Analysis of Tetragon Financial Group (TFG): Excerpt From Our Newsletter

The following is an excerpt from the current issue of our Hedge Fund Wisdom newsletter (click here for a free sample). It provides updates on what top hedge funds are buying/selling and the investment thesis behind their picks:

Craig Nerenberg from Brenner West Capital pitched Tetragon Financial Group (TFG) at the Harbor Investment Conference on February 3rd as a top idea for 2011. TFG is a classic discount to net asset value (NAV) idea coupled with tailwinds that will continue to grow NAV, at least in the near term.

Company/Industry Background

TFG is a closed-end investment management company that buys the equity tranches of collateralized loan obligations (CLOs), i.e., it invests in CLO residuals. TFG has invested in $1.4bn of CLO equities, which have been written down to $1.0bn, and it charges investors a 1.5% management fee and 25% incentive fee over a LIBOR + spread hurdle.

After a dislocation in the financial markets, CLOs (and TFG) can deliver higher return on equity (ROE) because they have fixed liabilities that can't be pulled off and they can generate outsized returns by locking in wider spreads.

Potential Risks

The key risk for TFG is deterioration in the health of the capital markets, which would lead to higher credit spreads and defaults, and consequently lower asset prices and cash - trapping in the CLOs. Even though TFG has no debt and its cashflows would not be impacted, its NAV would go down and with it, its price (it doesn't trade above NAV because of the high volatility and low/mid-teens planned ROE).

Bull Versus Bear

The bull thesis is that CLO equity has been growing rapidly due to spread compression in the institutional loan and high-yield markets, a trend that has continued in January 2011. The bear thesis is predicated on the loan-refinancing cliff that the market is facing in 2013-14 as CLOs enter their “end of reinvestment” period, which eventually takes out 40% of the refinancing supply.

Valuation

(Originally published February 21st) TFG trades at 75% of reported January 2011 NAV of $9.82 versus a 20% premium-to-NAV valuation for its closest comp, KKR Financial (KFN). This NAV excludes an additional $1.60 of value that will accrete into NAV from the reversal of its accelerated loss reserve (ALR), net of incentive fees. TFG's management has indicated that the NAV is projected to grow at a 15% IRR, based on assumptions that are more conservative than current market indications. Net of the 25% incentive fee, TFG's NAV will grow at a rate of 11.25%, so by year-end 2011 it could be $12.50 (inclusive of the ALR).

If it continues to narrow the discount to KFN and trades at 80% of NAV, the stock should be at $10, which is (now) around 40% upside from where it's been trading recently. Assuming KFN's 20% premium to NAV valuation, TFG could be a $15 stock, though there are reasons for a discount to KFN to persist: low liquidity, listed outside of the US, and investors feeling sour about management capturing 25% incentive from the ALR. Nerenberg's hedge fund Brenner West Capital has hedged its long position in TFG with a short of KFN.

This is only a brief excerpt. For more analysis of the latest investments made by top hedge funds, click here for the current 90-page issue of our newsletter: Hedge Fund Wisdom.

Why Did Warren Buffett Buy Lubrizol? Pricing Power

When Warren Buffett released his 2010 annual Berkshire Hathaway letter, much was made of the fact that the legendary value investor was on the prowl for large acquisitions. His quote, "our elephant gun has been reloaded, and my trigger finger is itchy," sent analysts scrounging for potential acquisition targets. Well, we've found the smoking gun.

While many looked for a large deal akin to Buffett's massive purchase of Burlington Northern Santa Fe, Berkshire Hathaway announced it would be buying on a slightly smaller scale, purchasing a $9b specialty chemical company, Lubrizol (LZ).

There are many takeaways from this acquisition, but the mainstream media seems to be missing one key point. While yes, emerging markets are part of the story and "America isn't going away" is also part of it, there is one main reason worth highlighting further: pricing power.

1. Lubrizol has raised its product price 18 times since 2004 as evidenced by a slideshow from its analyst day in October:

(click to enlarge)

2. In an interview with the Financial Crisis Inquiry Commission (FCIC), Buffett said, "The single most important decision in evaluating a business is pricing power. If you've got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you've got a terrible business." Lubrizol appears to fit the bill.


3. Lubrizol's ability to pass on input costs is superb due to working with customers as early in advance as they can in a collaborative manner. It also helps that their customers have also been able to successfully raise prices as well.


