Hedge Fund Links ~ 8/5/16

Excerpts from Raging Capital's latest letter [ValueWalk]

Thoughts from Lee Cooperman in his Q2 letter [Business Insider]

Carlson Capital Q2 letter excerpts [Business Insider]

Steve Cohen's performance coach on the trait of successful traders [Yahoo Finance]

Jim Simons: computer trading is good for markets [CNBC]

Howard Marks says hedge fund 'geniuses' spawned too many firms [Bloomberg]

Howard Marks' Addendum to 'Economic Reality' Memo

Howard Marks of Oaktree Capital released his most recent memo entitled 'Economic Reality' a few months ago.  However, we forgot to post the addendum he added to it.  The original piece is insightful so definitely check it out if if you haven't already via the link above.

Here's what he added:

"There’s been a lot of response since the memo that follows was originally published on May 26.  In the discussions that have ensued, I realized that I should have led with something like this:  

Ultimately, economics is the study of choice.  Because choices range over every imaginable aspect of human experience, so does economics. . . .  

How do individuals make choices:  Would you like better grades?  More time to relax?  More time watching movies?  Getting better grades probably requires more time studying, and perhaps less relaxation and entertainment.  Not only must we make choices as individuals, we must make choices as a society.  Do we want a cleaner environment?  Faster economic growth?  Both may be desirable, but efforts to clean up the environment may conflict with faster economic growth.  Society must make choices. . . .  

We would always like more and better housing, more and better education – more and better of practically everything.  

If our resources were . . . unlimited, we could say yes to each of our wants – and there would be no economics.  Because our resources are limited, we cannot say yes to everything.  To say yes to one thing requires that we say no to another.  Whether we like it or not, we must make choices.  

Our unlimited wants are continually colliding with the limits of our resources, forcing us to pick some activities and to reject others.  Scarcity is the condition of having to choose among alternatives.  (Macroeconomics Principles, Libby Rittenberg and Tim Tregarthen.  Emphasis added)  

Because of the above, we make economic choices every day.  Everyone knows choices like these are inescapable.   

Everyone, that is, except for politicians.  The politician promises better grades and more leisure time.  A cleaner environment and faster economic growth.  That’s what caused me to write the memo: in politics and government – unlike the real world – the word “or” often goes out the window, replaced by “and.”  No choices are necessary.   

A few months ago I saw a cartoon featuring caricatures of two primary opponents.  Under one it said “bulls**t” and under the other it said “free s**t.”  There’s bound to be a lot of the former in any election season, but economics tells us the latter is unrealistic.  I wrote this memo to help readers understand why."

You can read the rest of Howard Marks' memo 'Economic Reality' here.


For more on this investor, check out Howard Marks' presentation at the London Value Investor Conference.

ValueAct Capital Buys More CBRE Group

Jeff Ubben's activist firm ValueAct Capital has filed a Form 4 with the SEC regarding their position in CBRE Group (CBG).

Per the filing, ValueAct was buying shares on August 1st, 2nd, and 3rd at prices around $28.40.  In total, they bought 1,502,200 shares.  After these purchases, they now own over 34.43 million shares of CBG.

You can view other recent portfolio activity from ValueAct here.

Per Google Finance, CBRE Group is "a holding company that conducts all of its operations through its subsidiaries. The Company is a commercial real estate services and investment company. The Company operates through the segments: The Americas; Europe, Middle East and Africa (EMEA); Asia Pacific; Global Investment Management, and Development Services. It offers services to occupiers, owners, lenders and investors in office, retail, industrial, multifamily and other types of commercial real estate. It offers commercial real estate services under the CBRE brand name, investment management services under the CBRE Global Investors brand name and development services under the Trammell Crow Company brand name. It is focused on several competencies, including commercial property, corporate facilities, project and transaction management, tenant/occupier and property/agency leasing, capital markets solutions, real estate investment management, valuation, development services and proprietary research."

Pershing Square To Sell Entire Canadian Pacific Stake

Bill Ackman's Pershing Square has announced with Canadian Pacific (CP) that the hedge fund will be selling the rest of its remaining CP stake with a public offering of just over 9.84 million shares.

Apparently Ackman will be using the proceeds to deploy into one or more new positions.  He will also stay on CP's board until the next annual meeting.

You can view other recent portfolio activity from Pershing Square here.

