Tilson Discusses Managing Losses

Apologies for the Five Second traders at the start, Tilson joins the conversation at about the one minute mark

Whitney Tilson Has a Brutal May

Join the club Whit.  No panic from me either though, volatility is the friend of the long term business focused investor, not the enemy.

Here is Tilson:

T2 Accredited Fund Letter to Investors-May 12

Tilson Presentation - Why T2 Is Long JC Penney

Why We'Re Long J.C. Penney-T2 Partners-5!22!12

Tilson on JC Penney

Your observations continue to make sense Whitney, there is no place for that on CNBC.

I love the question to Whitney.... "How can you still believe in Ron Johnson at this point?"

Holy cripes, how long has he been at the company....5 months ?  How can anyone take a view longer than five months?

T2 Partners May 2012 Berkshire Hathaway Slides

Tilson Berkshire Presentation May 2012

T2 Partners April Letter to Investors

T2 Accredited Fund Letter to Investors-April 2012

Tilson on Trading Barnes and Noble

Went long last week (had been short), up 69% since:

Tilson Analysis of Three Largest Holdings

Hot off the press

T2pres-4-12

Tilson on Panicked Headline Investing

From the T2 March Letter:

Panicked Headline Investing

As value investors, we often invest in companies and industries that are deeply out of favor because that’s where bargains – babies thrown out with the bathwater – often lie.  At the extreme end of this spectrum is what we call “panic headline investing.”  The opportunity arises when something goes terribly wrong at a well-known company, resulting in very negative headlines that lead to the widespread view that the company is so toxic that its stock is uninvestable at any price – and thus panic selling.  We love buying from sellers who don’t care about price.

Sometimes panicked headlines affect an entire sector such as financial stocks during the credit crisis and, to a much lesser extent, last August and September at the peak of the European sovereign debt crisis (we took advantage in 2008/09 with Berkshire Hathaway, Wells Fargo and American Express, and last fall with Citigroup and Goldman Sachs, among others). But during normal times, it’s usually something company-specific.  A classic example is BP during the oil spill in mid-2010 (another one we profited immensely from).  Over the past year, other examples we’d cite are News Corp last August (phone hacking), Hewlett Packard last August and September (management shakeup), Netflix last October (Qwikster debacle), Jeffries Group last October (MF Global bankruptcy), Sears Holdings last December (bankruptcy fears), and Diamond Foods in February (accounting scandal).

We look closely at all of these situations and occasionally invest in one.  For example, of the six recent ones noted above, we invested in two: Netflix, which has been very profitable and which we continue to own, and Jeffries Group, which we have nearly entirely exited after almost doubling our money.  Why did we invest in these two and take a pass on the other four?  It’s hard to say – to some extent, after all of our analysis, it comes down to gut-level comfort.  Given the success we’ve had doing this type of investing, perhaps we should try harder to get comfortable with these situations more often…

Tilson Buying Netflix on Selloff

Tilson on CNBC - Discussing Position in AIG

Followers of this blog know we have written several times about our interest in AIG, but belief that it should likely belong in our "too hard pile".

http://seekingalpha.com/article/292152-here-is-why-bruce-berkowitz-has-18-of-his-fund-in-aig

http://seekingalpha.com/article/316611-the-fairholme-fund-s-year-to-forget-will-reverse-course-in-2012

Tilson has bought in and discusses why:

Whitney Tilson Thinks Tesla is a No-Brainer Short

From Tilson


Speaking of scams (part 2), this article highlights how Tesla (which we’re short) funds its operating losses with customer deposits, a VERY questionable practice, especially since Tesla is burning money at a very high and accelerating rate: its free cash flow (OCF-cap ex) in 2009, 2010 and 2011 was -$93 million, -$168 million, and $-312 million – and net cash at the end of 2011 was down to a mere $4.2 million! (excluding $31.6 million of restricted cash)  Yet the stock was up 9.7% today to an ALL-TIME high thanks to an upgrade from Wunderlich Securities (huh?) and now sports a $3.8 billion market cap, equal to 18.4x revenues.  I am NOT making this up!


Tilson directs us to this article:


http://dealbook.nytimes.com/2012/03/22/teslas-ambitions-fueled-by-customer-down-payments/

Tilson on the Phoenix Housing Market

Here’s a WSJ article about the rebound in the Phoenix housing market, followed by comments from the two smartest housing guys I know, Sean Dobson of Amherst Securities and Mark Hanson of Hanson Advisors. 

As home prices continue to drop in most cities, a nascent real-estate rebound here holds lessons for the rest of the country.

This sprawling desert metropolis was one of the hardest hit housing markets during the bust. Phoenix home prices declined 55% from 2006 through the end of 2011, and Arizona's foreclosure rate jumped to No. 3 in the nation in 2009. Hundreds of thousands of homeowners are underwater, meaning they owe more than their homes are worth.

Now real-estate economists across the country are studying an early but surprisingly broad Phoenix turnaround. The sharp drop in home prices has brought new buyers into the market. Unlike other markets where housing recoveries have been snuffed out by big overhangs of homes for sale and foreclosed properties, inventories are lean here.

