Fairholme Capital's Bruce Berkowitz recently sat down for a conversation with the "Executive in Residence" program at University of Miami's business school. Here are some key takeaways and select quotes from him:
On the macro: "At Fairholme, we tend not to think too much about the macro picture... but it's clear: a recovery."
On his approach: "We buy that which is hated. When it's hated, it's usually cheap. We usually are too early, we suffer from premature accumulation ... We want to make sure that when we invest in something, that there's a big margin of safety."
On why he focuses less on the income statement: "There are less ways to cheat on a balance sheet than on an income statement."
On a question he asks: "What's the worst thing that can happen, and can we still make money?" (assuming that bad thing happens)
On mistakes: "Why do so many people make the same mistake over and over again? One of the reasons has to do with biology ... with how your brain is wired. In the last couple of years, you've had to be more a psychologist than an accountant. That's where the behavioral finance issue comes in. You get into all the issues how people can be their own worst enemy."
His last point is one of the most important as so many great investors have talked about setting aside emotion when managing money. We've also highlighted Blue Ridge Capital's behavioral finance reading list which is recommended.
On permanent capital: "That is the secret sauce: permanent capital. That is essential. I think that's the reason Buffett gave up his partnership. You need it, because when push comes to shove, people run ... That's why we keep a lot of cash around."
Embedded below is the video of Berkowitz's full interview:
More resources on this investor: an additional interview with Berkowitz on portfolio concentration as well as Berkowitz's checklist for investing.
Friday, November 30, 2012
Bruce Berkowitz Interview at University of Miami
Conversation With Warren Buffett (Forbes 400 Summit)
Berkshire Hathaway's Warren Buffett recently sat down with Randall Lane for the Forbes 400 Summit on Philanthropy. Since some value investors out there like to absorb every single thing he says, we've embedded the video of the interview below:
For more resources on the Oracle of Omaha, head to Warren Buffett's recommended reading list.
Howard Marks' Latest Letter: "A Fresh Start (Hopefully)"
Oaktree Capital's Chairman Howard Marks is out with his latest letter entitled, "A Fresh Start (Hopefully)." This memo is more political focused given that the election just took place.
His prior missive, On Uncertain Ground, is more investment focused and highlights his macro concerns for those who missed it.
Embedded below is Marks' latest memo:
You can download a .pdf copy here.
For more wisdom from this excellent investor, be sure to check out Marks' book: The Most Important Thing Illuminated.
Hedge Fund Short Positions in Ireland
Continuing our coverage of hedge fund short positions in Europe, next up is Ireland. European rules are forcing hedge funds to disclose information about the most carefully guarded part of their business activities: short positions.
Since November 1st when the EU Regulation on short positions came into force, there has been a deluge of information from financial regulators in EU countries about short positions across all market sectors.
Public disclosure is required for net short positions of shares that reach 0.5% of the issued share capital of the company concerned and again at each 0.1% increment above that. Additionally, disclosure is required publicly when the position subsequently falls below 0.5%.
At the end of 2011, Ireland lifted its 3 year ban on short selling of bank stocks which had begun at the heart of the financial crisis in September 2008. Unlike Spain and Italy, Ireland has not resorted to the implementation of short selling bans across all sectors of the stock market.
Perhaps the most striking feature at the moment is how few short positions there are in the Irish market. This could possibly be because institutions simply don't have short positions large enough the require disclosure.
Hedge Fund Short Positions in Ireland Revealed
Name of hedge fund / % of company's shares short / Name of company
Farallon Capital: Short -1.18% Icon
FVP Master Fund: Short -0.55% CRH
BNP Paribas: Short -0.55% CRH
To see more hedge fund shorts, head to our other coverage:
- Hedge fund short positions in the UK
- Hedge fund short positions in Germany
- Hedge fund short positions in France
- Hedge fund short positions in the Netherlands
- Hedge fund short positions in Belgium
- Hedge fund short positions in Finland
- Hedge fund short positions in Sweden
- Hedge fund short positions in Denmark
- Hedge fund short positions in Poland
- Hedge fund short positions in Italy
Thursday, November 29, 2012
Notes From the Boston Investment Conference 2012
The first Boston Investment Conference took place earlier this month and today we're posting up some notes from it. The event benefited the Boston Children's Hospital and featured an impressive list of speakers, moderators, and host committee chairs.
Out of respect for the event organizers, these notes are a little bit different than what we typically post in that the pitches won't be linked to a particular investor. So unfortunately, you'll have to play a bit of a guessing game here, but we figured something is better than nothing given the quality of the speakers.
