dichotomy was perhaps best contrasted by Barton Biggs, as I heard him on Bloomberg Radio in early 2009, when he said he was a “child of the bull market.” I thought that was a brilliant phrase, and Barton is a brilliant phrase-maker. He went on to say though, that his point was that for as long as he’s been in the business – and that’s a long time – it has paid to buy the dips, because markets, economies, profits, and assets always rebounded and went to higher levels. That is not only the way that he learned it, but that is the way, basically, that capitalism is supposed to work. Economies grow, profits grow, just like children do. I think that’s why he said he was a child of the bull market, not just because he had experienced it for so long, but also because economic growth and higher asset prices are almost invariably a natural evolution, much like the maturation of a person. That’s how people grow, and so I think Barton was saying that capitalism just grows that way too. Well, the surprise is that there’s been a significant break in that growth pattern, because of delevering, deglobalization, and reregulation. All of those three in combination, to us at PIMCO, means that if you are a child of the bull market, it’s time to grow up and become a chastened adult; it’s time to recognize that things have changed and that they will continue to change for the next – yes, the next 10 years and maybe even the next 20 years. We are heading into what we call the New Normal, which is a period of time in which economies grow very slowly as opposed to growing like weeds, the way children do; in which profits are relatively static; in which the government plays a significant role in terms of deficits and reregulation and control of the economy; in which the consumer stops shopping until he drops and begins, as they do in Japan (to be a little ghoulish), starts saving to the grave. This focus on the DDRs – delevering, deglobalization, and reregulation – may be conceptually understandable, but nevertheless still a little hard to get one’s arms around. Why would they necessarily lead to a new, slower growth normal? A little easier to grasp might be the following approach, which feeds off the same concept, but which extends it a little further by suggesting that DD and R lead to a number of broken business or economic models that may forever change the world we once knew and make even Barton Biggs a chastened adult. They are as follows: I could go on, reintroducing the negatives of an aging boomer society not just in the U.S., but worldwide. Increased health care may be GDP positive, but it’s only a plus from a “broken window” point of view. Far better to have a younger, healthier society than to spend trillions fixing up an aging, increasingly overweight and diabetic one. Same thing goes for energy. Far easier and more profitable to pump oil out of the Yates Field in Texas or even Prudhoe Bay than to spend trillions on a new “green” society. Our world, and the world’s world, is changing significantly, leading to slower growth accompanied by a redefined public/private partnership. The investment implications of this New Normal evolution cannot easily be modeled econometrically, quantitatively, or statistically. The applicable word in New Normal is, of course, “new.” The successful investor during this transition will be one with common sense and importantly the powers of intuition, observation, and the willingness to accept uncertain outcomes. As of now, PIMCO observes that the highest probabilities favor the following strategic conclusions: Like playing in an Open Championship, future golfers/investors need to play conservatively and avoid critical mistakes. An “even par” scorecard (plus some hard earned alpha) may be enough to hoist the trophy in a New Normal world. Holes-in-one? Maybe if you’re lucky. But make sure someone’s watching, and that their eyes are focused on the New Normal. As for golf, even Sue, my only supporter, has asked me to move my ball, on its own ebony base, away from her more authentic and perhaps the still solitary ace made by Gross family golfers. What a damnable condition. William H. Gross
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From PIMCO:
Similarly, the financialization of assets via the shadow banking system led to an American era of consumerism because debt was available, interest rates were low, and the livin’ became easy. Savings rates plunged from 10% to -1%, as many (if not most) assumed there was no reason to save – the second mortgage would pay for everything. Now things have perhaps irreversibly changed. Savings rates are headed up, consumer spending growth rates moving down. Get ready for the New Normal.
Managing Director
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Make sure to also check out Bill Gross' August commentary as well if you're interested.
Wednesday, September 2, 2009
Nasdaq Bumps Into Resistance At Fibonacci Retracement
The guys over at MarketClub have done some more technical analysis on the Nasdaq chart and are looking closely at a possible shift in the Nasdaq here by using Fibonacci retracements. They believe that index is in a secular bear market and you can watch the Nasdaq video update here. Using Fibonacci retracements from the high in October of 2007 to the low in March of 2009, the retracement levels start to tell us something. Currently, we've encountered the 50% retracement which could potentially be a problem. The Nasdaq has already reversed after bumping into this level once so it looks like some solid resistance there. They also point out a slight divergence where the MACD turned down (negative) early while the Nasdaq continued higher. These divergences are typically early warning signs and are another reason to get cautious here. It's still too early to say whether this is a big reversal and start of a new trend, but things aren't necessarily looking rosy right now. Check out their analysis in their video update on Nasdaq fibonacci retracements.
