My Favorite Ideas from Ira Sohn

Last week we attended the Ira Sohn Research Conference where some of the best hedge fund managers in the world pitched some amazing investment ideas. For those that were not following, I was updating readers in real time on Twitter (@DDInvesting) trying to get information out as fast as humanly possibly.

In that regard, our notes from this year our going to take a different feel. For more comprehensive notes you can visit Jay at Marketfolly or Jacob at ValueWalk or Josh at The Reformed Broker. In addition, a number of the presentations are being floated around specifically Bill Ackman's presentation on JCP.

In terms of distressed debt portfolio managers, the panel of speakers included notable player Jonathan Kolatch, founder of Redwood Capital, who was very impressive. In fact I believe, and I might be mistaken, Kolatch used to work with Dave Tepper at Goldman Sachs (forgive me if I have that fixed up). Larry Robbin's Glenview Capital and John Paulson are also active players in the distressed debt market. It was great to hear from each of them.

So for each manager, I have boiled down the ONE take-away I came away with from the conference. Some of these are investment ideas and some are more general investing wisdom.  Overall I encourage all of you who have never been to the conference to attend one soon - it is such a learning experience listening to best pitch their ideas. Enjoy!

Ken Rogoff - Harvard University


Professor Rogoff spoke about what he is known best for: severe finance crisis. His book "The Time is Different" talks about, in depth, many of the great financial calamities world economies have faced in the past. The most interesting or salient point he made: Looking at the charts, Greece has been in default for 50% of the years since the data was recorded. The situation in Greece (as well as other weaker European nations) is keeping a tight lid on the euro which is beneficial to German consumers and industry. If this dynamic wasn't the case, I think the fact that the country you are trying to save has been in default 50% of the time, you have to let it go.

Larry Robbins - Glenview Capital Management


I interviewed at Glenview many moons ago when their AUM was 1/5 of what it is today. I regret not closing that position because Robbins is simply a force of investment acumen. Robbins spent most of his time talking two trades: Long hospitals and life sciences (Tenet in particular) and short the "new high club" - treasuries, utilities (specifically ITC) and the defense sector. The takeaway from this presentation was simply the thoroughness of the ITC short. Glenview went as far as testifying in front of the regulators that ITC's capital structure allowed it to overcharge consumers. The short wasn't really valuation in nature (in my opinion the worst kind of shorts). It was based on technical information that required a lot of digging. And there is a catalyst here - a rate review / drop in rates so the shorts just don't have to sit around forever and wait for valuation to come down.

Jonathan Kolatch - Redwood

Kolatch spent his time discussing Argentina sovereign debt. He compared Argentina to other countries in Europe: Debt to GDP is half or less than most countries in Europe. There are less deficits. Rapid GDP growth. And bonds yield 15% - well higher that most countries.  It was a very compelling presentation. Kolatch noted that if Argentina traded 300 bps behind Brazil, the trade offered a 36.5% IRR (in 3 years) with a 13.7% current yield. The takeaway here is summarized by how Kolatch described Argentina's nationalization of YPF. He agrees that its a bad thing, but the motivations might be different from what the market is handicapping and that creates opportunities and mispricings.

Dwight Anderson - Ospraie Management


This is the first time I've heard Tutor and Tiger Alumni Dwight Anderson speak. Anderson's talk focused on two ideas: Long Westlake Chemical, and a pair trade of long palladium / short platinum. The takeaway here, and similar to other Tiger alumni, is the understanding or better yet anticipation on what's going to happen next. The second-derivative thinking on Westlake was a beautiful thing to watch: Low nat gas prices are a benefit to Westlake and the benefit is no where close to being fully realized. Similarly the platinum vs palladium trade was thinking two steps ahead: Platinum mine production is accelerating later this year into net year, whereas palladium will be in a deficit, combined with structural changes in the consumption of the two materials in auto products. Really compelling stuff.

Meryl Witmer - Eagle Capital 

Witmer learned the ropes with Michael Price and Max Heine of Mutual Series. She spent her time talking about two idea: Gildan and Viacom. In one of her opening slides, she discussed Eagle's general philosophy which focus on looking for strong management teams that are good capital allocators who buy back stock a "fire sale prices" running companies that generate good cash flow and maintain a healthy balance sheet. The emphasis on fire sale prices is interesting - so often the investment community pushes for companies to buy back stock irrespective of price. Yes, its probably better than making a dumb acquisition, but its far less important the value of cash in a downturn (whether buying own stock or someone elses). As investors we know this but we rarely put that to our management teams we cover.