"Phoenix has hit a bottom," says Thomas Lawler, an independent housing economist who was one of the first to warn six years ago that prices in overbuilt metros were poised to fall.

The nation's hard-hit housing markets face a tough act: engineering a housing recovery without traditional trade-up buyers, many of whom are either unwilling or unable to sell because of huge price declines.

Phoenix has found a viable formula. Low prices are igniting demand from first-time buyers and investors who are converting the homes to rentals. The local economy is on the upswing with several big employers like Amazon.com Inc. and Intel Corp. hiring again, which is further increasing demand for housing. And the region is benefiting from a surge of buyers from Canada who are using their favorable exchange rate to scoop up bargains in the desert.

Here’s Sean:

Yes, Phoenix is for real.

We have situations where we closed homes three months ago, and nearly identical homes on the same block just sold at 30%+ higher prices.

Phoenix housing dropped 60%, most markets didn't (yet).  This is mostly because these were strategic defaults and it’s a non-judicial state, so foreclosures went quickly, allowing investors to buy and rent.

Florida on the other hand still has 1 in 5 loans delinquent.

Not sure why anyone would buy the stock of a homebuilder though. They are no real buyers at levels above construction cost.

Even in Phoenix, housing is still priced well below cost.

And here’s Mark:

Of the 1.6mm housing units in Maricopa Co, AZ, 225k were vacant as of late last year. Moreover, 650k homeowners don't have enough equity to sell and rebuy (negative or effective negative equity position).  Given most homeowners sell every 6 to 8 years for one reason or another, this is a lot of pent-up and potential supply to work through (at 100k sales per year) before a durable bottom can occur. If sales double from here, prices rise, or a combination of the two there will be an enormous amount of supply hit the market all the way up preventing much in the way of price gains.  That said, I find it difficult to believe that first timers and investors are a deep bench here. In fact, throughout housing market history they have been known to literally go away over a very short period of time when the most subtle of conditions change.

Moreover, if rates rise going into spring/summer (my forecast for 1h'12) or distressed supply (REO and short sales) continue to decrease (distressed supply is what feeds present demand) this market will roll over quicker than a Suzuki Samurai.  Yes, Foreclosures and short sales are an essential element in keeping sales volume (which precedes prices) increasing. Without distressed supply, there is no housing market here.  Anything done to further prevent the free flow of distressed supply will prevent a recovery here.

Like every other market across the country that once a year or so benefits from massive stimulus aimed squarely at housing (that every year investors mistake for a durable "recovery"), the only permanent "cure" for this housing market is more time, legacy homeowners that get realistic about house prices and either default or short sell, and banks that quick kicking cans.

Updated Tilson Presentation on Berkshire

BRK Slides 2-26-12

Gurus Gone Wild February 16, 2012

Tilson - Lotsa Talkin to the Fast Money Dudes Suffering From the Attention Deficit Disorder

Whitney Tilson on CNBC – Missing a 66 Bagger on Apple Still Haunts His Dreams

Wilbur Ross Talkin Politics and Greece

Vulture Investing Guru Wilbur Ross – On Greece, Romney and Automakers

Pickens on Oil and Gas

Energy Guru Boone Pickens – Natural Gas Is a Game Changer for the United States

Gurus Gone Wild January 27, 2012

Tilson on Netflix and Its Good Quarter

Whitney Tilson’s Take on Netflix Successful Quarter – He Is Still Holding Despite Share Price Increase

Second Curve's Tom Brown - Obama Waging Jihad Against Banks

Bank Stock Guru Tom Brown of Second Curve Capital Says Obama Waging “Jihad” Against U.S. Banks

Gurus Gone Wild January 10, 2011

Tilson Annual Letter and His CNBC Appearance

T2 Partners Annual Letter - Discussion of Each of His 15 Long Positions

Tilson on CNBC – Why He Is Long-Term Bullish on Netflix

CP Rail Does Not Agree With Pershing Square's Ideas:

Canadian Pacific Writes to Shareholders Suggesting Ackmann Operating Improvements Unrealistic

More Wisdom From Munger

10 More Thoughts on Investing from Charlie Munger

Wilbur Ross Likes to Run Into Burning Buildings

Wilbur Ross – A Guy Who Likes to Run Into Burning Buildings

Gurus Gone Wild December 12, 2011

Biglari Annual Letter

Biglari Holdings 2011 Annual Letter to Shareholders

Yacktman On Pepsico

Value Investor Donald Yacktman On Why Prefers PepsiCo to Coca-Cola

Interview Transcript - Steve Forbes and Tilson

Transcript of Steve Forbes Interview with Whitney Tilson

Tilson On Interoil, Icahn on Commercial Metals, Rogers on Everything

Whitney Tilson Thinks InterOil Intrinsic Value = Zero

Carl Icahn’s November 28, 2011 Letters to Takeover Target Commercial Metals Company

Jim Rogers Would Invest 100% of His Portfolio in One Country

Tilson/Barron's On Netflix

http://online.barrons.com/article/SB50001424052748704854004577052211122984188.html