List of Speakers/Moderators
Seth Klarman, Baupost Group
Jon Jacobson, Highfields Capital
Richard Perry, Perry Corporation
Will Danoff, Fidelity Contrafund
David Abrams, Abrams Capital Management
Jeffrey Vinik, Vinik Asset Management
Max Stone, D.E. Shaw & Co
Edward Shapiro, PAR Capital Management
Jane Mendillo, Harvard Management Company
Nancy Zimmerman, Bracebridge Capital
Michael Trotsky, MA Pension Reserves Investment Management
David Zervos, Jefferies
Andrew Perold, HighVista Strategies
Lawrence Summers, Harvard University
Eric Doppstadt, The Ford Foundation
Jay Light, Harvard Business School
Andrew Bary, Barron's
Ideas Pitched (Listed in Random Order)
Yahoo! (YHOO)
JAL Japan Airlines (TYO:9201)
Google (GOOG)
Global Eagle Acquisition Corp (EAGL)
Fannie and Freddie preferreds
News Corp (NWSA)
Canadian Natural Resources (CNQ)
JZ Capital Partners (LON:JZCP)
Notes From the Boston Investment Conference
Some of the above stocks were discussed only with one or two comments, but we've posted up notes from some of the detailed pitches below. Again, unfortunately we can't attribute the ideas to a particular speaker:
Japan Airlines (JAL)
- $8.5b IPO out of bankruptcy, Japanese government sold entire stake (IPO'd around 3,800 Yen and is now around 3,750 Yen)
- Revenues for JAL are about 1/2 of Delta (1/2 of JAL's revenues are from domestic market)
- Changes during bankruptcy: reduced headcount by 35%, decreased salaries by 50%, canceled all debt, eliminated some service on underperforming routes, reduced capacity by 40%, reduced non-fuel expenses by 1/3rd
- Valuation: lowest multiple of any global airline. JAL around 3.1 EV/EBITDAR, P/E around 6.5
- Headwinds: Orders for 45 Dreamliners. JAL has already started its non-stop Boston to Japan flight. Overall market liberalization - competitors can now coordinate on prices and schedules (get the benefits of a merger without having to deal with the operational headaches or merging 2 airlines). High barriers to entry in the Japanese market: JAL is 37% of market and ANA is 47%, little room for new players
- Largest risk: entry of a low cost carrier into Japanese market: currently low penetration of LCC in Japan. Not seen as a huge threat because LCCs are typically used for short flights and Japanese tend to take trains for short trips. Also, there are limited slots for new airlines at the airport closest to the city. If a LCC flew into the airport farther outside the city, the cost of a taxi or train into the city would negate taking a low cost flight to Japan.
Yahoo! (YHOO)
- Cheap when looking at balance sheet. Market value of 35% of Yahoo Japan = $7.7, market value of stake in Alibaba = $8.1, preferred shares = $0.8 (these three tax-adjusted equal $11.6b), cash = $9.4, shares out = 1.2 for a value of $17.5 (you are paying close to nothing for $4.3b in revenue or $700m in free cashflow).
- Investor thought Marissa Meyer will be a very good CEO
- MarketFolly note: Our newly released issue of Hedge Fund Wisdom last week highlighted that David Einhorn's Greenlight Capital and Chase Coleman's Tiger Global both started new positions in YHOO during the third quarter. Also, recall that Dan Loeb's Third Point has been an activist investor in the name.
Google (GOOG)
- Cheap stock - trading around where it was in 2007 and EPS has increased from $15 then to $40 now
- MarketFolly addendum: We previously posted Eminence Capital's thesis on GOOG as well.
This concludes notes from the Boston Investment Conference. We've covered a ton of events recently, so be sure to also check out:
- Notes from Sohn London Investment Conference (Hohn, Chanos & more)
- Notes from Invest For Kids Chicago (Mandel, Peltz & more)
- Notes from Great Investors' Best Ideas (Einhorn, Bass & more)
Hedge Fund Short Positions in Italy
Continuing our coverage of hedge fund short positions in Europe, next up is Italy. European rules are forcing hedge funds to disclose information about the most carefully guarded part of their business activities: short positions.
Since November 1st when the EU Regulation on short positions came into force, there has been a deluge of information from financial regulators in EU countries about short positions across all market sectors.
Public disclosure is required for net short positions of shares that reach 0.5% of the issued share capital of the company concerned and again at each 0.1% increment above that. Additionally, disclosure is required publicly when the position subsequently falls below 0.5%.
Italy has introduced a number of short selling bans in recent years but since September 2012 the short selling ban on covered shorts has been lifted. It’s interesting that even when a country like Italy has a track record of introducing short selling bans and when the possibility of another ban at some point in the future must be reasonably high, many hedge funds continue to establish short positions.
Hedge Fund Short Positions Revealed in Italy
Hedge Fund / % Of Shares They Are Short / Name of Company
AQR Capital: -1.1% Mediaset, -1% Finmeccanica SPA, -1.32% A2A
Bocage Capital: -0.53% Saras Raffinerie Sarde
Citadel Europe: - -0.86% Prysmian
Dalton Strategic Partnership: -0.88% Diasorin
Egerton Capital: -1.06% Banca Monte Dei Paschi Di Siena, -0.75% Mediaset
Marshall Wace: -0.69% Banca Monte Dei Paschi Di Siena, -0.62% Pirelli, -0.93% Mediaset
Odey Asset Management: -0.9% Tod's, -0.53% Banca Monte Dei Paschi Di Siena
Pelham Long Short Master Fund: -0.68% Fiat S
Children's Investment Fund: -1.43% Fiat
Tiger Global Management: -0.55% Arnoldo Mondadori Editore
Viking Global Investors: -0.91% Assicurazioni Generali
Wellington Management: -0.54% Banca Carige, -0.58% Banca Monte Dei Paschi Di Siena
As you can see above, there are two names that are seemingly consensus shorts among the funds listed: Mediaset and Banca Monte Dei Paschi Di Siena. There are also a few funds short Fiat and we recently posted up thoughts from Children's Investment Fund manager Chris Hohn on his Fiat short.