4. Some structural tailwinds behind automobile manufacturer BYD (another Buffett position) are aiding the Lubrizol thesis. Per a Lubrizol presentation, they say that:

"Looking at geographic expansion under plans for growth, we're very excited about this. Let me start with a few of the megatrends that are driving this business. First one is mobilization of developing countries. We have an advantaged position in many of the countries that you talk about all the times, the India's, the China's, if you will, Brazil. And we not only have capabilities in place, but we can leverage those, and we are. And I'll talk about that.

The second set of megatrends are all around changes to lubricant performance that are occurring because of increased needs for things like fuel efficiency, energy efficiency in this case. Emissions drive a lot of what happens to our OEMs and how they respond with technology. Lubricants are shaped based on that.

And so as emission regulations become more and more strict, performance requirements for lubes go up, more additive is used. And again, we benefit from that in conjunction with our customers. And then durability of equipment. If you're going to build a large diesel engine, you want to make sure it's protected with the right lubricant. And as changes occur technologically, performance requirements for lubes continue to increase."


So, while emerging market exposure and economic recovery are undoubtedly part of Buffett's rationale, it seems as though his primary thesis could be predicated on pricing power. After all, it's one of his favorite attributes of a business. To learn to invest like this legend, head to Warren Buffett's recommended reading list. And for wisdom from the man himself, check out the top 25 Buffett quotes.

Second Curve Sells Some CompuCredit (CCRT)

Tom Brown's hedge fund Second Curve Capital filed a Form 4 with the SEC regarding transactions in shares of CompuCredit (CCRT). Per the filing, Second Curve sold 300,000 shares of CCRT, with 175k shares being exited at $7.01 on March 15th and 125k shares dumped at $6.80 per share on March 16th.

After these sales, the hedge fund reported holding 3,980,630 shares of CCRT. They've been gradually selling shares since 2011 started, down from 4,260,630 held at the end of 2010. Readers will recall that Second Curve was buying CCRT back around $4.94 in September of last year. Other more recent activity out of the hedge fund firm includes acquiring Mercantile Bank (MBWM) shares.

Per Google Finance, CompuCredit is "a provider of various credit and related financial services and products to or associated with the financially underserved consumer credit market. The Company has contracted with third-party financial institutions pursuant, to which the financial institutions have issued general purpose consumer credit cards, and it has purchased the receivables relating to such accounts on a daily basis."

What We're Reading ~ 3/18/11

Watching documentary on financial crisis: Inside Job [Charles Ferguson]

Don't miss a 10% discount to global macro hedge fund event [MarketFolly]

Transcript of John Paulson's interview with the FCIC [ValueWalk]

Transcript of Warren Buffett's interview with the FCIC [Santangel's]

Barton Biggs: Valuations not stretched [ValuePlays]

What's a buck worth? [HedgeFundInvest]

Ten deadly sins of hedge fund managers [UCITS Hedge]

How investors turned the tables on hedge funds [Reuters]

Q&A: Investing in Japan [Gannon On Investing]

Good selection of linkfests for more financial reads [Barbarian Capital]

Why did Berkshire stop selling Moody's (MCO)? [Wide Moat Investing]

Greenlight Cap & Tiger Global sue Porsche [Bloomberg]

Bearish bets on Chinese reverse mergers [Barron's]

Collection of Seth Klarman's Baupost Group Letters: MUST READ

Seth Klarman of Baupost Group is largely regarded as one of the best investors of all time. When he speaks, everyone stops to listen. MarketFolly.com has been fortunate enough to come across a collection of vintage Baupost Group investor letters with dates ranging from December 1995 through June 2001.

While some of the investment specific information is obviously dated, the wisdom Klarman shares on how to evaluate markets is timeless. If you're looking for more recent market commentary from the value investor, we also posted up excerpts from Klarman's 2010 letter.

If you're unfamiliar with Baupost (shame on you), here's a brief description extracted from their December 1995 letter:

"The Baupost Fund is managed with the intention of earning good absolute returns regardless of how any particular financial market performs. This philosophy is implemented with a bottom-up value investment strategy whereby we hold only those securities that are significantly undervalued, and hold cash when we cannot find better alternatives. Further, we prefer investments, when we can find them at attractive prices, that involve a catalyst for the realization of underlying value. This serves to reduce the volatility of our results and de-emphasizes market movements as the source of our investment returns."

