Friday, June 12, 2009

Market Folly

The following is a guest post by Jay, the author of a site dedicated to tracking hedge fund movements through their portfolios.

We're currently in the midst of our ongoing hedge fund portfolio tracking series (Q1 2009 edition). We track these hedge fund portfolios to get a sense as to where they are putting their money and to gain any possible investing insight from their movements. And, since BarelKarsan is focused on value investing, we thought we would take an in-depth look at a faily well-known value investor: Whitney Tilson and his T2 Partners.

T2, as of the current filing, has $81 million invested on the long side of their value fund. The fund is run by Whitney Tilson and Glenn Tongue and they use deep value investing methodologies. In addition to running his fund, Tilson is very active in the value investing community, releasing hisValue Investor Insight newsletter and organizing the Value Investing Congress, which we typically try to cover. In the past, we've also noted Tilson's bullishness on Berkshire Hathaway (BRK-A).

Tilson launched his investment career in 1999. Taken from his Tilson Funds website, "Mr. Tilson received an MBA with High Distinction from the Harvard Business School, where he was elected a Baker Scholar (top 5% of class), and graduated magna cum laude from Harvard College, with a bachelor’s degree in Government. Mr. Tilson writes a regular column on value investing for theFinancial Times and Kiplinger's, has written for the Motley Fool and, and teaches financial statement analysis and business valuation for the Dickie Group. He was one of five investors included in SmartMoney’s Power 30, and was named by Institutional Investor as one of 20 Rising Stars." With that in mind, let's dive into their portfolio to see what ideas they may have.

The following were T2's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, so keep in mind that we're just checking out the major moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated in the last quarter):
Wells Fargo (WFC), General Electric (GE), General Growth Properties (GGWPQ), Microsoft (MSFT), Costco (COST), Laboratory Corp (LH), Sears Canada (SEARF), Chipotle (CMG), Apple (AAPL), Yahoo (YHOO), PF Chang's (PFCB), AllianceBernstein (AB), and Dominos (DPZ)

Some Increased Positions (A few positions they already owned but added shares to)
Berkshire Hathaway (BRK-B): Increased by 200%
Contango Oil & Gas (MCF): Increased by 180%
Wesco Financial (WSC): Increased by 117%
American Express (AXP): Increased by 98%
Linn Energy (LINE): Increased by 98%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Odyssey Re Holdings (ORH): Decreased by 76%
Berkshire Hathaway (BRK-A): Decreased by 75%
Fairfax Financial (FFH): Decreased by 72%
Wendys/Arbys (WEN): Decreased by 49%

Removed Positions (Positions they sold out of completely)
McDonald's (MCD) Calls, Barnes & Noble (BKS), Johnson & Johnson (JNJ), Altria (MO), American Oriental Bioengineering (AOB), Lojack (LOJN), Equity Media (EMDAW) Warrants

Top 10 Holdings (by % of portfolio)
  1. Berkshire Hathaway (BRK-B): 12.64% of portfolio
  2. Huntsman (HUN): 9.3% of portfolio
  3. Delia's (DLIA): 5.86% of portfolio
  4. Resource America (REXI): 5.62% of portfolio
  5. Wendys/Arbys (WEN): 5.57% of portfolio
  6. American Express (AXP): 5.47% of portfolio
  7. Winn Dixie (WINN): 5.43% of portfolio
  8. Wells Fargo (WFC): 4.75% of portfolio
  9. Echostar (SATS): 4.3% of portfolio
  10. Contango Oil & Gas (MCF): 3.97% of portfolio

Overall, an interesting look inside his portfolio. The most notable move to us was his brand new purchase of Wells Fargo (WFC). Not only is this a notable move because it is the purchase of a financial, but also because T2 was previously short WFC. As they shorted it down, they started to recognize value and switched their bet. In addition to WFC, T2 was out adding to shares of AXP and WSC, other financial based firms. It will definitely be interesting to see if their entrance into the sector pays off down the road. One last thing we noted was their preference for Berkshire Hathaway 'B' shares over the 'A' shares. They were adding to the B shares but were selling the A shares, as they possibly have found some sort of arbitrage there.

Assets from the collective holdings reported to the SEC via 13F filing were $81 million this quarter compared to $89 million last quarter, so a slight decrease in assets listed on the long side of the portfolio. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, John Paulson's hedge fund Paulson & Co, Stephen Mandel'sLone Pine Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Timothy Barakett's Atticus Capital, Lee Ainslie's Maverick Capital, Raj Rajaratnam's Galleon Group, Shumway Capital Partners (Chris Shumway), Bret Barakett's Tremblant Capital Group, and Boone Pickens' BP Capital Management.

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