Tag Archives: Tilson

Is this Acceptable?



A reader sent the above link. Click on it and then download the Annual Report for the Tilson Focus Fund, See pages 10-12 discussing the year’s results.

also: TILFX-Fact-Sheet. Why has the fund generated this performance?  What would you advise a client who is in this fund? Note that the money manager has said that he admires Warren Buffett’s letter to shareholders. Compare and contrast his letter with Buffett’s past letters.  Do you understand the results achieved and why?  Can you describe what principles are used to construct such a portfolio.  Note the portfolio!  Comments?  Anything hit you in the face?

I will pay anyone their asking price to give me a cogent explanation how this is acceptable.

Glenn H. Tongue – Portfolio Manager, Tilson Focus Fund

Mr. Tongue is a general partner and co-manager of the Advisor and is the co-manager of the Tilson Growth Fund, LP, the Tilson Offshore Fund, Ltd. and the T2 Qualified Fund, LP. Prior to becoming a general partner and comanager of the Advisor on April 1, 2004, Mr. Tongue spent seventeen years working on Wall Street, most recently as an investment banker at UBS where he was a Managing Director and Head of Acquisition Finance. Before joining UBS, Mr. Tongue worked at Donaldson, Lufkin and Jenrette (“DLJ”) for thirteen years, the last three of which he served as the President of DLJdirect, an on-line brokerage firm. During his tenure there, he oversaw both DLJdirect’s IPO and ultimate sale. Prior to DLJdirect, Mr. Tongue was a Managing Director in the Investment Bank at DLJ, where he worked on over 100 transactions aggregating more than $40 billion. Before working on Wall Street, Mr. Tongue managed sales, marketing and certain operations at Blonder-Tongue, Inc., a manufacturer of pay television and cable television distribution equipment.

Mr. Tongue received an MBA with Distinction from the Wharton School of Business and received a Bachelor of Science in Electrical Engineering and Computer Science from Princeton University. He serves on the Board of All Souls School, an early childhood educational facility, and lives in New York, New York.

Value Quant Investing; Herbalife; Apple; Reader’s Question


I have started reading this book mentioned here:
I can’t recommend the book yet, since I have a long way to crawl through it. The reading is dense with many statistical studies and numbers.
Herbalife is a Fraud, Right?




One set of tools we describe in our book Quantitative Value, is how to apply statistical tools to identify manipulators, frauds, and/or potential by I Want This”
“More money…has been stolen with the point of a pen than at the point of a gun.”
— Warren Buffett, Chairman’s Letter, 2000.
Three basic categories of risk for permanent impairment of capital
  1.    Financial Statement Manipulation  – financial statements fail to tell the whole truth about a company’s financial health/condition.
  2. Fraud – misrepresentation made that may result in unauthorized benefits to an individual, the firm, or a third party.  Affected by opportunity and pressure.
  3. Financial Distress or Bankruptcy – when a firm has difficulty or cannot meet its obligations to creditors.
Tools actually applied:

What do the quant models say?

As of December 31, 2012, the quant model recommended purchasing Herbalife. The firm is very high quality and became excessively cheap after Ackman came out with his “short news.” My guess is Loeb bought our book over the holidays, read it, and then was determined to by I Want This”
How did the Fraud/Manipulation/Bankrupty models stack up?