Before reading, keep in mind that these letters come from one of Baupost's smaller funds started in 1990 (as opposed to the main funds started in 1983). But still, valuable and rare commentary from the legendary investor. *** .pdf removed at request of Baupost's representatives *** To learn to invest like Baupost Group, check out Seth Klarman's recommended reading list. Be sure to also check out more recent letters from prominent investors like Warren Buffett's 2010 letter.

Byron Wien's Market Commentary: March 2011

Readers will be familiar with Byron Wien from his days at hedge fund Pequot Capital. Since then, he's moved on to The Blackstone Group and has penned his latest market commentary for March 2011 entitled, 'Off to a Good Start.'

It's a bit ironic that many market prognosticators have focused on how 2011 has started off well in their recent diatribes and then *boom* the month of March hits with a ramp in market volatility. Earlier, we pointed out hedge fund manager Crispin Odey's bullish outlook that he penned before things turned sour.

When everything in the market was 'fine and dandy', these respected gurus' commentary echoed the same tune. With increased fears, it will be intriguing to see if their next publications reflect a change in sentiment. While Wien has hinted at concern for the European region, it's obviously much harder to predict an earthquake/tsunami double-punch in Japan.


Byron Wien's March 2011 Market Commentary:

"Investors came into 2011 feeling constructive about the outlook. Forecasts of market performance expected the Standard & Poor's 500 to rise about 10% after a strong performance in 2010. The economy was projected to grow 3%, unemployment was thought to decline modestly and interest rates were likely to rise a bit but stay low, with inflation remaining tame. All of this was reflected in various measures of market sentiment which were at varying levels of optimism ranging from mild to extreme. Since by now we all have learned that the best time to buy stocks is when investors are despondent, savvy professionals were cautious in January, expecting a correction at least or perhaps a downturn lasting until the weather warmed.

If you believe as I do that the market was put on earth by God to make fools of the greatest number of people, it would not be surprising to you that stocks rallied throughout the early part of the year. The fundamental background was positive. Retail activity was firm, automobile sales were surprisingly strong, fourth quarter earnings were mostly beating expectations, the European credit crisis was dormant for the moment, state and local governments were making an effort to control expenses and initial unemployment claims were trending downward. There were some negatives: the Federal budget deficit was running at an unprecedented $1.5 trillion rate and the United States was likely to run up against its debt ceiling by March. Inflation was beginning to become a serious problem in the developing world, casting some doubt on the potential profitability of companies operating in those markets. Political upheavals in Tunisia, Egypt, Libya and Bahrain raised the issue of stability in that critical oil-producing region. The January unemployment report came in at 9.0%, but that was more because of people dropping out of the work force than new jobs being created. As we moved into February investor optimism remained undaunted and those who were cautious began to buy again, recognizing that it was futile to "fight the tape." Mutual fund buyers who had shunned equities in favor of bonds during 2010 bought more common stocks in January than in any month since 2003.

In February the economic background was mixed. Inflation, which had not been a problem because wage increases were rare and home prices were not increasing, suddenly became a concern as both consumer and producer prices rose more than expected. President Obama presented his budget and those looking for significant progress in reducing expenditures were disappointed. It appears that few in Washington are willing to make cuts in defense, or in Social Security, Medicare, Medicaid and other entitlements. Every budget hawk seems to focus on the discretionary component of the budget, especially foreign aid, earmarks, the Department of Education, etc. The entire discretionary component is 29% of the budget, so if all of these items were cut to zero, the budget deficit would still be over $1 trillion. It is clear that we are not going to make major progress in fiscal restraint without making adjustments in a wide range of previously sacrosanct programs. To do this Congress would have to reduce some benefits important to their constituents and run the risk of not being re-elected.

While most Americans recognize that we cannot run trillion dollar deficits indefinitely, few seem willing to make the sacrifices that would be necessary to bring expenditures more in line with receipts. For the past 60 years the United States government expenditures were about 20% of Gross Domestic Product (GDP) and tax and other receipts were about 18%, resulting in a 2% gap. Today expenditures are running about 25% of GDP and receipts are 16%, for a 9% gap. We have been fortunate that foreign lenders who have financed this gap have been willing to buy our Treasury bills, notes and bonds at historically low interest rates, but I do not believe we can count on this condition lasting forever. If we need a crisis to address this problem seriously, a sharp rise in interest rates might cause Congress and the electorate to recognize the need to make some serious program adjustments.

