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Whitney Tilson’s T2 Partners continues to outperform the market despite the recent volatility. T2 was down just 2.8% in May while the S&P 500 declined 8%. Tilson has been particularly prescient over this market cycle and was a notable real estate bear heading into the credit crisis. Despite the recent market disruption Tilson is not concerned that we are repeating 2008. In his May letter to clients Tilson detailed his market outlook:

So if last month was analogous to late 2007, is the situation today like early 2008 (in which case, we should still be battening down the hatches)? We don’t know for sure, but probably not. We think the most likely scenario is more years of the choppy, range-bound market that we’ve been in for more than a decade – and that’s fine with us, as it rewards good bottoms-up stock picking, which is our forte.

Tilson has been buying the weakness and using the opportunity to purchase more of some of his favorite positions:

During the month, we did what we normally do when the market has violent swings: the precise opposite of the herd. On weakness, we initiated a few new long positions, added to some existing holdings like General Growth Properties, and trimmed certain shorts like Simon Properties Group, which we owned primarily as an industry hedge against GGP and felt was no longer necessary with GGP falling into the $12 range.

Tilson’s fund isn’t positioned for sunny skies, however. He continues to maintain a substantial short book and feels extremely confident in the continued outlook for hedging strategies over the coming years:

As you might expect, our long book dropped significantly (though not as much as the market), while our shorts offset much of these losses. Losers of note on the long side were Liberty Acquisition Corp. warrants (-52.2%), Resource America (-33.7%), Borders Group (which we have mostly exited) (-22.4%), American Express (-13.6%), General Growth Properties (-10.7%) and Berkshire Hathaway (-8.2%). In the plus column were Iridium, with the stock up 12.4% and the warrants up 21.9%, and EchoStar, up 9.5%.

On the short side, our largest position, InterOil, tumbled 26.5% (in addition, the puts we own jumped 70.2%), MBIA fell 22.2%, DineEquity dropped 17.9%, and the homebuilder ETF (NYSEARCA:ITB) declined 11.5%.

Source: T2 Partners

Source: Whitney Tilson: This Is Not 2008