Per Google Finance, Canadian Pacific "together with its subsidiaries, operates a transcontinental railway in Canada and the United States. The Company operates in rail transportation segment. The Company's business mix includes bulk commodities, merchandise freight and intermodal traffic over a network of approximately 12,500 miles, serving the principal business centers of Canada from Montreal, Quebec, to Vancouver, British Columbia, and the United States Northeast and Midwest regions. The Company transports bulk commodities, merchandise freight and intermodal traffic. Bulk commodities include Canadian grain, U.S. grain, coal, potash, and fertilizers and sulfur. Merchandise freight consists of finished vehicles and automotive parts, as well as forest and industrial and consumer products. Intermodal traffic consists of retail goods in overseas containers that can be transported by train, ship and truck and in domestic containers and trailers that can be moved by train and truck.."

What We're Reading ~ 8/3/16

Ego is the enemy [Ryan Holiday]

Is active management dead? Not even close [CFA Institute]

When is a 'value' company not a value? [Investing Research]

Interview with Time Warner CEO Jeff Bewkes [Bloomberg]

On Tiger Global's bet on Flipkart [LiveMint]

Amazon's ascent in India shows that price isn't everything [Nikkei]

On capital light compounders [Base Hit Investing]

Why is the stock market so high? Ask the bond market [NYTimes]

US homeownership rate falls to five-decade low [WSJ]

How China became the world's e-commerce king [TheDrum]

Didi schools Uber on doing business in cutthroat China [Bloomberg]

Uber finds passage to India blocked by Ola [Bloomberg]

What happened to Yahoo? [Waiters Pad]

Google plots cheaper wireless future to expand fiber project [Bloomberg]

Here comes 5G wireless, but first a reality check [Recode]

Big US brokerages chase the rich [Reuters]

App coins and the dawn of the decentralized business model [Medium]

How free mobile games are designed to make money [Vox]

Corvex Management Trims Fidelity National Financial Position

Keith Meister's activist firm Corvex Management has filed an amended 13D regarding their position in Fidelity National Financial (FNF).  Per the filing, Corvex now owns 4.8% of FNF with over 13.19 million shares.

This is a decrease of over 5.93 million shares from the end of the first quarter.  They were selling at various points in June, July, and as late as August 2nd.  The bulk of their sale came at a price of $36.58.

You can view other recent activity from Corvex here.

Per Google Finance, Fidelity National Financial is "is a provider of title insurance, technology and transaction services to the real estate and mortgage industries. The Company's segments include Title, Black Knight, FNF Core Corporate and Other, Restaurant Group, and FNFV Corporate and Other. Its business is organized into groups, including FNF Core Operations and FNF Ventures (FNFV). The Company offers title insurance through its title insurance underwriters: Fidelity National Title Insurance Company, Chicago Title Insurance Company, Commonwealth Land Title Insurance Company, Alamo Title Insurance and National Title Insurance of New York Inc., which collectively issue more title insurance policies than any other title company in the United States. The Company, through its subsidiary, ServiceLink Holdings, LLC (ServiceLink), provides mortgage transaction services, including title-related services and facilitation of production and management of mortgage loans."

Pennant Capital Discloses Gores Holdings Stake

Alan Fournier's hedge fund firm Pennant Capital has filed a 13G with the SEC regarding Gores Holdings (GRSHU).  Per the filing, Pennant now owns 5.87% of Gores Holdings with 2.2 million shares. 

This is a newly disclosed stake and the filing was made due to activity on July 19th.

Per Google Finance, Gores Holdings is "a blank check company. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. The Company focuses to effect its business combination using the proceeds held in the Trust Account from its Public Offering and the sale of the Private Placement Warrants, its capital stock, debt or a combination of these as the consideration. The Company has no operations. The Company has not generated any revenue."

Soros Fund Ups Quantum Corp Position

George Soros' family office Soros Fund Management has filed a 13G with the SEC regarding its stake in Quantum Corp (QTM).  Per the filing, Soros now owns 5.27% of Quantum with over 14 million shares.

This is up significantly from the 1.66 million shares they owned at the end of the first quarter.  The filing was made due to activity on July 22nd.