John Griffin's Blue Ridge Capital Loves Apple (AAPL): 13F Filing
This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.
Next up is John Griffin's hedge fund Blue Ridge Capital. Griffin is very similar to Stephen Mandel (whom we also just covered) in that they were both some of Julian Robertson's top men at legendary hedge fund Tiger Management. They both went on to form their own funds and as such are labeled 'Tiger Cubs.' Griffin is most well known for his status as Robertson's former right hand man and he clearly knows what he's doing. Prior to that, he received his bachelor's degree from the University of Virginia and his MBA from Stanford. For more on Griffin you can check out our post of Tiger Cub biographies. Blue Ridge invests in companies that dominate their industries and shorts companies with fundamental problems in order to seek absolute returns. Griffin likes to hedge with an effective amount of both long and short positions like a hedge fund in the true sense of the definition.
For more on how to think and analyze like Griffin and Blue Ridge, check out their recommended reading lists. They've laid out their top reads in four categories presented below:
- Behavioral Finance recommendations
- Analytical recommendations
- Economics recommendations
- Historical/Biographical recommendations
Definitely check those out as there are some great suggestions from Blue Ridge in there to help you analyze financial markets and think like a prominent hedge fund manager such as John Griffin.
The following were Blue Ridge's long equity, note, and options holdings as of June 30th, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.
Some New Positions (Brand new positions that they initiated in the last quarter from largest to smallest):
Pfizer (PFE), CME Group (CME), Schering Plough (SGP), Vale (VALE), Western Union (WU), State Street (STT), iShares Silver Trust (SLV), Express Scripts (ESRX), Partnerre (PRE), VMWare (VMW), Palm (PALM), Interoil (IOC), Wells Fargo (WFC), Redwood (RWT), Direxion 3x bear financials (FAZ), & American Capital (ACAS)
Some Increased Positions (A few positions they already owned but added shares to)
Blackrock (BLK): Increased by 100%
Range Resources (RRC): Increased by 89.4%
Apple (AAPL): Increased by 75.65%
Axis Capital Holdings (AXS): Increased by 38.7%
ThermoFisher Scientific (TMO): Increased by 23.5%
Some Reduced Positions (Some positions they sold some shares of)
Microsoft (MSFT): Reduced by 64.4%
Monsanto (MON): Reduced by 61.8%
Mastercard (MA): Reduced by 61%
Yamana Gold (AUY): Reduced by 54.3%
Newmont Mining (NEM): Reduced by 42.4%
National Oilwell Varco (NOV): Reduced by 41.1%
RenaissanceRe (RNR): Reduced by 34.4%
Amazon (AMZN): Reduced by 34.2%
Goldcorp (GG): Reduced by 33.2%
Berkshire Hathaway (BRK-A): Reduced by 31%
Removed Positions (Positions they sold out of completely)
SPDR S&P 500 (SPY) Calls, Vale (RIO), Amgen (AMGN), Target (TGT), Vornado Realty (VNO), Petroleo Brasileiro (PBR), Google (GOOG), Dell (DELL), Anadarko Petroleum (APC), Devon (DVN), Packaging Corp (PKG), iShares Biotech (IBB), Fomento Economico (FMX), Goodrich Petroleum (GDP), Calpine (CPN), Vimpelcomm (VIP). It also shows them selling out of General Growth Properties (GGWPQ), but this is only because the SEC has deemed it not necessary to report holdings in those shares anymore. (We touched on this when we covered Bill Ackman's portfolio). We now have no way of knowing if Blue Ridge still hold common shares or not.