  Accrual measures relative to universe of stocks

  • Accrual Anomaly: 81 percentile
  • Net Operating Asset Anomaly: 18 percentile
  • Average: 49.5% percentile–basically, no issues
  • Manipulation prediction model:  Less than a 1% probability of manipulation; no red flags on any single  manipulation metric
  • Bankruptcy prediction model: The absolute probability of HLF going bust is low, but HLF scores at around the 89% percentile on this metric relative to the universe analyzed (stocks over $1.4B). This is something to watch, but the absolute probability of this occurring is very low (<1%)
Overall, the statistical results indicate that Loeb’s position is a better bet than Ackman’s position. Of course, this is in reference to the 12/31/2012 HLF stock price. As of yesterday, HLF is no longer included in the quantitative value screen because it has become too expensive.
I am not an expert on Apple (AAPL) but it makes a great case study on investor expectations. The price has fallen 38% from its all-time high in Sept. 2012 and now is at $450 or so. Apple has about 137 billion of cash equivalents with 69% of it overseas.  Adjusted for taxes, cash works out to $110 per share. The dividend is $10.60 per shares. Assume a cost of capital of 10% (Apple trades at a 10 pe) with a growth rate of 2%, the NPV of those dividends –$10.60 divided by (10% – 2%) or $132. Add that to the $110 and you have almost half the current price. The market doesn’t expect much from Apple.
If you learn anything from this post, it is this–avoid glamour and high expectations and seek out low expectations within your circle of competence.   A money manager on CNBC last Friday said he sold his Apple stock because the future product pipeline was uncertain.  Whoa!  And six months ago, it wasn’t?  Yet, people like him are running billions. Are you surprised that there has been a $300 billion change in valuation despite no to slight fundamental change in the company over the past 4 months?
A Reader’s Question
Would it be possible for you to share ‘Grant Interest Rate Observer’ publications on the blog or by email?
Have already spent enough money on MBA and partly on CFA also, can’t afford to spent hefty amount once again at this point in time.
My reply: I must obey the wishes of Grant’s copyright, plus you have to have a special PDF viewer.  I suggest that you sue your Graduate business school and the CFA Institute to get your money back. Why get a CFA AND an MBA?
Good luck.
Look: Harvard Money Manager:
Tilson Focus Fund

Review of MCX and Past Case Study (IRDM); Arguing Clinic

Does the tooth fairy pay for capex–Warren Buffett

IRDM Maintenance Capital Expenditures Case Study

Time to check in on IRDM. Last post:http://wp.me/p2OaYY-zt

A hedge fund made a case for investing in IRDM’s growth, but we made the case that true capital expenditures were not being accounted for and thus true owner earnings were being overstated.  I repeat this case since the concept of true MCX is so important.  Look at the lost opportunity cost for this hedge fund.

A Thorough Discussion of MCX_Case Study and Capital Theory

IRDM Presentation and then Tilson on IRDM 4_11

Time to attend an argument Clinic

Lessons on Reading a 13-F

For those who look at 13-F filings, here is advice from a money manager (Tilson Funds www.tilsonfunds.com) who files 13-Fs since he manages over $100 million.

Lessons on reading a 13-F

Like every other “institutional investment manager” with over $100 million in securities, we filed our Q1 13F with the SEC recently (you can see ours at: http://sec.gov/Archives/edgar/data/1327388/000139834412001831/fp0004886_13fhr.txt). It’s very easy to misread a 13F and reach erroneous conclusions – let me highlight a few, using ours as an example:

A) Right up top, under the “Form 13F SUMMARY PAGE”, it says, “Form 13F Information Table Value Total: $ 345,109 (thousands).” I wish we had $345 million under management, but we don’t, so why does it say this? The answer is that when call option positions are reported on a 13F, the dollar amount listed is NOT the market value of the option but rather the full value of the underlying stock. For example, to pick a random stock we don’t own, let’s say we owned call options on 10,000 shares of Procter & Gamble stock that expire in a month, with a strike price of $67.50. With the stock at $64.36, each option costs a mere 12 cents, so the value of this position would be $1,200 – yet on a 13F filing, it would appear as a $6.436 million position! Thus, the seven call option positions listed in our 13F are nowhere close to being worth the $104.1 million they are listed at. Specifically, our Berkshire call option position, listed at $76.3 million, more than 4x larger than any other position, is worth only a tiny fraction of that amount, as the great majority of our position is in common stock.

B) Short positions are not disclosed in 13F filings so it’s impossible to tell what a manager’s actual exposure is. For example, a manager could appear to be very heavily exposed on the long side to the market, a particular sector, or a specific stock, but in fact have the exact opposite exposure in reality. I recall one time that our 13F showed that we owned a few shares in InterOil, which caused some to question whether we’d reversed our long-standing bearishness on this company. In fact, it was (and still is) one of our largest shorts, so why did we have a small long position? The reason is that it can sometimes be hard to get the borrow on the stock, so when we do get the borrow, we sometimes borrow and short more shares than we want, offset by a small long position that allows us to easily trade around a core position. So, for example, if we wanted a 80,000 share short position of a stock, we might borrow and short 100,000 shares and then buy 20,000 shares. Only the 20,000 shares, however, appear in the 13F.

