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Whitney Tilson's T2 Down 14% In May, Second Worst Month Ever
From Whitney Tilson's just released letter: "It was an ugly month – our second-worst ever – but for perspective, our fund gave back slightly more than the 12.3% gain of the previous two months. We’re still having a decent year, with a healthy, market-beating gain. In fact, this is the fourth-best start to a year in our fund’s 14-year history." Is that so? May one inquire, in the aftermath of the JPM CIO scandal, does T2 mark the bulk of their positions, which as Zero Hedge disclosed recently are call options, based on market, or based on magical bid/asks, to be made up on the go (as in JPM'scase)? That's right - a hedge fund which "invests" in theta. Is there any wonder why the "hedge fund" with about $200 million in actual stock-based AUM (the balance being calls and warrants), may be the first one with a negative Sharpe ratio? For a visual summary of why LPs (aside from friends and family of course) in T2 are singlehandedly propping up the bottom line of Dramamine, see the chart below.
From T2:
As you can see from the chart below, our 15 largest positions at the beginning of the year had huge gains in the first quarter (blue bars). At that point, we still thought that these stocks were moderately cheap, which is why we continued to hold them, but as the margin of safety diminished, we maintained our selling discipline and trimmed a number of holdings, including Netflix, Dell, Howard Hughes, J.C. Penney, Citigroup, and Pep Boys. Obviously we wish we’d sold more, but the gains we harvested account for most of our returns this year, as our long book, collectively, is back to being roughly flat on the year, as shown by the red bars in the chart:
As a reminder, Tilson's Iridium position is WARRANTS. One wonder: does one use Black Scholes to "mark" these?
But wait, there are more brilliant insights from the permanent CNBC fast money fixture, who links to Doug Kass missives and Bill Ackman presentations. Here he is on volatility, and why Negative Sharpe ratios are actually good for you!
Over the past ten months, our fund’s monthly returns have been extremely volatile, with our two worst months but also our 3rd and 4th best months ever. Emotionally, this is hard; all other things being equal, we would prefer to make money steadily every month. But of course all other things aren’t equal. The vast majority of money in the world is invested by people who can’t stomach volatility and are willing, either consciously or unconsciously, to sacrifice profit in exchange for lower volatility. Witness the interest rate on 10-year U.S. Treasuries falling to below 1.5% on Friday – and rates are even lower in Germany, Japan and eight other countries. It is utter madness for long-term-oriented investors to accept such low interest rates, especially with monetary printing presses around the world going at full speed, making inflation a real concern over time. But institutional investors of the world are so scarred by losses on low-quality sovereign debt and stomach-churning volatility in the stock markets that they flee to islands of perceived safety – even though, to quote James Grant, these islands (especially Japan) are offering nothing but “return-free risk.”
We have the opposite point of view: not only do we ignore month-to-month volatility in our pursuit of superior long-term returns, but at times we knowingly invest in many highly volatile stocks, but only – this is key – when we’re confident that we’re getting well compensated for doing so. For example, last August and September, the last time investors fled to safety, we added to stocks like Citigroup, Goldman Sachs, Netflix, and J.C. Penney. This paid off late last year and early this year, giving us the chance to harvest some nice gains, and now – in a case of deja vu all over again – we’re getting another bite at the apple.
For those hoping for risk free alpha, just do the opposite of the below:
Updates on Certain Positions
In our previous monthly letters this year, we’ve discussed Netflix, J.C. Penney, and St. Joe (January), Berkshire Hathaway (February), Iridium, dELiA*s, and MRV Communications (March), and Barnes & Noble, Netflix, SanDisk, and Grupo Prisa (April), so in this letter we’ll focus on SanDisk, Dell, J.C. Penney, AIG, the U.S. financials, and Pep Boys.
SanDisk, Dell and J.C. Penney
SanDisk, Dell, and J.C. Penney all reported weak Q1 earnings recently and their stocks tumbled. In SanDisk’s case, revenue fell 7% and adjusted EPS fell 39%; for Dell, revenues and EPS fell 4% and 27%, respectively; and for JCP, revenues were down 20%, same store sales fell 19%, free cash flow was severely negative, and the company suspended its dividend.
In the cases of SanDisk and Dell, both stocks appear cheap on every metric, especially after their recent declines, but we weren’t able to develop the conviction that their problems are temporary and will reverse. For us, there’s too high of a chance that they turn into a value traps so we closed out our positions.
In the case of J.C. Penney, we came to the opposite conclusion: we believe that our investment thesis remains valid and that the stock’s intrinsic value is much higher than current levels, so we view the recent selloff is a gift because we’ve been able to add to our position at more attractive prices.