Looking at some troubled areas of the economy that may be improving, housing stands out. The January report on housing starts shows a significant rise, primarily because of multi-unit construction. As the economy improves, those with jobs feel more secure, family formations increase and housing demand steps up. As a result of low interest rates and the decline in house prices over the past few years, affordability has been on the rise, but it is only now beginning to become apparent in transactions. If the trend continues, this could be an important positive for the economy. Mortgage delinquencies are declining, but the overhang of homes for sale remains large. If home prices do improve at all, they are likely to do so gradually.

But there are other important signs of strength. The Institute for Supply Management purchasing manager indexes for both manufacturing and services are showing remarkable strength and exports are contributing to the growth of the U.S. economy as the developing world buys more of our goods. The consumer continues to spend. Although consumer confidence has been relatively flat, real consumer spending is back to pre- recession levels. Capital spending continues to exceed the levels of previous cycles as companies seek ways to improve productivity. The dark side of this is that much of the new equipment enables companies to reach their production and service goals with fewer workers, so unemployment remains high. I do expect the unemployment rate to decline this year into the mid-8% range, however.

Overseas, recoveries are taking place everywhere. Real growth in the Euro zone was almost 2% at the end of last year in spite of the financial problems in the southern tier countries. Real growth in Japan at the end of 2010 was almost 5%, helped partly by deflation there. This was substantially above the levels achieved earlier in the last decade. Industrial production is strong almost everywhere and retail sales have recovered sharply from the recession, but they have fallen back recently in Japan. Housing is weak across the globe. By now almost everyone recognizes that the engine of growth is shifting to the developing world, but some problems are emerging there as a result of rising commodity prices. Food is an important component of consumer prices (over 30% in China and Brazil and 47% in India) and pork and grains are surging. In India, for example, wholesale and retail prices have been increasing at an 8%–9% rate and the government has increased interest rates in an attempt to dampen economic activity and prices. As a result projected real growth is expected to decline from close to 9% to the 6%–7% range. A similar inflation problem exists in China, where the government is taking even more aggressive monetary steps to control prices. Perhaps Vietnam is too small to be important, but prices there are increasing more than 20% and the base lending rate is only 9%. The result of all of this monetary restraint is that the performance of the equity markets of the emerging countries has been lagging behind Europe and the United States. It may not be here just yet, but I think a buying opportunity is developing. China has already begun to do better.

One of the worries at the beginning of the year was that the financial crisis in Europe would reemerge. I was hopeful that a combination of austerity measures, higher taxes and growth would be combined with transitional aid from the International Monetary Fund, the European Union and Germany to provide a period during which the stress could be reduced. I was also encouraged by the lack of public protest against the measures various governments were taking to bring their budget deficits and overall debt into line. Recently there have been reasons to be concerned. Angela Merkel's political party lost an election in Hamburg, which was a setback for her. Merkel's leadership is essential to the workout period for the weaker economies and to fill that role she must maintain her political strength at home. Interest rates on the 10-year bonds of Portugal, Ireland and Spain have risen recently, reflecting increased uncertainty, and credit default spreads are rising. I remain optimistic about Europe for the intermediate term but this is a situation that requires monitoring. One area where some good news is appearing is the financial condition of state and local governments. After dropping to a problematic low at the end of the recession, personal income receipts at the state level have been increasing. Even New York City reports that tax revenues have been coming in $2 billion higher than projected three months ago. While there are still severe problems in a number of troubled states like New York, California, New Jersey and Illinois, I believe the situation is improving. I do not see similar progress at the Federal level.

There is considerable controversy over whether the apparent strength of the United States economy is a result of the QE2 monetary easing program. Many believe that much of the money the Fed injected into the economy went into the stock market. There are plenty of Bernanke critics around who will argue that the economy was starting to recover on its own and the second round of easing was unnecessary at best and dangerous at worst. After all, adherents of Milton Friedman believe that inflation "is always and everywhere a monetary phenomenon," but while the recent reports on the consumer price index are showing a rise, we are a long way from what we experienced in the 1970s. In my view you need wages and housing prices to be rising for inflation to become a problem. House prices are still declining and it is doubtful that wages will rise significantly with the unemployment rate at 9%; it was 6% in 1974 when inflation was becoming a severe issue.

