Whitney Tilson, Michael Karsch discussion notes

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Tuesday, February 28, 2012 by


CSIMA Conference : Value Investing Conference at Columbia (Feb 2012) : Notes 2 of 5

Long Vs Short Investing
  • Whitney Tilson
    • Netflix (NFLX)
      • When we shorted NFLX, momentum in the stock and business worked against us.
      • Our original thesis, NFLX needs to invest heavily and its margins cannot be maintained, is still intact.
      • There was a repeated question about what change in NFLX for Whitney to go from short to long. He said its the stock price that changed.
    • BRK
      • Buffett is willing to buy it at 110% of book value, that provides a floor.
      • 8% downside and 50% upside to the stock.
      • Lack of catalyst is holding the stock back. But cheapness becomes its own catalyst eventually.
      • Refer to Whitney's latest take on Berkshire at  http://www.tilsonfunds.com/BRK.pdf
    • Wisdom
      • Quoted Munger : Shorting is a terrible business but young people seems to want to learn this on their own.
      • Dont fall it "I missed it" trap. It is common that you look at the stock after the pop and think you missed it. His advise - "Stop and re-do your work." It does not matter where the stock was before.
    • Talked about his 10X10 idea. Companies trading at 10B+ market cap and above 10x revenues. (Note - Get on Whitney's email list. Whitney has sent follow-up to this idea.)
    • Recommended
      • Confidence Game (link)
      • Fooling some of the people all the time (link)
      • David Einhorn's short presentation on JOE (link)
      • David Einhorn's short presentation on GMCR (link)
  • Temperament guides your investment process.
  • Risk is a function of liquidity that you have.
  • In the long short business, gross is more important than the net.
  • Best investing advise : When you think you are too long, get ride off the longs with lowest conviction and vice-versa.
  • Need to be double good (than the long only investor), to be successful on short side.
  • Keep open mind and show respect of technicals.
  • What gets hedge funds in trouble? a) swinging for fences, b) leverage and c) risk addiction.
  • Types of shorts
    • Outright frauds
    • Broken momentum on a very high valuation, growth stocks
    • Earnings miss on a very high valuation, growth stocks
    • Value traps (e.g. gradual but irreversible decline)
  • Even obvious shorts can be dangerous because of unexpected events. e.g. L3 looked like a bankrupt stock. But an outside investor came in, recapped the company and saved it.

Note - My big thank you to Columbia Business School. The comments made by speaker are off the record. I tremendously benefited from this event. This event is very unique in terms of the highest quality of speakers that it attracts while charging a negligible fee to the attendees. This conference is perhaps one of the best learning forum for students interested in value investing. The purpose of this post is to share the knowledge and increase the awareness about this great annual event organized by CISMA (Columbia Investment Student Management Association). I hope this post will encourage more and more students and practitioners to benefit from this great annual conference. The accuracy and accurate attribution to the speaker is not a guarantee.


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