Top 15 Holdings by percentage of assets reported on the 13F filing *(see note below)
- Apple (AAPL): 7.3%
- Millipore (MIL): 5.4%
- Pfizer (PFE): 5.2%
- CME Group (CME): 5.2%
- ThermoFisher Scientific (TMO): 5.18%
- Schering Plough (SGP): 4.8%
- Visa (V): 4.7%
- Microsoft (MSFT): 4.5%
- Amazon (AMZN): 4.1%
- Covanta (CVA): 3.73%
- Vale (VALE): 3.7%
- National Oilwell Varco (NOV): 3.7%
- Blackrock (BLK): 3.43%
- Discovery Communications (DISCA): 3.04%
- Crown Castle (CCI): 2.63%
For all you Wall Street (the movie) fans out there, realize that we were very tempted to make the headline, 'Blue Horseshoe loves Apple,' but we refrained due to the fact that it would be a ridiculously bad joke. (Sidenote: the Wall Street sequel is coming for those of you unaware). At any rate, Blue Ridge Capital loaded up on shares of Apple (AAPL) in a big way, increasing their stake by over 75% and bringing it to their top holding. You can bet they're up big on this position as shares of AAPL have risen from $142 to $170 since June 30th when this portfolio snapshot was taken. Earlier this week, we also noted that David Stemerman's Conatus Capital held Apple as their top position. Shares of AAPL were certainly a theme over the past few quarters for many prominent hedge funds.
Blue Ridge also loaded up on shares of CME Group (CME), starting a brand new position and making it their 4th largest holding. Also worth noting is their brand new position of Western Union (WU), which they made their 17th largest holding. We mention this because John Griffin's hedge fund now owns Visa (V), Mastercard (MA), and Western Union (WU) all as top 20 holdings in their portfolio as they play the payment processing theme. While they brought on WU, they also cut their MA stake by 60%.
In terms of notable sales, they completely sold out of their SPDR S&P 500 (SPY) Calls position. That was previously a 5.8% stake for them and you have to believe they profited handsomely from it. From quarter-end to quarter-end (March 30th 'til June 30th), the S&P was up over 12.6%. We also wanted to highlight their 64% reduction in their Microsoft (MSFT) stake and their nearly 62% reduction in their Monsanto (MON) position.
It also appears if Blue Ridge has possibly been playing some risk arbitrage a bit with brand new positions in Pfizer (PFE) and Schering Plough (SGP), but there's no way for us to be sure. We only guess that solely because a ton of hedge funds have been buying shares of companies that are in the midst of some sort of merger or transaction. As the risk arbitrage space has dwindled due to fund redemptions and closures, newer funds have stepped onto the scene to pick up the pieces.
Lastly, we also wanted to highlight other recent activity from Blue Ridge where we see they established a new stake in PennyMac Mortgage (PMT).
*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $3.9 billion this quarter compared to $4.3 billion last quarter, so down slightly. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. In reality, the percentages are more watered down in their actual hedge fund portfolio. If you were to calculate percentage weightings in the actual hedge fund portfolio, they would obviously be different since you would divide position sizes by their total assets under management.
This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Dan Loeb's Third Point LLC, and Stephen Mandel's Lone Pine Capital, George Soros (Soros Fund Management), Lee Ainslie's Maverick Capital, Philip Falcone's Harbinger Capital Partners, David Stemerman's Conatus Capital, and Eric Mindich's Eton Park Capital. Check back each day as we cover prominent hedge fund portfolios.
Explanation of Contract For Difference (CFD) Market
The contract for difference (CFD) market in the UK has grown significantly during the last ten years. In late 2007 the Financial Services Authority estimated that 30% of equity trades in some way involved CFD transactions*. Today, it is highly likely that the figure is even higher.
Many may ask, why use CFDs instead of purchasing the plain vanilla equities directly? One big advantage that CFD holders have in the UK is that they avoid the Stamp Duty of 0.5% that is levied on all equity purchases (but not sales) in companies listed on the London Stock Exchange. Other potential advantages include greater leverage, the ability to go short and, until very recently, anonymity. Anonymity is of course something prized by many hedge funds and large investors as they try to tip-toe around the markets without leaving a massive footprint. Secrecy is the name of the game in hedge fund land. The last thing hedge fund managers want is copy-cat investors jumping in and influencing the share price of a company before they have finished buying or selling. Similarly, hedge funds involved in activism or takeovers can at times be more effective and influential if they can build large shareholdings in the target company without being seen.