C) This is unique to us, but our 13F lists securities that Glenn and I didn’t buy because the holdings of the Tilson Dividend Fund, which our friend Zeke Ashton of Centaur Capital in Dallas manages, appear on our 13F.

Case Study on Capital Expenditures (MCX)

Here’s to our wives and girlfriends… may they never meet! –Groucho Marx

MCX and Iridium Case Study

Our first discussion of Maintenance Capital Expenditures (“MCX”) occurred here: http://wp.me/p1PgpH-6t

One method of learning is to EXHAUSTIVELY analyze and read about a subject so we can master the topic and understand the principles and subtleties in applying those principles.

We are focused on Return on Invested Capital which has been defined one way as Operating Earnings (Earnings before Interest Expense and Taxes, EBIT) or better yet, (Earnings before Interest Expense, Taxes and Depreciation & Amortization, “EBITDA” – MCX) divided by tangible capital or (Net Working Capital + Net Property, Plant and Equipment). We have covered EBITDA thoroughly in a 36 page discussion here: http://www.scribd.com/doc/66843869/Placing-EBITDA-Into-Perspective.

Now we review MCX as part of the (EBITDA – MCX) calculation.

The link below has a PDF that further analyzes how to calculate one aspect of Return on Invested Capital–(EBITDA – MCX) divided by Tangible Capital.

Also, this case study will be placed in the VALUE VAULT

The Bridge of Death

If you do not master the above case study then as investors you will not be able to cross the Bridge of Death:http://www.youtube.com/watch?v=_7iXw9zZrLo&feature=related

Housekeeping; Analyst Position and Finding an Analyst’s Position

We’ve had cloning in the South for years. It’s called cousins.–Robin Williams


Once the Value Vault has been reorganized, I will send an email with a key to all who have received a key before. Meanwhile, I will send out keys to the people who have requested entry into the video vault for 2010 Greenwald Lectures. Thanks for your patience.  Also, I will fix the comment section per a reader request so it is easier to follow a discussion.  The blog will become better organized as we move forward.

Tilson Posted a Job Opening for an Analyst’s Position

Don’t forget to visit www.tilsonfunds.com to see his writings on value investing. To read his funds’ investment letters–username:tilson and password: funds.   The Tilson Fund has had a difficult year (-20% or so) in 2011. Hopefully, 2012 will bring sunshine.

From Whitney Tilson:

A friend of mine who’s really knocking the cover off the ball is looking for an analyst:

Greenwich-based hedge fund seeks an analyst who is smart, hard-working, honest and eager to learn and contribute. The candidate should be able to efficiently analyze businesses across multiple industries and have done so professionally for three or more years. He or she should have an MBA or have earned their CFA designation. The candidate should also have a personal or professional track record that demonstrates strong analytical and stock-picking ability.

Our firm employs value-based, event-driven strategies with a macro overlay. The Fund has had a strong start, rising over 400% in its first three years since inception in 2009. Our company is seeded by a well-known and highly-respected hedge fund icon.

Please direct inquiries to analystposition99@gmail.com

Finding An Analyst Job

A reader sent the following email seeking advice:

Here is the situation in a nutshell: my goal since high school has always been to break into some fund where I can do research every day but due to a lapse in judgment and practical financial needs, I took a job as a management consultant right out of college. I’ve been working at this job for two years now and while it has given a ground-level perspective of how some large businesses are run, it has been predominantly a waste of time (pleasing clients, building pretty power points, etc.) and I am very eager to get out.

However, I have found it very difficult to break into the investment management/hedge fund world. I am trying to figure out how to land an entry-level research role at a fund, preferably value-oriented.

OK, readers may have their own suggestions and ideas which I am happy to post.  There are many ways to get to heaven (become a good investor) so working at a fund is not the only way. But I will return with some ideas later after I post the Coors case study and new case study this afternoon.  Let’s think about a good approach to finding a job as an analyst to help this reader.