To see more hedge fund shorts, head to our other coverage:
- Hedge fund short positions in the UK
- Hedge fund short positions in Germany
- Hedge fund short positions in France
- Hedge fund short positions in the Netherlands
- Hedge fund short positions in Belgium
- Hedge fund short positions in Finland
- Hedge fund short positions in Sweden
- Hedge fund short positions in Denmark
- Hedge fund short positions in Poland
Lansdowne Partners Disclose Stake in Ocado Group: A Hedge To Their Sector Short?
Lansdowne Partners has disclosed a new long position in online grocery retailer, Ocado Group (LON: OCDO). Due to trading on November 11th, Lansdowne now hold the equivalent of 5.72% of Ocado's voting rights.
Lansdowne appear to be going against the crowd with this particular wager. The disclosed short interest in Ocado is high at - 17.29% of the company's float, including some managers with big reputations like Blue Ridge Capital and Kynikos Associates. Here's a breakdown:
Short Positions in Ocado
Ardevora Asset Management LLP -0.33% of shares
BlackRock Investment Management (UK) Limited -2.52%
Blue Ridge Capital L.L.C -2.41%
Dalton Strategic Partnership LLP -1.34%
Ennismore Fund Management Limited -0.99%
GMT Capital Corp -2.52%
Kynikos Associates LP -4.35%
Newedge UK Financial Ltd -0.16%
Newedge UK Financial Ltd on behalf of Newedge Group -0.56%
Oxford Asset Management -0.55%
Parvus Asset Management (UK) LLP -0.89%
S.A.C. Capital Advisors, L.P - -0.67%
Total disclosed shorts -17.29%
While upon cursory glance this appears to be a contrary bet by Lansdowne, examining their own book reveals that this could merely be a hedge to their other shorts in the sector.
Lansdowne has disclosed short positions in Tesco -0.62% and WM Morrison Supermarkets -2.51%. The value of these short positions, though, is far higher than the Ocado long. Overall, it seems that Lansdowne is bearish on the food retail sector.
For more hedge fund activity in the UK and other EU countries check out our new series of posts on short positions.
Per Google Finance - "Ocado Group plc is a United Kingdom-based holding company. The Company is an online grocery retailer. The principal activity of the Company, along with its subsidiaries, is retailing and distribution of grocery and consumer goods within the United Kingdom. The Company owns Ocado Holdings Limited, which holds the entire interest in Ocado Limited. The principal activity of Ocado Limited includes retailing and distribution of grocery and consumer goods. On February 9, 2010, the Company acquired Ocado Limited. The Company's wholly owned subsidiaries include Ocado Holdings Limited, which is an holding company; Ocado Limited, which is engaged in retail and distribution; Ocado Information Technology Limited, which is engaged in intellectual property, and Ocado Cell in Atlas Insurance PCC Limited, which is an insurance company. Ocado Holdings Limited is a 100%-owned subsidiary of Ocado Group plc."
Wednesday, November 28, 2012
Marcato Capital Management Files 13D on DineEquity
Mick McGuire's hedge fund Marcato Capital Management just filed a 13D with the SEC regarding DineEquity (DIN). Per the filing, they've revealed a 5.5% ownership stake in DIN with 1,021,486 shares.
This is not a new position for the fund as they owned 771,486 shares at the end of the third quarter. As such, the amount of shares they own has increased by 32% over the past 2 months. The majority of their purchases were made in late November at $62.52.
Marcato Capital Management initially disclosed its stake in DineEquity in the fourth quarter of 2011. This latest 13D filing was required due to portfolio activity on November 27th.
Prior to founding his firm, McGuire worked at Bill Ackman's Pershing Square and so it should come as no surprise that he too is often involved in shareholder activism. The 13D notes that McGuire has engaged DIN management and hopes to pursue discussions.
Per Google Finance, DineEquity "owns, operates and franchises two restaurant concepts in the casual dining and family dining categories of the restaurant industry: Applebee's Neighborhood Grill and Bar and International House of Pancakes (IHOP). The Company operates in four segments: franchise operations, company restaurant operations, rental operations and financing operations."
For more on this hedge fund, we posted up notes from McGuire's presentation at an investor conference where he talked about some of his other longs.
What We're Reading ~ 11/28/12
Tap Dancing to Work: Warren Buffett on Practically Everything [Carol Loomis]
Pieces of classic investment advice [Reformed Broker]
Luck, skill & the dangers of focusing on past performance [Abnormal Returns]
2013 stock market outlook: buying in a low risk environment [Chris Perruna]
10 new buys from ultimate stock pickers [Morningstar]
Interview with Bruce Berkowitz [Fortune]
Lessons from the sharks on pitching a fund [AllAboutAlpha]
Warren Buffett's latest op-ed [NYTimes]
Learning to love volatility [Nassim Taleb]
Clearing up myths of hedge funds [AllAboutAlpha]
Hedge funds face profit headache in 2013 [Reuters]
Recovering from 2011 shock proving difficult for hedge funds [SoberLook]
Insider inquiry inching closer to Steve Cohen [Dealbook]
A journalist's defense of Steve Cohen [The Guardian]
Hedge fund Libra Advisors to return investor money [WSJ]
Activist shareholder presses pursuit of Office Depot [PalmBeachPost]
Lone Pine Capital Reduces Esprit Stake
Steve Mandel's hedge fund firm Lone Pine Capital recently reduced its holdings in Hong Kong listed Esprit (HK:330).
