Klarman, Einhorn and Witmer: Examining Q3 Filings

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 |  Includes: ACAS, ACGY, AFC, ANTM, AROC, AWI, AYE, BBEPQ, CSE, DPS, DVMT, HLX, IAC, KALU, KGC, LINEQ, LMDIA, MHK, MSFT, NWS, RHIE, TILE, TXI, UNH, WHR
by: Davy Bui

Seth Klarman is one of the more secretive money managers out there so I don’t know what returns Baupost has generated in 2008. Here are some recent stories with his thoughts on current market conditions. Looking at his SEC filing, I see a few interesting moves:

  • Klarman didn’t open any bold new positions other than $61M in Barry Diller’s IACI and $52M in RHI Entertainment (RHIE).  There were smallish investments in Acergy (ACGY) and CapitalSource notes.
  • True to their value investing philosophy, after massive drops in prices, Baupost added substantially to three energy partnerships, Breitburn Energy Partners (BBEP), Linn Energy (LINE) and Exterran Holdings (EXH). LINE is fairly well-known (probably due to Jim Cramer) so its current price is close to quarter-end’s quote.  BBEP and EXH are off an additional 50%+ since then.  Klarman also added to already big positions in two media companies, News Corp (NASDAQ:NWS) and Liberty Media (LMDIA).
  • Klarman sold off CapitalSource (NYSE:CSE) and a whole mess of SPACs.  What really caught my eye was the drastic reduction in the health insurance companies, UnitedHealth Group (NYSE:UNH) and Wellpoint (WLP).  Klarman (and a few other big-name value investors) had opened these positions over the past 2 quarters and normally, value investors aren’t expected to exit positions so quickly.  Perhaps the folks at Baupost saw something bearish in the industry before the markets did.
  • I think it's important for readers to bear in mind that Klarman (and the next manager, Einhorn) have a wide range of markets they participate in.  So these SEC filings are incomplete pictures of what’s going on in their funds and it would be dangerous to blindly follow them or assume they are bullish on a stock or industry just because a position is shown in the filing. For example, Einhorn is a prominent short-seller and shorts are not disclosed in the 13F filing.  So a long position could simply be the hedge portion of a bearish pair trade.  Or maybe Klarman is shorting the heck out of natural gas and has a few long positions like BBEP and LINE as a hedge.  I don’t think that’s the case but it’s something piggyback investors should consider.

After having issues with Third Avenue’s (Martin Whitman) filing, I decided to substitute David Einhorn of Greenlight Capital.  With the American Capital (NASDAQ:ACAS) debacle fresh in my mind, it seemed appropriate to study a guy that I should have paid attention to earlier.  His book on Allied Capital, Fooling Some of the People All of the Time, could have saved me from a disastrous investment.  Finally, he was featured in the World Series of Poker for the 2nd straight year and is pretty good, though it seemed to me he plays more of a  ”game theory” style , a la Howard Beal (see The Professor, The Banker and the Suicide King for more details), than a tight conservative style I would normally associate with value investors.  Anyway, he obviously has a good handle on probabilities which is directly applicable to investing.  His filing is interesting:

  • The two biggest new positions opened were $22M of EMC (EMC)  and $19M of Kinross Gold (NYSE:KGC). Those stakes are fairly small relative to his portfolio.
  • Greenlight Capital added 30% to each of their two largest positions at the period of the filing, Dr. Pepper Snapple Group ((NYSE:DPS) - what kind of a name is that?) and Helix Energy Solutions (NYSE:HLX).  HLX is off roughly 60% since the end of Q3 so it’ll be interesting to see if Einhorn kept buying.
  • Like Klarman, Einhorn soured on health insurance providers, selling off his stakes in WLP and UNH.  He also divested his complete stake in Microsoft (NASDAQ:MSFT) at a good price.

Othan than her spot in the Barron’s Roundtable, Meryl Witmer keeps a pretty low profile.  She also kept a low profile during the quarter, mostly holding her current positions:

  • The only new position opened was a tiny $2.6M stake in Allegheny Energy (AYE), which is a utility.
  • Apparently, three floor product companies were too many as she sold Armstrong World Industries (NYSE:AWI) but slightly augmented her stakes in Interface (IFSIA) and Mohawk Industries (NYSE:MHK).   Witmer also built a large position in Kaiser Aluminum (NASDAQ:KALU).  All three have slid over 50% since then.
  • Witmer reduced her positions in Texas Industries (NYSE:TXI) and Whirlpool (NYSE:WHR).  I have been watching WHR since last year but could never get comfortable with their unfunded pension and especially, retiree healthcare obligations.  I’m curious to see if Witmer sold out of WHR before it dived recently.

Filings:

Disclosure: no positions