The Federal Reserve began QE2 last fall because the prospect for passing another fiscal stimulus program seemed dim based on the temper of the populace, questions about the original Obama stimulus program and the Republican shift in Congress. Monetary easing was the only tool left in the box to deal with the problem of persistent high unemployment, and the current easing is likely to continue until we see the jobless rate drop comfortably into the 8% range. At that point the Fed may begin tightening, but should we be so fearful of that? Looking at past cycles, according to Strategas Research, the Standard & Poor's 500 gained an average of 15.6% in the twelve months before the first tightening and 4.8% in the six months before tightening began. Even after the first tightening the S&P gained 8% in the first six months and 3.7% in the first year. What matters most is economic momentum and earnings growth. If the United States economy is going to grow at 4% or better in 2011 and not slip back into recession in the following year, then the likelihood of the market continuing to deliver positive performance is high. Excessively bullish sentiment will surely produce periodic pullbacks, but in the 84 years since 1926 the S&P 500 has risen more than 10% 48 times, more than half the time, and with the present favorable outlook I think 2011 will fall in that group. "


For more market commentary, scroll through excerpts from Seth Klarman's latest letter as well as Warren Buffett's annual letter.

10% Off Next Week's Global Macro Hedge Fund Event in New York

There are only a few seats left for next week's Global Macro Hedge Fund event in New York and Market Folly readers receive a 10% discount.

On March 23, FINforums brings together top hedge fund managers, investors, political scientists and economists to discuss geopolitical risk and its effect on investing in global macro funds. Topics include an emerging markets outlook, an in-depth look at the crisis in the Middle East, and a discussion about US and European fiscal policies and how they impact investment decisions.

Event: Global Alpha and Geopolitical Risk
Date: Wednesday, March 23, 2011
Venue: Princeton Club, New York City
Cost: $195 (use discount code FOLLY for an additional 10% off)
Organizer: FINforums
More Info: Click here for more info
Register: Click here to register

Highlights of the event include a one-on-one fireside chat between hedge fund legend Barton Biggs and award-winning broadcast journalist John Seigenthaler, and a keynote address by leading Middle East expert Gary Sick (see full agenda).

Speakers Include:

- Barton Biggs, Founder and Managing Partners, Traxis Partners
- Prof. Gary Sick, Adjunct Prof of Intl and Public Affairs, Columbia University
- Caroline Bentz, Managing Director, Parker Global Strategies
- Amer Bisat, Partner and Portfolio Manager, Traxis Partners
- Nicholas J. Colas, Chief Market Strategist, ConvergEx Group
- Bertrand Delgado, Senior Research Analyst, Roubini Global Economics
- Justin Dew, Sr. Managing Director, Welton Investment Corp
- Kenneth Kuhn, Managing Director, Global Capital Investments
- John Seigenthaler, Former NBC News anchor and current CEO of Seigenthaler PR-NY will serve as chair and moderator

For questions, please contact Deirdre Brennan at (212) 966-0047 or dbrennan@finalternatives.com

The event is sponsored by NorthPoint Trading Partners, Ambrose Group, Chivas, Hedge Fund PR, Seigenthaler Public Relations and FINalternatives.

Jeffrey Ubben of ValueAct Capital on Activist Value Investing

Opalesque interviewed Jeffrey Ubben of hedge fund ValueAct Capital and we wanted to highlight his thoughts on activist value investing and how it has evolved. Keep in mind that Ubben will be sharing his latest investment ideas at the Value Investing Congress in May (Update: you can see a summary of his presentation here).

In the video, Ubben touches on ValueAct Capital's strategy and how they change companies from the inside by working closely with them. Prior to founding the firm, he was a Managing Partner at Blum Capital Partners and before that managed the Fidelity Value Fund.

ValueAct typically holds 15-20 positions in its portfolio and is usually very active in the boardroom in about a third of them. ValueAct's partners have honed their skillset to include experience in boardrooms and Ubben argues that they resemble a Private Equity approach much more than other firms. You can see some of ValueAct's recent portfolio activity here.

In the interview, he touches on his investment approach as well as the cons of media involvement and proxy contests when running an activist campaign. Embedded below is Part 1 of Jeffrey Ubben's interview with Opalesque (email readers come to the site to watch):




And here is Part 2 of Jeffrey Ubben's interview:



You can hear Ubben's latest stock picks at the upcoming Value Investing Congress in May. Click here for a discount to the event (hurry because the discount expires tonight at midnight!)