Lone Pine sold nil-paid rights in two transactions on November 7th and 9th. In total, they sold 62,538,542 nil-paid rights at average prices of HK$3.10 and HK$3.50, with the bulk of the transaction taking place at the latter price, according to Hong Kong exchange disclosures.
This reduces their ownership stake in Esprit down to 10.88% as they still have exposure to just under 211 million shares. Lone Pine disposed of most of the rights shares they were allocated. The company plans to use the proceeds of the recent rights issue to partially fund a facelift to compete with other retailers like Zara.
Also worth highlighting is the fact that around the same time, Esprit's former chairman Michael Ying added to his stake in the company. He now owns more than 10%.
Previously, we had highlighted how Lone Pine was buying Esprit back in June of this year.
For more of Lone Pine's recent activity, we've highlighted Steve Mandel's pitch on VeriSign.
Citadel Starts Zillow Stake
Ken Griffin's investment firm Citadel Investment Group just filed a 13G with the SEC regarding shares of Zillow (Z). Per the filing, Citadel has revealed a 6.1% ownership stake in the company with 1,588,436 shares.
This is a brand new position for the firm and the disclosure was required due to portfolio activity on November 19th. Shares of the real estate information site dropped recently after the company issued disappointing guidance. Zillow recently announced it would be acquiring HotPads in an effort to broaden its reach in the housing rental space.
As of the end of the third quarter (September 30th), other top institutional holders of Z shares included JAT Capital, Miura Global, Glade Brook Capital, and more.
Per Google Finance, Zillow is "a real estate information marketplace. The Company provides information about homes, real estate listings and mortgages, through its Website and mobile applications, enabling homeowners, buyers, sellers and renters to connect with real estate and mortgage professionals. The Company’s database has more than 100 million United States homes, including homes for sale, homes for rent and homes not currently on the market. Individuals and businesses that use Zillow have updated information on more than 27 million homes and added more than 50 million home photos. These profiles include detailed information about homes, such as property facts, listing information and purchase and sale data."
For those interested, we've also recently posted up some of Citadel's short positions.
Balyasny Increases Walter Energy Position
Dmitry Balyasny's hedge fund firm Balyasny Asset Management recently filed a 13G with the SEC regarding shares of Walter Energy (WLT). Per the filing, Balyasny has revealed a 5.36% ownership stake in WLT with shares.
This marks over a 71% increase in the amount of shares they own since the end of September. The latest disclosure was required due to portfolio activity on November 15th.
Per Google Finance, Walter Energy is "a producer and exporter of metallurgical coal for the global steel industry and also produces steam coal, coal bed methane gas (natural gas), metallurgical coke and other related products. The Company operates in two segments: its United States Operations segment, and Canadian and United Kingdom Operations segment."
Glenview Capital Boosts Stake in Community Health Systems
Larry Robbins' hedge fund firm Glenview Capital recently filed a 13G with the SEC regarding shares of Community Health Systems (CYH). Per the filing, Glenview has disclosed a 8.39% ownership stake in CYH with 7,649,773 shares.
This marks a 368% increase in the number of shares they owned since the end of September. The new disclosure was required due to portfolio activity on November 13th.
Per Google Finance, Community Health Systems is "an operator of hospitals in the United States. The Company provides healthcare services through the hospitals that it owns and operates in non-urban and selected urban markets throughout the United States."
Hospitals have been a big portfolio theme for Glenview as they also own large stakes in Tenet Healthcare (THC), HCA (HCA), and Lifepoint (LPNT). Tenet has been the biggest wager of the basket and we've highlighted how Glenview has been buying THC as well.
Odey Starts Shanta Gold Stake
Cripsin Odey's hedge fund Odey Asset Management has started a new position in London listed Shanta Gold (LON: SHG). Due to trading on November 14th, Odey Asset Management now hold 6.69% of Shanta's voting rights.
Per Google Finance, Shanta Gold Ltd "is a Guernsey-based company engaged in gold exploration and gold production investment in Tanzania. The Company's subsidiaries include Shanta Gold Holdings Limited, a holding company; Chunya Gold Holdings Limited; Shanta Mining Company Limited, Mgusu Mining Limited and Nsimbanguru Mining Limited, engaged in exploration and mining; Chunya Resources Limited, and Songea Resources Limited. Shanta Gold Ltd's major shareholders are Aurora, Export Holdings Limited, Lynchwood Nominees Limited and Redmayne (Nominees) Limited, among others."
We've also recently revealed some of Odey's short positions for those interested.