However, the Financial Services Authority (FSA), the British equivalent of the SEC in the United States introduced new rules which came into effect on June 1st. These rules now force hedge funds to disclose CFD stakes they had previously built up secretly. The new rules require an investor holding more than 3% of a company’s equity through derivatives to disclose their stakes. Investors that build large shareholdings via a combination of normal shares and CFDs must also disclose their combined position once it crosses the 3% of issued shares threshold.
The new rules produce a more level playing field between stocks and CFDs with regard to disclosure. However, there seems to be at least one loophole in the legislation in that it applies only to interests in UK-headquartered companies but not investors in overseas companies that are listed in London.
Those of you who like to track the best hedge fund managers now have a new way to follow them due to the rule changes. A good example of the extra information we can look forward to in the future is provided by a recent filing from Ken Griffin’s Citadel Advisors LLC. Citadel revealed that they have a large 16% stake in property developer, Songbird Estates via CFDs (see table below).
Songbird Estates Plc (Interest in Ordinary class B shares via contract for difference CFD)
| Date company was notified of purchase | No. of shares | % of company’s issued stock |
| 01/06/2009 | 30940584 | 16.0 |
| 20/08/2009 | 30797470 | 15.96 |
Taken from Google Finance, Songbird Estates plc is "engaged in the management of its investment in its main subsidiary, Canary Wharf Group plc, the holding company for a group that specializes in integrated property development, investment and management focusing particularly on the Canary Wharf Estate, including Heron Quays West, Riverside South and North Quay (the Estate). Canary Wharf Group is also involved through joint ventures in the development of Wood Wharf and the redevelopment of Drapers Gardens. As of December 31, 2008, Canary Wharf Group’s investment portfolio comprised 16 completed properties (out of the 31 constructed on the Estate) totaling 7.9 million square feet net internal area (NIA), of which 99.7% was let. On November 17, 2008, Canary Wharf Group announced that it had concluded an agreement for the staged development of Riverside South with JP Morgan. In December 2008, Canary Wharf Group reached an agreement to commence work on the Crossrail station at Canary Wharf."
This is an expansion of our hedge fund portfolio tracking series to cover holdings in other markets. Thanks to a reader, we are now able to track prominent hedge fund positions in the UK markets. We've previously covered Lone Pine Capital's UK positions and their recent UK movement. Additionally, we've covered Sprott Asset Management's UK positions where we saw them playing defense. We'll continue our coverage in this regard so stay tuned for future updates.
*Financial Services Authority “Disclosure of Contract for Difference: Consultation and draft Handbook text”, Vol 20 No. 20 November 2007.
AQR's Cliff Asness Explains Quant Strategies (Video)
Hat tip to our buddy @StockJockey for flagging this excellent video with Cliff Asness of hedge fund firm AQR Capital Management where he talks quantitative strategies. AQR has recently been also getting into the mutual fund business as they look to diversify their offerings.
Email (& possibly RSS) readers will need to come to the blog to view the embedded video:
Macro Hedge Funds Bet Against Recovery
Interesting story out of Bloomberg yesterday citing our friends over at Tudor Investment Corp and Clarium Capital Management. Paul Tudor Jones and Peter Thiel's hedge funds are bearish on a macro level and think the true recovery will be delayed. We've already seen that Tudor has called this a bear market rally and Clarium has been net short US equities numerous times this year.
From Bloomberg,
“If we have a recovery at all, it isn’t sustainable,” Kevin Harrington, managing director at Clarium, said in an interview at the firm’s New York offices. “This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”
Tudor, the Greenwich, Connecticut-based firm started by Jones in the early 1980s, told clients in an Aug. 3 letter that the stock market’s climb was a “bear-market rally.” Weak growth in household income was among the reasons to be dubious about the rebound’s chances of survival, Tudor said.
Clarium watches the unemployment rate that accounts for discouraged job applicants and those working part-time because they can’t find full-time positions, Harrington said. July joblessness with those adjustments was 16 percent, according to the Department of Labor, rather than the more widely reported 9.4 percent.Clarium, which oversees about $2 billion, is positioned for an equity bear market through investments in the U.S. dollar, Harrington said. Falling stock prices will strengthen the currency by forcing leveraged investors to sell equities to pay down the dollar-denominated debt they used to finance those trades, he said.