Phillipe Laffont - Coatue


Lafont spoke about two stocks: Equinix and Virgin Media. Similar to other Tiger Cubs, Laffont looks for industry leaders. One of the most interesting things he said at the conference, which I had never really thought about: The market inappropriately values companies that will do a LARGE forward buyback. So a company like Virgin Media which in theory could buy back all its shares outstanding in the next five years is seriously undervalued. He didn't postulate why this is - it's probably because many market participants simply don't believe management.

John Wilder - BlueScape Resources

This was an amazing presentation on the dynamics going on in the natural gas market. One of the industries I have never covered is oil/gas, but I do look at the coal names (moreso now than a few weeks ago) which is relevant in so many ways.  Wilder was quite bearish on the near term forward curve for gas.  The one key point I took away from his presentation was a fantastic graph showing commodity prices versus GDP - natural gas demand has been relatively stable / flat and has not kept up with GDP growth. With little gas drilling economically viable at current pricing (outside the Marcellus) the demand side wildcard of LNG exports may not be all they are cooked up to be - the mystical "100 BCF/day won't happen in the near term.

Jeffery Gundlach - DoubleLine


The introduction to Gundlach noted that according to one study, DoubleLine is the fastest growing company in America. That is magical. I have covered Gundlach on the blog a number of times. If you haven't heard him speak, you are missing out. Gundlach talked about constructing portfolio that can handle all tail scenarios. To Gundlach, cooperation = bull market; contention = bear market - and we have a ton of contention right now. I listed his trades on Twitter, but for those not there: Long IBEX, 1 year Libor (10x levered), natural gas, cash; Short SPX, JWN, Apple, 2 year swaps. The portfolio he laid out makes a lot of sense and in a very bullish or very weak market, would probably do well.

David Einhorn - Greenlight Capital


This was a whirlwind presentation. You can see part of it here: Greenlight's Thoughts on Cash Heavy Companies. The amount of items covered here would be impossible to do any service to, on either the long or the short side. Probably one of the better ideas presented here was short Dicks Sporting goods on encroachment from Amazon. Again, 2nd order thinking here (which really was present throughout the presentation: US Steel short, Japan, Cairn Energy, etc).

Dan Ariely - Duke University


Dan Ariely is one of the leading experts in behavioral economics and self-control. His talk really centered on the latter. Ariely pointed out that self control, boiled down, is the dynamic between long term interests and short term interests: And the short term usually wins. As such, how do we overcome this? The take-away here is how loss aversion can affect us outside of investing. Studies show we have to win 2-3x what we equivalently lose to have the same emotional effect on ourselves. So instead of using "treats" to reward ourselves, instead use the loss of "treats." His example: When he told diabetic patients he'd give them $3 each day they took their meds, no one changed their habit. When he then told another group of patients that he deposited $100 in their bank and that each time they didn't take their meds, he'd take $3 out, there was an 80% increase in compliant patients. Amazing! The last point he made was really telling: Self control problems will only get worse in times; marketers will not make their products LESS tempting.

Steve Mandel - Lone Pine


Another Tiger Cub. And similarly he said: I believe leaders stay leaders and leaders win. His themes include being negative on fixed income, being long tech leaders, and being long share count shrinkers. The one name he mentioned was Kohl's which trades below 10x, has been affected by cotton prices (short term problem) and has a solid leadership team aggressively buying back stock at a discount to intrinsic value.

John Paulson - Paulson & Co

John Paulson likes to think big. And as I noted, his CVI trade was probably the best idea presented (despite the fact that you had to buy it at T+2 or T+1 to actually execute the trade). His thesis on CZR brought some interesting facts to life - i.e. the holding company owns assets (online gaming) outside of the levered enterprises and you're probably already covered there. He did note that CZR was an option play and placed a $138/price target on the name. He also spoke about AngloGold Ashanti, which in his opinion, is the cheapest way to play gold.

John Lykouretzos - Hoplite


Another Tiger Cub (Tiger Cub Cub - was a PM at Viking). This is the first time I have heard Lykouretzos speak. He presented on Starbucks and laid out a very very compelling thesis. Again Tiger Cubs like to play quality companies and really Starbucks is one of the best out there.  He laid out a number of tenets of value and pointed out that growth in the U.S. store base + moving to consumer packaged goods could create tremendous shareholder value.

Bill Ackman - Pershing Square


On a day JCP was getting absolutely murdered, Ackman, as usual presented a detailed case study on why he is long JCP (and the next day his slate of directors was elected at CP). I do not want to do the presentation any disservice, so I'll link to it for those that have not seen it. The title is Think Big - and at the end he notes JCP could be worth $300/share. Thing big we shall! Here's the presentation.