Per Google Finance, Quantum Corp "focuses on scale-out storage, archive and data protection, providing solutions for capturing, sharing, managing and preserving digital assets over the entire data lifecycle. The Company's end-to-end tiered storage solutions enable users to maximize the value of their data by making it accessible whenever and wherever needed, retaining it indefinitely and reducing total cost and complexity. It works with a network of distributors, value-added resellers (VARs), direct marketing resellers (DMRs), original equipment manufacturers (OEMs) and other suppliers to meet customers' evolving needs. Its scale-out storage portfolio includes StorNext software, appliances and full systems called StorNext Pro Solutions, as well as Xcellis workflow storage, QXS disk storage, Lattus extended online storage and Q-Cloud Archive and Vault services. Its StorNext offerings enable customers to manage large unstructured data sets in an information workflow."

Claire Barnes' Investment Philosophy (Apollo Investment Management)

From time to time we highlight various investment approaches by investors.  Here is the investment philosophy by Claire Barnes, Apollo Investment Management.  H/T thefatmargin for the find.


Claire Barnes Investment Philosophy

1.  We value businesses as would a long-term private buyer, and generally ignore the short term views and price influence of other market participants, except in so far as these create opportunities.  In Benjamin Graham's classic analogy, the investor is in business with a manic depressive partner, Mr. Market, who obligingly sets a two-way price every day.  Most of the time, the investor will listen to Mr Market, politely decline to take action, and get on with real life.  Sometimes however, Mr Market's price is wildly in excess of any intrinsic value, and the investor may take these opportunities to sell, perhaps even to retire.  At other times, Mr Market's price is ludicrously low; we have at times in the past been able to buy good businesses with honest management for less than their net cash balances.  At such times, the sober investor will buy, without worrying unduly about whether Mr Market's price may be even lower tomorrow.


2.  We like value - buying a dollar of assets for 50 cents, for example - but never at the expense of quality.  In developed markets, legal protection may (perhaps) be good enough to base decisions on numbers alone.  In Asia, management integrity is paramount.  We also prefer 'operating assets', which generate cash or will do so in future, rather than 'dead assets' reliant on the price someone else may pay.


3.  We like growth as much as value - but "growth at a reasonable price".  One of the easiest mistakes is to overpay for a good company, or a good story.


4.  Given the impossibility of infinite growth on a finite planet, and a suspicion that growth may in future be harder to find, "sustainable income at a reasonable price" is attractive too.


5.  Sustainability is never absolute.  We value resilience.


6.  We seek good businesses: internal returns are important.  Deep value buys may arise from very cheap to somewhat cheap and remain illiquid.  The managers of our holdings do most of the work for us when they continue to generate good returns internally, and this reduces reinvestment risk.


7.  Free cashflow is good; sensible capital allocation is key.


8.  We like dividends - especially in those parts of Asia where there are no tax disadvantages, but anyway it is generally a good idea that excess cash be returned to the shareholders.  (If companies with a good value-adding record want cash for expansion, investors can be relied upon to stump up enthusiastically for a rights issue.)  We dislike buyback-and-issuance schemes designed to enrich insiders, but buybacks shrinking the capital base at discounts to intrinsic value are sometimes constructive.


9.  We try to know our companies inside out.  We visit the companies, try to read their annual reports and announcements from cover to cover, talk to their competitors, and so on.  The longer we've known them, the better.


10.  We don't worry about missed opportunities.  Most companies are too complicated: we look for businesses we like and think we can understand, and focus on relatively few.


11.  We buy securities on a 3-5 year time horizon.  (Maybe even more - ideally we would like to buy good companies at good prices and hold forever, but in an ever more volatile world, 3-5 years may be as far ahead as one can realistically hope to see, and certainly we need to keep reassessing.)  However, if a security appreciates rapidly to the point where it no longer represents reasonable value in absolute terms or relative to prospective purchases, or if new information comes to light which causes us to reevaluate, we may sell with alacrity.  Restraining fund size helps us to maintain selling discipline.


12.  The emphasis has changed slightly over the years, due to changing market conditions and sometimes-painful experience.  Our style will, we hope, continue to evolve:  in a changing world, we see no point in narrowing options unnecessarily.



For more on the investment process of other successful investors, check out:

- Andreas Halvorsen (Viking Global) on investment process

- Seth Klarman's value investing lessons

- Investing lessons from KKR's Henry Kravis

- Donald Yacktman on viewing stocks as bonds