Short AIG:
AIG
Our largest new investment this year is AIG, which is now our 5th largest position (after Berkshire, Iridium, J.C. Penney and Howard Hughes).
The punchline:
When a company in our portfolio reports disappointing earnings, we tune out the noise and shortterm orientation of the market
And reality too.
Many, many, may more words in the full letter below, all designed to mask one simple fact: the man writing them really has no clue.
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Where's Bob "off the lows" Pissani to assuage the sheeple?
AIG haha
How the Fuck does this retard control more than a quarter of a billion in assets/positions is beyond my comprehension.
Did he marry Bernanke's ugly daughter or something?
Whitney's portfolio is a hedge against his client's position.
Sincerely, B. Masters
One wonders if the guy has even done 1st year finance.
As for bitchy Blythe, hope she chokes on her own shit. She will eventually, just like Iksil and when it happens I hope everyone laughs with me as once again Dimon will get gouged this year. Get ready taxpayers.
Did you see Anna Bernanke when she was young? Smoking hot. No brains though just like her hubby
Silver is off the lows...
treasuries are laughing at this rally.
That has to be the ugliest portfolio I have ever seen. He is all in financials with (options) leverage!? Brilliant! He needs to put the Birinyi Ruler on a chart of the XLF if he wants to know how soon his fund will go to zero!
so thats how you do it, you just tune out the noise and everything is ok!
Analyst: Err.. Mr. Tilson, we are hemoraging money fast! We need to do something.
Tilson: *Fingers in ears* LALALALALLA I CANT HEAR YOU. THEREFORE WE ARE DOING FINE.
Most of the people we know use that as their investment scheme.
Too bad there isn't an ETF for corruption, fruad, crony-capitalism and fascism. Same as it ever was, well at least until the next big reset (a.k.a. war).
There is. It's called US Treasuries. lol.
I guess T2 believes that the Ponzi will continue forever and they can avoid being casualties. There WILL be a loser someday. Will it be you?
gold and silver heading for their next plateau upward
You'd think 14 years is enough time to render someone useless and clueless and move on to greener pastures. Even Paulson is a step up from this guy.
This guy's investors would've been better off investing with Whitney Houston.
I think the only one getting rich is Whitney-Tilson that is; it's definitely not his investors,
You know the funny thing about Tilson...he proves it's really not about what you know.
He's smart enough to get $300M AUM and skim, what is it, 1% or 2% off of that each year, to gamble? I mean he is definitely smarter than me because I can't figure out how to skim $3M/yr to do basically no work.
Turns out Harvard is worth it, yet again.
Its so true. What a bumbling fool and yet he gains the confidence of 300MM.
Where is the full letter?
This author really doesn't have a clue.
"As a reminder, Tilson's Iridium position is WARRANTS. One wonder: does one use Black Scholes to "mark" these?"
They are traded liquid instruments so one doesn't need to "wonder".
But even more hilarious is that the author doesn't understand how to read a 13-F:
If you spent 30 seconds looking at the 13-F rules you would understand that that with respect to the market value, votes, and other details of call options - you include the full value of the underlying - these are NOT market value of the options, but market value if you owned 100% of the underlying stock.
http://www.sec.gov/about/forms/form13f.pdf Top of page 5:
"The Manager must give the entries in Columns 1 through 5 and in Columns 7 and 8 of the Information Table, however, in terms of the securities underlying the options, not the options themselves."
If you don't believe me maybe some grade 2 math will help:
From the 13-F, that $76.3M in BRK options has beside it the number of shares they cover: 939,800. $76.3M divided by 939,800 = $81.15, which is exactly where BRK closed on March 31. The shares are worth $81.15 not the options.
For example if these are December $80 call options, they trade for around $4.50, which would be about $4M - a 2% weighting on a $200M fund.
Geesh man if you're going to critcize someone for "not having a clue" don't embarrass yourself be showing how ignorant you are in the process.
?The reality is you've overstated the value invested in options by many orders of magnitude, and thus your whole line of of criticism is proven to be utter rubbish.
nicely done
Reasonably phrased and argued claims against Tyler's points? In my zerohedge? Never..
This is where I disagree with ZH. I think Tilson is one of the few honest people on Wall Street. He's also more transparent than most money managers. What about Green Mountain Coffee? He's shorted that one and bought BP when NO ONE was buying it. He' can't be right every month but as long as he's honest and beats most money managers over the long term, that's good enough for me. Would you have rather invested with Madoff?