News Around the Hedge Fund World (Week of July 16-20)

By: SumZero Staff | Published: July 20, 2012 | Be the First to Comment

SumZero Ideas Revisited
We are publishing top-notch, 100% free research on this weekly email. Here are some of our most successful calls over the past six months revisited:

Recommendation: Short on Zynga (Nasdaq: ZNGA)
Contributor: John Pulliam (Vela Capital Management)
Date: 4/26/12
Price at Recommendation: $10.94
Return to Date: 58.3%
Click Here to Read the Article.

Recommendation: Long on Aware (Nasdaq: AWRE)
Contributor: Cliff Orr (Privet Fund)
Date: 2/15/12
Price at Recommendation: $3.33
Return to Date: 87.7%
Click Here to Read the Article.

Recommendation: Long on Zillow (Nasdaq: Z)
Contributor: Rohit Dewan (Olm Capital Management)
Date: 2/22/12
Price at Recommendation: $28.76
Return to Date: 49.8%
Click Here to Read the Article.

News Across the Hedge Fund World
Learning from one’s mistakes is a central principle of investing that many greats point towards as what has driven them toward success. Mistakes are inevitable; but they need not be repeated over and over again. In that vein, Zeke Ashton (Centaur Capital) put together an excellent self-critique on what he learned from a tough investment in Eddie Lampert’s Sears (Nasdaq: SHLD) and why he ultimately passed on JC Penny (NYSE: JCP). To paraphrase Ashton, he has finally learned to bet on the horse and not on the jockey.
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Bill Ackman (Pershing Square) confirmed this week at the Delivering Alpha conference that his firm has built a nearly $2 billion position in consumer goods giant Procter & Gamble (NYSE: PG). In spite of Ackman’s displeasure with the recent performance of the company, P&G’s board has affirmed its support for the current CEO. Ackman’s position is worth a shade under 1% of the market cap of the company. It’s likely the activist investor will have to build his position significantly before he can begin to influence any kind of substantive change on his own. The question is: How many of his peers can he evangelize?
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Legendary short-seller Jim Chanos (Kynikos) declared this week that investors holding Hewlett-Packard (NYSE: HPQ) are falling into a classic value trap. The controversial investor, speaking at the Delivering Alpha conference, pointed out that though the stock appears cheap, the challenges before it are so substantial that the destruction of equity value is virtually assured.
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Ray Dalio (Bridgewater), manager of the largest hedge fund in the world, appears to be less sanguine on the state of the global economy than many of his peers. Dalio’s Q2 letter recently came out and the investor offered his dynamic opinion on more than a few apropos issues. Dalio discussed the fact that although world economies have almost certainly slowed-down across the board, the companies within these nations are nearly all well-capitalized and are paying sustainably high dividends--something that cannot be ignored.
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Chris Clarke (Royce Funds) asked a thoughtful question in a letter he published to the Royce site this week: Is the business cycle dead?. The traditional cyclical nature of business appears to have been altered thanks to the Great Recession, on-going Federal intervention, and a larger business community that is ambling along, but isn’t ready to make serious investments in R&D or human capital in such an uncertain environment. Ultimately, however, Clarke believes that “Although business cycles have looked different of late, and the market has been reacting accordingly, our belief is that they will ultimately revert to the mean, benefiting higher-quality companies in cyclical sectors.”
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Unlike many of his peers, Howard Marks (Oaktree) suggested during a recent video interview that opportunities in Europe are neither overwhelmingly attractive nor are they overwhelmingly risky. The so-called king of distressed investing does not appear to be excited about present opportunities around the world. In his view, the US is in a state of modest upward climb from an economic standpoint and while some opportunities exist, the majority of the market is not priced inefficiently. Marks goes on to offer advice on how investors should be looking at the macro picture.
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Jeremy Grantham (GMO) gave a short, 6 minute interview following his recent keynote address to the Cambridge Business & Sustainability Program. Grantham maintains a progressive attitude on the subject of environmental sustainability and investing. Grounded in the basic notions of thermodynamics and physics, the legendary investor offers some wisdom on why sustainability is a crucial area of concern for mankind and how investors might one day bear the fruit of participation in it.
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SumZero Insight of the Week
"We use DCFs more as a sanity-check and to reverse engineer current market expectations than to try to produce any kind of precise valuation. When basing our views as far as what the future might look like, we try to look at a longer view of the company’s operating history (normally five to ten years) to see how the business has done over time."

-Zeke Ashton
Centaur Capital

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