High unemployment, lower wages and potential missteps by policymakers around the globe may stifle economic growth in 2010, Tudor said. The firm, which manages $10.8 billion, is at odds with 55 economists projecting an average of 2.3 percent growth next year, according to the Bloomberg survey.
Macro managers’ pessimism is fueled in part by the U.S. government’s response to last year’s financial crisis, which they say fails to address the root cause. Banks still hold hard- to-sell assets on their balance sheets, the managers said.
Clarium, whose assets were mostly in fixed income, dropped 6 percent this year through June. Horseman’s fund slid 16.3 percent. Tudor’s BVI Global Fund Ltd. returned 11 percent.
The funds held up in 2008 amid the industry’s record 19 percent loss. Horseman’s Global Fund USD, which focuses on stocks, made HSBC’s private bank list of top 20 performers by gaining 31 percent. Tudor’s and Clarium’s funds fell 4.5 percent.
Macro managers are examining China for hints on how to place currency and commodities bets. Tudor said the country’s spending spree on raw materials inflated commodity prices and weakened the U.S. dollar.
The ultimate problem, as always, is to make money from such theses. A frequent disconnect during this crisis has been the ability for many to predict what will happen, only to fail to profit from their call. This just goes to show how difficult these markets have been. While we've agreed with a lot of Clarium's research and thoughts on the economy, they are still down for the year performance wise.
Tuesday, September 1, 2009
Eric Mindich's Eton Park Capital: Loaded With Options Positions (13F Filing)
This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.
Next up is Eric Mindich's hedge fund firm, Eton Park Capital. Mindich started the fund back in 2004 with $3 billion under management with a $5 million minimum investment. Nowadays, Eton Park manages over $6 billion. Their investment strategy draws upon Mindich's time at Goldman Sachs where he focused on merger arbitrage. He was so good at his job that he became the youngest partner in Goldman Sachs' history at the age of 27. In addition to merger arbitrage, Eton Park focuses on long/short equity strategies and even invests up to 30% of their portfolio into private investments.
Eton Park's solid track record has landed them in our Market Folly portfolio where we seek to replicate hedge fund holdings into a cohesive portfolio. We can do so with the help of Alphaclone and the backtested results are quite impressive. Our combination of Eton Park, Baupost Group, and Shumway Capital Partners into a single unique portfolio has yielded over 25% annualized since inception. The portfolio is rebalanced quarterly and you can click the links above to see how it has performed and how it was created. Turning back to Eton Park's current setup, let's take a look at their portfolio.
The following were Eton Park's long equity, note, and options holdings as of June 30th, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.
Some New Positions (Brand new positions that they initiated in the last quarter):
US Steel (X) Puts, Pfizer (PFE) Calls, Caterpillar (CAT) Puts, Deere (DE) Puts, CF Industries (CF), General Electric (GE) Puts, Liberty Media (LMDIA), ML Retail Holdrs (RTH) Puts, Comcast (CMCSK) Calls, SPDR Retail (XRT) Puts, Materials SPDR (XLB) Puts, Pepsi Bottling Group (PBG), Deere (DE) Calls, Data Domain (DDUP), iShares Brazil (EWZ) Calls, Verisign (VRSN) Puts, Netapp (NTAP) Calls, Vale (VALE) Calls, Emulex (ELX), and PepsiAmericas (PAS).
Some Increased Positions (A few positions they already owned but added shares to)
iShares Brazil (EWZ): Increased by 327.5%
Wyeth (WYE): Increased by 172.6%
Caterpillar (CAT) Calls: Increased by 148.9%
Schering Plough (SGP): Increased by 129.5%
Comcast (CMCSK): Increased by 77.6%
Amdocs (DOX): Increased by 57.8%
Alcoa (AA) Calls: Increased by 33.3%
Potash (POT) Puts: Increased by 29.5%
Lorillard (LO): Increased by 25.67%
Some Reduced Positions (Some positions they sold some shares of)
Petroleo Brasileiro (PBR) Puts: Reduced by 75%
SPDR Gold Trust (GLD): Reduced by 68.9%
iShares Brazil (EWZ) Puts: Reduced by 50%
Ebay (EBAY): Reduced by 46.4%
VimpelComm (VIP): Reduced by 42.5%
SPDR Gold Trust (GLD) Calls: Reduced by 36.4%
Goodyear Tire (GT): Reduced by 34.8%
iShares Emerging Markets (EEM) Puts: Reduced by 32%
Hansen Natural (HANS): Reduced by 21.9%
Wells Fargo (WFC) Puts: Reduced by 17.9%
Removed Positions (Positions they sold out of completely)
SPDR Gold Trust (GLD Puts, Google (GOOG), Google (GOOG) Calls, Suncor (SU), Grupo Televisa (TV), Walter Industries (WLT), News Corp (NWS-A), Select Sector Financial (XLF) Calls, Lamar Advertising (LAMR), General Motors (GRM), Allergan (AGN) Calls, EMC (EMC), Cisco Systems (CSCO) Calls, News Corp (NWS), Nokia (NOK), and CV Therapeutics (CVTX).