Impact of Size and Age on Hedge Fund Performance: PerTrac Study
PerTrac recently released an interesting study examining the impact of size and age on hedge fund performance. Their study utilizes 15 global hedge fund databases and drew some key conclusions after examining things from 1996 to 2011.
Here's how they classify fund sizes:
Small: Less than $100 million in assets under management (AUM)
Mid-size: Between $100-500 million AUM
Large: Greater than $500 million AUM
Impact of Size & Age on Hedge Fund Performance: Key Takeaways
1. Large Funds Beat Small Ones in Down Years
- "Large funds dipped 2.63% on average in 2011, the least compared to the average small fund's 2.78%, and average mid-size fund 2.95% slides. Large funds also maintained lower annualized volatility statistics relative to small funds."
2. Small Funds Outperform Big Ones Over Time
"The average young fund has returned a cumulative 827%, since 1996 nearly double that of the 446% return for the average mid-age funds and well beyond the 350% posted by tenured funds."
This has been a popular conception among capital allocators for years as smaller managers can be more nimble and are hungry to prove themselves as they are often newer funds as well.
3. Seek Small Funds To Maximize Returns, Large Funds to Protect Wealth
Pertrac's managing director Jed Alpert concluded that, "The findings suggest that investors interested in exposure to hedge funds and seeking to protect their wealth should examine funds with over $500 million in AUM, since the average large fund has had lower losses in negative performance years and lower annualized deviation figures compared to the average small fund."
4. Impact of Fund Age on Performance
They classify young funds as ones with an inception date within the last two years, mid-age funds as being open between 2 to 4 years, and tenured funds as having operated greater than four years.
The study found that, "the cumulative return for the average young fund is 827%, since 1996, nearly double that of the 446% return for mid-age funds and well beyond the 350% posted by tenured funds. The report further shows that it has been an uneven journey. The average young fund has had 144 positive and 48 negative months since 1996, mid-age funds have had 136 positive and 56 negative, while tenured funds have had 129 positive and 63 negative."
Overall, when selecting a hedge fund (as with any investment), the study concludes that it's important for investors to identify their portfolio goals and risk tolerances as each fund type possesses different attributes. You can check out the full study here.
Hedge Fund Short Positions in Poland
Continuing our coverage of hedge fund short positions in Europe, next
up is Central and Eastern Europe, including: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia. After searching disclosure systems, the only shorts disclosed so far seem to have been to the Polish regulator.
New European rules are obliging hedge funds to
disclose information about the most carefully guarded part of their
business activities: short positions. Since November 1st
when the EU Regulation on short positions came into force, there has
been a deluge of information from financial regulators in EU countries
giving information on short positions across all market sectors.
Public
disclosure is required for net short positions of shares that reach
0.5% of the issued share capital of the company concerned and again at
each 0.1% increment above that. Additionally disclosure is required
publicly when the position subsequently falls below 0.5%. Here are the latest disclosures:
Hedge Fund Short Positions In Poland
Blue Ridge Capital: Short -0.82% KGHM
Discovery Capital Management: Short -0.82% KGHM
Morton Holdings: Short -1.23% PKNORLEN
Wellington Management: Short -1.43% BRE
To see more hedge fund shorts, head to our other coverage:
- Hedge fund short positions in the UK
- Hedge fund short positions in Germany
- Hedge fund short positions in France
- Hedge fund short positions in the Netherlands
- Hedge fund short positions in Belgium
- Hedge fund short positions in Finland
- Hedge fund short positions in Sweden
- Hedge fund short positions in Denmark
Monday, November 26, 2012
Notes From Sohn London Investment Conference 2012
Today we're posting up notes from the Sohn London Investment Conference 2012. The event was a great success raising funds for pediatric cancer care and research, benefiting Great Ormond Street Hospital.
The Sohn Foundation put on this event and readers will be familiar with the New York version that has raised over $25 million for cancer care and research. Please click the links below to go each speaker's presentation.
Notes From Sohn London Conference
Chris Cooper-Hohn (Children's Investment Fund): 2 Longs and 1 Short Idea
Jim Chanos (Kynikos Associates): 2 Short Ideas
John Armitage (Egerton Capital): His Favorite Stocks
Nicola Horlick (Bramdean Asset Management)
Davide Serra (Algebris Investments): 2 Long Ideas
Jan Hummel (Paradigm Capital): Presentation on WashTec and Ekornes ASA
Nicolai Tangen (AKO Capital): Long Assa Abloy
Bruno Rocha (Dynamo Capital): Long Schindler Holding AG (SWX: SCHN)
Nicolas Walewski (Alken Asset Management): Long Ryanair, Grifols, Gemalto & More
Chris Cooper-Hohn: Long News Corp & Porsche, Short Fiat (Sohn London Conference)
Continuing our series of notes from the Sohn London Investment Conference, next up is Chris Cooper-Hohn of Children's Investment Fund.
He advocated buying unloved stocks at the moment as companies that are perceived to be great businesses are expensive. He quoted Warren Buffett by saying, "you pay a high price for a cheery consensus."
Cooper-Hohn presented 2 longs: News Corp (NWSA / NWS) and Porsche (GER:PAH3) and 1 short: Fiat SpA (MIL: F).