Whitney Tilson Explains LECG Position (XPRT)

Back in late February, we highlighted that Whitney Tilson's hedge fund T2 Partners had gone activist on LECG Corp (XPRT). Since then, shares have fallen dramatically and they sold their entire position. In his February letter to investors, Tilson explains their thought process behind the investment and lessons learned:

"It was a historic day for us on the last day of February – but not in the way we like: one of our positions declined by 80% in a single day. You might think that such a decline is, ipso facto, proof of a mistake, but we’re not so sure (and that’s not just because we had a good day and month). Allow us to explain…

LECG is a specialized consulting firm that “conducts economic and financial analyses to provide objective opinions and advice that help resolve complex disputes and inform legislative, judicial, regulatory and business decision makers.” Our investment was based on the belief that LECG could successfully integrate recent acquisitions into a profitable business structure. Given the company's market capitalization of approximately $40 million, we felt that we had a reasonable margin of safety imbedded in the company's $109 million in Accounts Receivable, offset by $26 million of net debt.

The company's distressed stock price, under $1, was due to a default on the existing debt. Given the quantity and quality of the receivables, we believed that the default was a short-term issue and that LECG would be able to refinance debt on a secured basis, supported by the Accounts Receivable, in which case the stock could easily be a multi-bagger.

Much to our surprise and dismay, however, LECG instead announced what is effectively a plan of liquidation. We don’t know why the company pursued this path, though it is possible that this route preserved compensation agreements for employees at the expense of existing shareholders. Given the rapid execution of the liquidation, we believe the equity will end up being worthless so we sold our entire position.

In light of this permanent loss of capital, why aren’t we certain that this was a mistake, as Netflix clearly was? Because it’s possible that we made a high-expected-value bet, but just got unlucky. Investing is a probabilistic business so it does not necessarily follow that every time you lose money, you made a mistake (and, conversely, every time you make money, you made a good investment). This is very simple and, to us, obvious, but is very poorly understood.

Mispriced Options

LECG was a classic mispriced option, a type of investment that violates the rules of classic value investing, but with which we’ve had extraordinary success over time.

Warren Buffett is reported to have said that there are two fundamental rules of value investing: 1) Don’t lose money; 2) See Rule #1. We disagree. While it’s certainly true that investors should focus primarily on avoiding losses, we happily make investments in which we know there’s a decent chance – even a likelihood – that we’ll lose most or all of our money, as long as the upside is great enough to offset this risk. For example, if you could invest $100 in something that had a 70% chance of being worthless, but a 30% chance of being worth $1,000, would you invest? Of course, because the expected value is $300, or a 3x return.

But how much of your portfolio would you invest in this type of mispriced option, given that there’s a 70% of losing all of your money and looking (and feeling) like a fool? There’s no easy answer, but for us, in this situation, the answer is maybe 1% of our capital – and we’d look hard to find other similar investments so we could have a portfolio approach.

This is what we did, for instance, when we invested in the warrants of a handful of SPACs in late 2008 and early 2009 (and even created a side fund called the T2 SPAC Fund). By carefully selecting only a handful of the SPACs with the best sponsors and structure, we thought that each SPAC had a 50/50 chance of getting a deal done, in which case the warrants were almost certain to rise 5-10x. As it turns out, all but one SPAC got a deal done and we profited handsomely.

Outside of SPACs, other mispriced options that have worked out very well for us include our biggest winner ever, General Growth Properties shortly after it filed for bankruptcy, when the stock was around $1, TravelCenters of America, which rose 96.2% last month, Border’s bouncing from $1 to $3 in each of the past two years, and (many years ago) Denny’s.

But some percentage of these investments will be wipeouts like LECG, the Trian SPAC, and Sirva. That’s okay – it comes with the territory."


So, it's interesting to see one fund manager's approach to position sizing with these types of investments. Risk management is obviously a prime tenet of investing and this is a great case study. In other recent posts on this hedge fund, we detailed how T2 covered their Netflix (NFLX) short position. Be sure to also check out other hedge fund letters we've posted up.

2nd Annual March Madness Bracket Contest: Free Entry

It's that time of year again. We're pleased to announce the second annual Market Folly March Madness contest now that the NCAA Men's College Basketball Championship is here. So, fill out your brackets!

It is free to enter. To participate, you will need a free CBS Sports account. Click here to join our free contest.

Group Name: Market Folly Madness
Password: mf

If you signed up last year, your CBS Sports account should have automatically re-joined the contest for this year. You must submit your picks before Thursday, March 17th. Best of luck to everyone participating!