Top 15 Holdings by percentage of long portfolio *(see note below regarding calculations)
- SPDR Gold (GLD) Calls: 8.94% of portfolio
- Potash (POT) Puts: 8.43% of portfolio
- US Steel (X) Puts: 5% of portfolio
- iShares Emerging Markets (EEM) Puts: 3.84% of portfolio
- iShares Brazil (EWZ) Puts: 3.7% of portfolio
- Caterpillar (CAT) Calls: 3.46% of portfolio
- Viacom (VIA-B) Calls: 3.2% of portfolio
- Pfizer (PFE) Calls: 3.15% of portfolio
- Verisign (VRSN): 3.11% of portfolio
- Schering Plough (SGP): 2.74% of portfolio
- Hospira (HSP): 2.56% of portfolio
- Caterpillar (CAT) Puts: 2.54% of portfolio
- John Deere (DE) Puts: 2.52% of portfolio
- Potash (POT) Calls: 2.48% of portfolio
- Viacom (VIA-B): 2.46% of portfolio
Eton Park's portfolio is absolutely loaded with options positions. The vast majority of their top holdings are bearish plays as they own puts on a variety of exchange traded funds (ETFs) and global growth type names. Additionally, their call position on Gold via GLD remains their top holding which is also a cautionary measure (although they did reduce this position by 36.4%). At the same time, they also sold off a ton of their common shares of GLD and they sold completely out of their GLD puts position.
This highlights a big problem with tracking Eton Park this time around (and most likely going forward as well). Since they own both common shares and (in some cases numerous) options positions on the underlying shares, it is impossible for us to tell what kind of directional bet they truly have on. Complicating the matter even further is the fact that many of their options positions have a higher notional value than their common share positions. Additionally, we cannot decipher the strike prices or expiration dates of these options positions they purchased either. Not to mention, they could have sold options positions against their holdings to hedge what they were buying, which we also cannot see.
All around, this simply means you need to take the data presented above with a giant grain of salt. While many of their top holdings are put positions, there's no real way for us to know exactly the extent of their directional bet on some of these holdings once you add in all the other possible variables. So, instead we will want to focus on their equity holdings as those are easier to track and decipher. The construction of Eton Park's portfolio makes it difficult to clone a portfolio from and as such we will be removing them from our Market Folly clone going forward. Although the performance numbers generated by mimicking just their equity holdings is still outstanding, we feel it is in our best interest to find funds that are more purely focused on equities so that we can track and clone portfolios to the most accurate degree possible. We'll have a separate post detailing the changes to the portfolio soon.
Turning to major activity of note that is easily trackable, we look at their stakes of Wyeth (WYE) and Schering Plough (SGP). They boosted both holdings substantially over the past quarter and this fits right into Eton Park's risk arbitrage game. But other than that, there wasn't a whole lot of activity that is decipherable enough to mention.
*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $7.1 billion this quarter compared to $6.2 billion last quarter, so quite a noticeable uptick in assets on the long side. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. In reality, the percentages are more watered down in their actual hedge fund portfolio. If you were to calculate percentage weightings in the actual hedge fund portfolio, they would obviously be different since you would divide position sizes by their total assets under management.
This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Dan Loeb's Third Point LLC, and Stephen Mandel's Lone Pine Capital, George Soros (Soros Fund Management), Lee Ainslie's Maverick Capital, Philip Falcone's Harbinger Capital Partners, and David Stemerman's Conatus Capital. Check back each day as we cover prominent hedge fund portfolios.