Long News Corp
- News corp is misunderstood. It should not be seen as a newspaper business as 73% of operating profit comes from TV content
- The price is low due to the phone hacking scandal
- It's not a cyclical business dependent on advertising revenue
- The US network has massive pricing power
- He expects EBIT to grow from $6bn to $9bn by 2015
- Share buybacks will be large
- It's cheap trading on PE 2013 10x
- The new COO Chase Carey is more shareholder friendly than the Murdoch family
News Corp announced this year that it will be splitting up its business into two segments: entertainment and publishing.
Long Porsche
- Concerns about the impact of the litigation surrounding Porsche's Volkswagen (VW) short in 2008 have depressed the price
- Hohn thinks the market has overreacted and Porsche will settle for less than is expected
- Porsche trades at a 40% discount to NAV
- It's stock has traded sideways for many years
- Porsche owns 32% of VW
- VW is also cheap so there is a double discount
- VW is perceived as a budget brand but a substantial amount of its earnings come from the premium market where there is more pricing power: Audi and Porsche
- VW and Porsche have good emerging market exposure
- VW grew its volume even during the financial crisis
- It is steadily destroying other European carmakers
Hohn belives there's 4 big ways to win by investing in Porsche:
1. VW appreciates
2. The discount to NAV narrows as the litigation is resolved
3. The discount narrows due to a higher dividend
4. A merger of Porsche and VW
We've also posted up an excerpt from Children's Q3 letter on Porsche as well.
Short Fiat SpA
- Hohn argued that Fiat was a poor company, saying it will need a capital injection soon
- Chrysler (which has been bankrupt twice) is burning cash
- If the current economic conditions continue, the burn rate will increase
For the rest of the hedge fund presentations from this event, head to notes from Sohn London Investment Conference.
Jim Chanos: Short Vale & Petrobras (Sohn London Conference)
Continuing our series of notes from the Sohn London Investment Conference, next up is Jim Chanos of Kynikos Associates who gave a presentation entitled 'Brazil: Resource Rich, Not Riches."
Negative on Brazil
For those unaware, Chanos runs short-biased hedge fund Kynikos Associates. As such, it should come as no surprise that at the event he presented 2 short ideas both with ties to Brazil: a metals and mining company, as well as an integrated oil and gas company.
The general theme of Chanos’s argument went beyond these two short ideas, though, as he suggested that Brazil was generally an unfriendly place for investors in a similar way to his recent portrayal of China as a roach motel.
He said that like China, Brazil has a system of state capitalism which leads investors to subsidize state aims at the expense of investment returns. In Chanos’ view, both China and Brazil operate the wrong form of capitalism which leads capitalists to ‘get the bad end of the stick’.
Short Vale (VALE)
He said that the company appears cheap to value investors but in his view it is a value trap. His main thesis on this name was that iron ore itself is over-valued. Readers will recall that Greenlight Capital's David Einhorn said to short iron ore recently at the Great Investors' Best Ideas event.
Chanos argued that Vale is too dependent on China’s demand for iron
ore. Demand might be about to fall and besides China is building more
of its own iron ore plants. There are very few barriers to entry.
Short Petrobras (PBR)
This isn't the first time that Chanos has been negative on the Brazil state owned oil company as we've posted up his past negative commentary on PBR.
The Kynikos founder also feels Petrobras is a value trap and he also highlighted that:
- It looks like a value story trading on EV/EBITDA 2013 5.3x but it's not
- It has massive reserves of oil
- The government owns 64% of Petrobras so they cannot charge the full market price for oil and gas because of government interference
- They have a poor record of exploiting reserves
We've also posted up some of Kynikos' other short positions that have been revealed.
For the rest of the hedge fund presentations from this event, head to notes from Sohn London Investment Conference.
John Armitage: Long Signet Jewelers & AZ Electronic Materials (Sohn London Conference)
Continuing our series of notes from the Sohn London Investment Conference, next up is John Armitage of Egerton Capital.
John Armitage is one of the survivors of the hedge fund industry. He co-founded Egerton Capital in 1994. At Egerton, he is the Chief Investment Officer for all portfolio management activities including long/ short and long only funds. Egerton Capital has 14% compounded return since 1996. He presented two long ideas: Signet Jewelers (SIG) and AZ Electronic Materials (LON: AZEM).
Long Signet Jewelers
- Signet is a leading US mid-market jeweler
- 50% of sale are bridal/wedding related
- Good IT systems
- Exclusive brands account for 26% of sales. Exclusive brands reduce direct price competition from retail outlets and online retailers
- Signet’s competitive advantages: 1. Sourcing – as one of the biggest
buyers of diamonds it has purchasing power , 2. Good advertising -
Signet spends twice as much on advertising as their competitors, 3.
Highly trained staff - customers need advice when buying jewelery and
well trained sales staff are a major asset of the business
Armitage argued that Signet is a retail survivor in an internet age (Even the diamond industry sees competition via the internet, mainly from Blue Nile (NILE)).
Long AZ Electronic Materials
Armitage only had a minute or two left to talk about AZ. It is a producer and supplier of specialty chemical materials that are used in smartphones, tablets and connected devices. The Company’s products are used in the manufacture of integrated circuits and flat panel displays used in electronic devices and applications, including computers and tablet devices, flat screen televisions, mobile communication devices, industrial and automotive applications and the developing light and energy markets.
