Seth Klarman & Meryl Witmer Q4 2009 Hedge Fund Moves

The ever-secretive Seth Klarman and his Baupost Group filed their 13F-HR filing for Q4 2009:

  • Eye-catching new position in CIT Group (CIT) was the sole new position in Baupost’s filing. As mentioned numerously in previous postings, Klarman thrives on complexity and uses his army of analysts to seek out thorny  opportunities which scare off average investors. CIT may be one such investment. The other new positions were a result of the Liberty Media / DirecTV transaction.
  • The latest filing also shows an absence of a wide number of warrants as compared to Q3’s report. Whether this was a result of a change in reporting requirements or a broad move out of acquisition companies is unclear to me.
  • Among existing holdings, Klarman’s biggest moves were sizable additions to stakes in Enzon Pharmaceuticals (ENZN) and Viasat (VSAT).

Meryl Witmer, who recently discussed some of her stock picks in the Barron’s roundtable [$], seemed mostly bullish in Q4 judging by the activity in her 13F-HR filing:

  • Big new positions in Compass Minerals (CMP), the salt miner, and Stewart Information Services (STC), a poorly-named title insurance company.
  • Witmer also more than doubled down on positions in E Trade (ETFC) and Altisource Portfolio Solutions (ASPS), a real estate asset management firm.
  • Witmer’s firm sold their Valeant Pharmaceuticals (VRX) stake and slightly pared their First American Corp (FAF) position but  for the most part, activity was bullish.

You can view their holdings in spreadsheet format:

See other managers’ 13F-HR filings here.

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Q4 2009 13F-HR Hedge Fund Portfolio Holdings

Hedge fund managers are filing their Q4 2009 13F-HR forms over the next few days. I’ve posted some of their holding spreadsheets below and will add links as reports come in.

If you have a strong case for other managers I should include, send me an email or post in the comments below. Also, keep in mind that I use a perl script to parse these filings into the spreadsheet format and some information may be misrepresented. As always, YMMV.

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Dollar Trouble – Much Ado About Nothing?

That’s what this Bloomberg article suggests:

Weak Dollar Illusory as Correlated Trade Shows Gains

It is always beneficial to confront our own beliefs and analyses. For those of us fearing for the long-term future of the US economy, this article puts a different light on the widely disseminated fact that the dollar has lost most of its value since leaving the gold standard.

Of course, gold is an attractive investment because it is the only credible fixed store of value — this article, even if taken at face value (a very dangerous act), suggests a competitive devaluation is taking place across the globe. At best, the US dollar is not good but rather less bad than other currencies. The case for hard commodities still stands.

In any event, investors will want to hedge their bets no matter which situation plays out: the stable US currency or a dollar collapse. The danger with focusing too much on the  big picture is the difficulty in nailing the timing and finding the opportunities to realize the investment thesis. As such, we continue to pursue a balanced approach to investing, letting the clear macro-economic trends inform part of our decision-process as we look for fundamental value.

For more info, look into our premium research service: EA-Premium.

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Book Review – Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World

AUTHOR: Ronald Orol
RATING: 6 of 10


  • A strong introduction and overview to activist investing for the uninitiated.
  • Good coverage of the various methods activist investors use to agitate for change at target corporations.
  • Touches on some history and important milestones, like the junk bond explosion of the 1980’s and the corporate scandals in the early 2000’s.

Weak Points

  • Too basic for experienced investors.
  • No actionable items for readers after digesting the book.

My rating for Orol’s book may be unfair to some extent but with a title like Extreme Value Hedging, I was disappointed by the lack of investment insights to be gleaned from the book. For anyone familiar with Carl Icahn, Eddie Lampert or Bill Ackman, this book is too elementary to be of much interest.

Continue reading this post…

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Portfolio -2.3% YTD Through January


  • Enlightened-American Portfolio: -2.3% through Jan, 2010 (my actual IRR, including cash balance)
  • DJIA: -3.5%
  • Nasdaq: -5.4%
  • S&P 500: -3.7%
  • DJ Wilshire 5000: -3.5%
  • Russell 2000 (smallcap): -5.1%

Our portfolio outpaced all major indices thus far out of the gate in 2010. As always, this outperformance can not be attributed to any sterling market calls. Yes, I was expecting the market to head lower but I had been waiting for most of 2009 for a downturn. While a 40% cash holding could be construed as a market-timing call, most of our portfolio holdings suffered above-market-average drops in share prices due to my heavy concentration in commodities, gold and foreign stocks.

What kept the portfolio afloat is the same strategy that allowed us to beat the broader indices in 2009 despite being wrong on a market downturn — diversifying a portfolio of high-yielding, core value holdings with short-term special situations and options plays. At the heart of this strategy is identifying areas where volatility has been mistaken and mispriced as risk and building confident positions in these situations.

January’s portfolio activity illustrates some of these points:

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Do The Right Thing: Walk Away

Since I am based in California, much of the past season’s holiday conversation covered an unfortunate topic: the housing market. More specifically, we had more than a few family and friends in various stages of mortgage distress, from being underwater to walking away.

Some people were slightly embarrassed about their situation but in an era where banks, automakers and other corporations eagerly lobby for and accept government handouts, why should the average person be subject to a stigma simply for making an economically logical and prudent decision (walking away from their mortgage)? Most of these folks had no choice due to financial hardship but even if they had the means to hang on, I recommended they walk away.

Today’s Wall Street Journal carries details on a Pennsylvania mortgage relief plan that is gaining  notice in Washington. Living in a post-Bush, Orwellian era where up means down, this plan in actuality provides no relief but merely  postpones the day of reckoning for homeowners/mortgage-slaves. Instead of writing off mortgage principal, the plan provides short-term, low-cost loans to those struggling with their payments. This is akin to someone using their credit card (but with lower interest) to pay the mortgage — it provides no relief at all and actually adds more pressure as now there is both a mortgage and a new loan to repay.

If the financial crisis has shown us anything, it is that banks, Wall Street, et al care only about their bottom line, even to the detriment of the nation’s long-term future. It is high time that consumers approach these financial situations with the same cold, calculating consideration that Wall Street uses when denying mortgage modifications, small business loans, etc. Social stigmas for doing the right thing financially are a relic of a bygone era.

[disclaimer on] Please note that I am not advising any readers to take any course of action. Each state has different laws and each person’s situation is unique. Here in California, mortgages are non-recourse so lenders can only take back the house, which makes walking away a viable option. If you are in a distressed situation, please consult a trusted advisor for help.  [/disclaimer off]

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