*image cropped courtesy of a photo from NYSocialDiary
Lone Pine Capital: New Green Mountain Coffee Roasters (GMCR) Stake (13G Filing)
In a 13G filed with the SEC, Stephen Mandel's hedge fund Lone Pine Capital has disclosed a brand new position in Green Mountain Coffee Roasters (GMCR). The filing was made due to activity on August 19th, 2009 and they now show an 8.3% ownership stake in the company with 3,603,364 shares. When we just recently examined Lone Pine's portfolio, they did not hold any shares of GMCR. This means that in the time elapsed between June 30th and August 19th, Lone Pine acquired their large position.
Green Mountain is an interesting story for two reasons. Firstly, there has been a large hedgie presence in this one for a while. And secondly, it is intriguing because of the high levels of short interest it has typically garnered. Those shorts were squeezed back in March/April of this year and we were all over that colossal move as we anticipated it and posted about it in real-time on our twitter page. It continued to reach new highs and pushed the bears out of the name. Year to date for 2009, GMCR is up over 133% and had a 3:2 stock split back on June 9th. Yet, GMCR still clearly have their detractors. According to Yahoo Finance, 33.4% of GMCR's float is sold short (10.26 million shares) as of August 11th, 2009. This is up from the month prior when there were 9.91 million shares short. This is definitely an interesting battleground to watch as the growth-at-a-reasonable-price (GARP) tolerable investors like Mandel take on the valuation naysayers who are heavily short. We'll continue to watch for any flesh wounds and will report from the battlefield.
Just this morning we also updated readers on the fact that Lone Pine has been selling shares of one of their UK holdings, Rightmove. And, in the recent past, we took a look at the rest of their positions in UK markets. In terms of other notable recent activity, Lone Pine has boosted their stake in Vistaprint (VPRT), as filed in a 13G earlier in August.
We track Stephen Mandel because he has returned 25% annually since inception back in 1997. Although he had a rough year in 2008, he is by far one of the best stockpickers in the game. He currently manages over $7 billion and you can read more about him in our post on Lone Pine's portfolio.
Taken from Google Finance, Green Mountain Coffee Roasters Inc. is "engaged in the specialty coffee industry. The Company sells over 100 whole bean and ground coffee selections, hot cocoa, teas and coffees in K-Cup portion packs, Keurig single-cup brewers and other accessories. The Company manages its operations through two business segments, Green Mountain Coffee (GMC) and Keurig, Incorporated (Keurig)."
Stephen Mandel's Lone Pine Sells Rightmove (RMV) Shares
Stephen Mandel’s hedge fund Lone Pine Capital last week significantly reduced its holding in Rightmove (RMV), according to the London Stock Exchange. As can be seen in the table below, it would appear that Lone Pine have begun to lock in a handsome profit on this investment.
Date of stock purchase / sale | No. of shares | % of company’s total stock | Estimate of price paid/ share (Sterling) |
28/01/2008 | 8422252 | 6.5 | - |
18/07/2008 | 10629059 | 9 | 249p |
22/09/2008 | 10438107 | 8.8 | 302p |
12/12/2008 | 11938107 | 10.2 | 171p |
25/03/2009 | 11429616 | 9.72 | 245p |
21/08/2009 | 10004087 | 8.5 | 470p |
24/08/2009 | 9051477 | 7.7 | 525p |
25/08/2009 | 7443038 | 6.3 | 535p |
26/08/2009 | 6893038 | 5.9 | 540p |
The table above highlights the timeline of their ownership stake in RMV and so they now have a 5.9% ownership stake, down from a previous 8.5%, due to the recent sales as listed above. Special thanks as always to a reader in the UK for compiling this data. We've also covered Lone Pine's other UK positions for those interested. And, in terms of US equity holdings, we've also recently covered Lone Pine's 13F filing that details their portfolio.
Rightmove’s operates the Rightmove.co.uk website which provides residential home buyers with properties to search online. Its customers include estate agents, letting agents, new homes developers and overseas homes agents who pay fees for the right to display properties on the website. The company provides data to property professionals and property related businesses. It also provides support services including property valuation for lending purposes. Rightmove trades on the London Stock Exchange.