AZ revenue is driven by the semiconductor market. In Armitage’s view the company is cheap trading on 13x earnings and a gem.
Armitage also mentioned that his favorite longs were News Corp (NWSA), Volkswagen (VW), Richemont, and Samsung. At the event, Chris Cooper-Hohn made a presentation on NWSA, one of Armitage's favorites.
For the rest of the hedge fund presentations from this event, head to notes from Sohn London Investment Conference.
Nicola Horlick of Bramdean Asset Management at Sohn London Conference
Continuing our series of notes from the Sohn London Investment Conference, next up is Nicola Horlick of Bramdean Asset Management.
When Nicola Horlick took to the stage at the Ira Sohn Conference in London, the audience was expecting her to pitch them a couple of good investment ideas. Instead, Horlick gave a graphic account of her eldest daughter, Georgie’s, struggle with leukemia.
Sadly, Georgie died when she was only 12 years old. Horlick’s account was so powerful that when Jim Chanos stood up to speak shortly after, the toughest short seller in the business was visibly shaken and subdued.
Nicola Horlick’s presentation was a reminder of the importance of the work of the Ira Sohn Foundation in the treatment and cure of pediatric cancer. More information about the work of The Sohn Conference Foundation and where to donate are available here.
For the rest of the hedge fund presentations from this event, head to notes from Sohn London Investment Conference.
Bruno Rocha: Long Schindler Holding AG (Sohn London Conference)
Continuing our series of notes from the Sohn London Investment Conference, next up is Bruno Rocha of Dynamo Capital.
Rocha co-founded Dynamo in Brazil in 1993. In 2006 he moved to London to set up an international fund focused on European equities. Dynamo is mostly a long term value investor with a strong long bias and tends to favor stable businesses with solid and durable competitive barriers.
Rocha gave an impressive presentation about the elevator and escalator market which he has followed since 1997. It is difficult to do the presentation justice as it contained so much detailed information:
Long Schindler Holding AG (SWX: SCHN)
- Dynamo started their position in Schindler in 2008
- Schindler is the second largest elevator company in the world
- Otis, Schindler, Kone and Thyssen are the largest players in the market
- Competition between the big four is mainly for new elevators but there is little competition in the maintenance area as they tend to service their own products
- Schindler’s main market is in Europe
- 85% of profit is made from maintenance
- China is a big new market
- Elevators are a good business with growing revenues and margins
- Schindler’s recent growth has come from better elevators, growth in China and standardised global procedures
- Otis is the global leader and by comparison Schindler is a laggard
- Rocha argued that Schindler can catch up with Otis and he expects Schindler’s margins to get closer to Otis by 2014
For the rest of the hedge fund presentations from this event, head to notes from Sohn London Investment Conference.
Jan Hummel: Long WashTec & Ekornes (Sohn London Conference)
Continuing our series of notes from the Sohn London Investment Conference, next up is Jan Hummel of Paradigm Capital.
Jan Hummel is the founder of Paradigm Capital Partner AG, a privately owned investment manager. He is also the portfolio manager of the Paradigm Capital Value Fund. Paradigm invests in equity markets across the European Union region with a focus on the Nordic countries, German speaking regions, and the United Kingdom.
Hummel looks to invest in companies that:
- Can compound over time
- Produce a high return on capital
- Have managements that can allocate capital intelligently
- Are cheap
Long WashTec
WashTec AG is a German based developer and provider of vehicle washing systems – in-bay car washes. The Company offers roll-over wash equipment, self-service wash equipment, commercial carwash equipment, wash tunnels and water reclaim systems.
67% of its customer base is from large oil companies. Supermarkets and independent entrepreneurs are also important customers. The in-bay car wash business has high fixed costs and the company makes much of its income from keeping the car washes going.
For example, it offers call-out service, wash chemicals, spare parts and servicing packages. Hummel argued that in recent times WashTec had failed to allocate capital intelligently as they had made some poor acquisitions.
He gave the impression that Paradigm had recently been involved in a successful activist campaign to replace a WashTec board member and that as a result in July the company had agreed to introduce a share buyback policy.
Long Ekornes
Ekornes is a Norway based company engaged in the manufacture of furniture. Its most important product and brand is the “Stressless” chair.
Hummel pointed out that a Norwegian furniture business was unusual and counterintuitive. Most furniture these days is manufactured in China and certainly not in Norway, one of the highest “high cost” countries.
- Ekornes return on capital is high though
- It is a resilient business that grew throughout the financial crisis
- The marketing strategy is good
- The business is cheap trading at 7x enterprise value to EBIT
- The production process is highly automated with a great ability to vary output up or down according to demand
- Production staff are paid in accordance to their skill and output
Hummel believes Ekornes’s share price has lagged recently due to Orkla, a large Norwegian branded consumer goods company, selling down their stake. Orkla’s selling has acted like a “wet blanket” on the Ekornes’s share price and is producing a buying opportunity.
For the rest of the hedge fund presentations from this event, head to notes from Sohn London Investment Conference.
