Daniel Loeb Third Point Q3 Investor Letter

Embedded below is Daniel Loeb of Third Point's most recent letter to investors.  Loeb is one of the few who has continually outperformed the market through a value and activist approach, as well as shifting funds into credit markets when the risk is worth the reward.  Loeb shares his thoughts Third Point's foray in the EU debt markets, as well as giving some color on recent equity investments in Murphy Oil and AIG.

On AIG:
"...Treasury’s ultimate sale of its remaining 16% stake in AIG will serve as a critical catalyst for the company, allowing initiation of a dividend, a change in management’s compensation structure to a more standard incentive-based bonus payout model, and the removal of the overhang” of Treasury ownership. Given these multiple paths to value creation, we believe  AIG’s current valuation at ~10x consensus 2013 earnings and 0.5x pro forma tangible book value of $65 per share has significant upside from these levels."

Loeb also manages to leave investors with a few choice quotes from 2Pac and Boyz II Men to shed further insights on Third Point's logic.

Third Point Q3 2012 Investor Letter TPOI

Zell: "Unreality and why everything is mispriced"

Sam Zell, a self-made real estate titan, is here speaking with the crew on CNBC.  Fortunately, they actually let him talk without bulldozing him with agenda based questions. Zell truly has a 20,000ft view of the economy, and he always speaks his mind.  His prognosis is not the rosiest.

"We need leadership, not criticism. We need encouragement, not discouragement..."
- Sam Zell

SAM ZELL CNBC INTERVIEW 

The Fraud Files

An interesting and quick read found via Santangel's Review showing the chart of one of the Madoff feeder funds.  Of course hindsight is 20/20, but looking at the chart of the Fairfield Sentry Fund is truly amazing...if it were real.  Cliche I know, but typically if things are too good to be true, then they are.  As Charlie Munger says, "There is no way to get rich with soft white hands."  Another quote that comes to mind is that of Richard Feynman which says, "The first principle is that you must not fool yourself - and you are the easiest person to fool."  I would imagine after being conditioned for decades of steadily upward performance, that one could start to believe in the viability of such "remarkable" performance. 


Sentry Fund Fraud Chart

Not so New

Keith Trauner and Larry Pitkowsky are the founders of the Goodhaven Fund (GOODX).  The fund is relatively new, but Trauner and Pitkowsky are not, having been integral parts of the team at Fairholme (FAIRX) with Bruce Berkowitz thru his finest years of out performance.  The interview linked below talks about their time at Fariholme, their philosophy and understanding of value investing, and the low down on some of their current favorite ideas.

The fund has put up decent numbers in its short existence, beating the S&P this year, though lagging a bit since inception in 2011.  Typically value will lag in a rising market as we have seen recently, but that is not all bad.  It is a sign that the managers have a clear cut value investment process that they are sticking to.  The true test will be in a significant market draw down.  If the GOODX managers truly invest with a Ben Graham-like margin of safety, then the fund's downside should be mitigated.  Furthermore, the managers have a significant portion of their personal wealth invested in the fund, so you can be assured that portfolio decisions are being made with shareholders best interest in mind. 


GOODHAVEN INTERVIEW






disclosure: this is not a recommendation to purchase any securities mentioned in this post or anywhere on the blog.  This blog strictly expresses the opinions of the author.

Music page update

FYI - I added a few songs to the TUNES tab in the Amazon player.  I ran across Anders Osborne, Junior Brown, Michael Kiwanuka, and another Bass Drum of Death track I thought I should share.  The drummer from BDOD is leaving for undisclosed reasons.  That's a bummer because he was a real bruiser when we saw them live at One Eyed Jack's in New Orleans.  Not sure how that will affect things going forward, but BDOD did say that a new LP was hitting the shelves soon.  Looking forward to that!

Recent commentary from FPA's Bob Rodriguez - "All In!"

"It is all about not underperforming the market or a benchmark, so don’t fight the Fed. Unfortunately, a strategy of following the Fed’s urging to take on greater risk will likely end in heartbreak. Should the stock market continue its upward march, both our clients and FPA’s portfolio managers will be tested. This is a time for discipline. Given that economic growth is languid at best and is likely slowing, the divergence between the stock market and economic reality cannot be sustained. One or the other has to adjust."
- Bob Rodriguez

Embedded below is Bob Rodriguez's latest commentary about the Fed's recent QE Infinity announcement.  That was a couple weeks ago, and the market's optimism about the maneuver is already fading.


all-in-commentary-9-2012BC714505E176

Pain is sending a message.

I found the excerpt below via the always insightful Farnam Street Blog.

“When we encounter pain, we are at an important juncture in our decision-making process.”

September 29, 2012

It is a fundamental law of nature that to evolve one has to push one’s limits, which is painful, in order to gain strength—whether it’s in the form of lifting weights, facing problems head-on, or in any other way. Nature gave us pain as a messaging device to tell us that we are approaching, or that we have exceeded, our limits in some way. At the same time, nature made the process of getting stronger require us to push our limits. Gaining strength is the adaptation process of the body and the mind to encountering one’s limits, which is painful. In other words, both pain and strength typically result from encountering one’s barriers. When we encounter pain, we are at an important juncture in our decision-making process.

Most people react to pain badly. They have “fight or flight” reactions to it: they either strike out at whatever brought them the pain or they try to run away from it. As a result, they don’t learn to find ways around their barriers, so they encounter them over and over again and make little or no progress toward what they want.

— Ray Dalio