Davide Serra's Two Long Ideas From Sohn London Conference
Continuing our series of notes from the Sohn London Investment Conference, next up is Davide Serra of Algebris Investments who presented two long ideas.
Davide Serra’s Algebris Investments hedge fund specializes in the global financial sector. Serra founded the fund in early 2006 and the flagship Algebris Global Fund launched in October 2006. Algebris subsequently launched the Algebris Emerging Markets Financials Fund in January 2010, the Algebris Financial CoCo Fund in March 2011 and a UCITS version of this strategy, the Algebris Financial Credit Fund in August 2012.
Long African Development Corp (GER:AZC)
African Development Corporation is a financial services group that focuses on investments in sub-Suharan Africa’s banking and insurance markets as well as on proprietary investments in frontier markets. It is listed on Germany’s Frankfurt Stock Exchange and has a Euro 70m market cap.
ADC follows an active management approach with a team of experts that provides operational management services, investment banking expertise and merchant banking services. Serra argued that ADC is an emerging pan-African banking group.
ADC is backed by the World Bank. Serra said that 90% of ADC’s investments are guaranteed by the World Bank, even against the possibility of war breaking out. He gave some valuation metrics and suggested the company was cheap trading at P/E 2x and 1x cash.
Long Contingent Convertibles (CoCos)
Serra, who runs the Algebris CoCo fund, unsurprisingly pitched CoCos as his second idea. According to a recent article in the FT, Serra Algebris CoCo Fund is up 45% in 2012.
CoCos are bonds issued by banks to try to stabilise their balance sheets and meet the capital requirements set by Basel III. They are a type of convertible bond that converts to equity following certain events. Unlike normal convertible bonds they do not convert at a strike price and this can make them harder to value.
Serra warned that it is best to invest in CoCos of the systemically important financial institutions. He mentioned that he liked CoCos from banks where governments own a lot of the equity. He named Lloyds and Barclays in the UK and Bank of America and Citigroup in the US.
Serra viewed CoCos as good investments as you are investing higher up the capital structure than equity investors, the banks are back-stopped by the state and you get paid a coupon of 8% or 9% to do so.
One of the features of the CoCo market is that there are about 400 issuers of the bonds. Maturities are usually 4-5 years. Algebris is the largest fund dedicated to trading this complex market.
For the rest of the hedge fund presentations from this event, head to notes from Sohn London Investment Conference.
Nicolas Walewski's 5 Long Ideas From Sohn London Conference
Continuing our series of notes from the Sohn London Investment Conference, next up is Nicolas Walewski of Alken Asset Management. He pitched 5 long ideas at the event: Ryanair, Grifols, Continental Tires, Gemalto, and Amadeus.
Nicolas Walewski founded Alken Asset Management in 2005. Before that he was fund manager for the Oyster European Opportunities Fund.
Walewski started by talking about the macro picture in Europe which he said was characterised by a lack of visibility. He argued that the European consumer will remain in recession for some time and so it is hard to know where to find value in Europe?
His answer was to find businesses to invest in which have at least one or more of the following 3 characteristics:
1. Low cost business models
2. Oligopolies
3. Innovators
He gave Ryanair as an example of a low cost business. Grifols and Continental Tyres as examples of oligopolies, and then Gemalto and Amadeus as innovators. Tiger Management's Julian Robertson likes Ryanair according to his latest interview as well.
For the rest of the hedge fund presentations from this event, head to notes from Sohn London Investment Conference.
Nicolai Tangen: Long Assa Abloy (Sohn London Conference)
Continuing our series of notes from the Sohn London Investment Conference, next up is Nicolai Tangen of AKO Capital, who pitched Assa Abloy (SWE: ASSA B).
Nicolai Tangen founded AKO Capital in 2005. Before setting up AKO, Tangen was a partner at Egerton Capital (1997-2002). AKO Capital LLP is a hedge fund based in London with $6 billion of assets under management. AKO Capital invests primarily in European publicly traded equities. They run both a Long-Short hedge fund and a $1bn Long-only fund.
AKO Capital adopts a “bottom-up” stock picking approach with a focus on fundamental research and frequent meetings with company management. AKO prefer to hold their best assets for the long term. They hold regular in-depth meetings with company management. They do not believe in opposing management and prefer a policy of long term co-operation. The fund is named after Tangen’s three children.
Long Assa Abloy
Assa Abloy is a Swedish based company engaged in secure door opening solutions – mainly locks.
- Assa is a leading global lock company
- Assa has increased earnings by 50% this year -
- EPS CAGR = 15%
- Assa makes two-thirds of its income from retro-fit locks and only one-third from new locks
- Assa has a large number of well-known brands e.g. Yale, Cecco Door, Sargent, Ditec
- It is hard for competitors to infiltrate the lock market
- Organic growth has grown slowly at 1% per annum due to the recession / housing - crisis
- Assa has good pricing power and increases prices every year. Few of its customers have the scale to resist price increases.
- New electro mechanical locks of the type found in hotels and increasingly homes require more regular servicing. Maintenance is good for business.
- Assa is trading on P/E 15x 2013 earnings, making it historically cheap
For the rest of the hedge fund presentations from this event, head to notes from Sohn London Investment Conference.
