T&T Capital Management

Bill Ackman 3rd quarter letter

2013-10-02T21:21:00.001-07:00

While I believe Bill Ackman to be one of the smartest investors in the field, I don't believe with his original assessment on Herbal Life (HLF). There was nothing in his research report that really told me that it was a Pyramid Scheme by any stretch of the imagination and being so public about it, calling for regulators to step in is not something I can relate to for a product that I believe helps more than it hurts. I don't believe that being long the stock at current prices is the most attractive risk/reward, but I certainly think he is being overly dramatic by saying it is the worst risk/reward he has ever seen in his career, and when someone makes such outrageous statements I believe it is quite obvious that personal feelings are taking the place of judgement. Anyhow, Ackman's letters are always thoughtful and intelligent and this is no exception.

http://www.scribd.com/doc/172910887/3q13-Investor-Letter-Bill-Ackman-Herbalife

George Soros on the Future of Europe

2013-10-02T00:08:00.004-07:00

Few individuals understand the nature of markets better than George Soros and I believe that he is right on in regards to his thoughts on Europe. The EU has proved to be extremely problematic and ripe with unforeseen consequences. I also think he is right on that austerity was a terrible idea given the risk of deflation, as opposed to inflation. Mario Draghi has done a great job in providing confidence but as we've seen in the United States as well, conflicting monetary and fiscal policies have delayed the recovery substantially. I still don't believe you'll see real growth as defined by employment and wages unless you get more cohesion between monetary and fiscal policies, and by the time that occurs there will have been so much excess liquidity created that the shift between deflation and inflation could be ultra-dramatic, potentially resulting in hyper inflation.

http://www.valuewalk.com/2013/10/george-soros-future-europe/#!

TTCM Article- BlackBerry Workout Strategy 101

2013-09-25T09:35:00.001-07:00

Below is a link to our most recent article BlackBerry Workout Strategy 101. In this article we discuss our belief that value investor Prem Watsa of Fairfax Financial understands that the breakup value of BlackBerry is likely greater than the Enterprise Value being paid for the company, and we believe that the company should be able to obtain financing secured by the patents. We utilize an options strategy to maximize risk-adjusted returns on the investment thesis.

http://seekingalpha.com/article/1712542-blackberry-workout-strategy-101?v=1380119956&source=tracking_notify

Fairfax Financial Makes Offer to Buy Blackberry

2013-09-23T11:15:00.002-07:00

I'm not surprised to see that Prem Watsa's Fairfax Financial (FRFHF) has made a bid for Blackberry (BBRY) at $9.00 per share in cash. Fairfax owns roughly 10% of the company and by taking the company private, I'd expect to see Fairfax monetize the patent portfolio and focus on the Enterprise and Government businesses, while pretty much avoiding the consumer market. Avoiding quarterly earnings reports and Wall Street will be a huge benefit for Blackberry, as the company faces a tough road ahead. I believe Watsa sees the significant net cash position and the value of the patent portfolio and sees very little downside, while the ability to turnaround the Enterprise and Government businesses could create a multi-bagger investment of significant size. This is the type of contrarian investment, which has made him fabulously wealthy and I believe the deal makes a lot of sense from a risk-adjusted returns perspective. I wouldn't be shocked if another buyer stepped in, although I believe the price isn't likely to be much higher than $9 per share.

http://online.wsj.com/article/SB10001424052702303759604579093342883899478.html?mod=WSJ_hps_LEFTTopStories

Berkowitz on Fannie Mae and Freddie Mac

2013-09-04T10:20:00.004-07:00

When Bruce Berkowitz talk about investing I always listed and appreciate his insights. Below is his thesis on Fannie Mae and Freddie Mac, as discussed with David Faber in a CNBC interview. The Fannie Mae preferred stock should be an incredible investment but of course there is tremendous uncertainty with government involvement. I see no reason why it should trade closer to par but the government has shown that they will make decisions based on political motivations, although the laws and the constitution are very clear on protection of property rights. At TTCM, we have established a small position on the preferred stock. Enjoy.

http://video.cnbc.com/gallery/?video=3000196230&play=1

Bloomberg Article on Jorge Paulo Lemann

2013-08-30T10:40:00.002-07:00

This was a fascinating article on the career and life of Jorge Paulo Lemann. Lemann is one of the most impressive businessmen that I've learned about and Warren Buffett's immense confidence in him is quite a statement.

http://www.businessweek.com/articles/2013-08-29/the-brazilian-billionaire-who-controls-your-beer-your-condiments-and-your-whopper#r=rss

Hedge Funds Underperforming in 2013

2013-08-21T13:52:00.002-07:00

Below is an interesting article about Hedge Funds underperforming in 2013. It has been an interesting year thus far with a buoyant equity market, and hedge fund short positions are likely hurting quite a bit. There are a lot of really overvalued securities in my estimation, which have gone up quite a bit, burning shorts' quite badly. I'd expect hedge funds to do better in a more normal and choppy environment.

http://blogs.wsj.com/moneybeat/2013/08/21/hedge-funds-severely-underperforming-this-year/

Bloomberg Article on Eddie Lampert-SHLD

2013-07-17T03:56:00.002-07:00

I always enjoy learning more about the reclusive investing great Edward Lampert and this article was no exception. While it is clear that Lampert has made some mistakes in his management of SHLD, I believe that the media severely underrates some of the good moves that he made. Sears did not have a much stronger hand than a Circuit City, Linens & Things, etc. The company has done a great job of not plowing money into money-losing businesses. Ultimately, the success of Lampert's investment in Sears will be predicated on the monetization of the real estate and brands. If Lampert can parlay the rewards programs and the online business into something quite valuable that would also be a huge plus. Regardless of how things turn out, it will be fun to watch who wins with this controversial name. We have invested in SHLD in various ways in the past and are invested currently so we clearly believe there is much more value than meets the eye.

http://www.businessweek.com/articles/2013-07-11/at-sears-eddie-lamperts-warring-divisions-model-adds-to-the-troubles#r=rss

Bloomberg Article on Ridiculous BP Settlement and Fraudulent Claims

2013-06-27T12:09:00.002-07:00

There is no doubt that BP blundered tremendously with the Deep Horizon spill in the Gulf of Mexico but the fraudulent claims following this are truly disgraceful. This type of gaming of our legal system serves to enrich lawyers while hurting just about everyone else in society, particularly business. I just can't imagine a self-respecting person or business making claims for business losses, which obviously have nothing to do with the oil spill.

http://www.businessweek.com/articles/2013-06-27/how-bp-got-screwed-on-gulf-oil-spill-claims#p1

Leucadia- 2012 Letter to Shareholders

2013-06-27T09:56:00.002-07:00

As a passionate student of all types of history, I’ve gained tremendous insight from studying the business and investment experiences of the most successful professionals. There is no need to reinvent the wheel, nor veer from the core value investing framework that has made these people so incredibly successful. Leucadia (LUK) is a company that has been run two men over the last 35 years that has had enormous success, comparable to that of Berkshire Hathaway over the same time period. Most people have never even heard of the company and the two leaders are virtually never in the spotlight, so the company gets very little coverage. One of them has finally decided to retire, so the recent Chairman and CEO letter will be the last one, and I found it interesting because it outlines the history of the company. I believe Leucadia should continue to perform well under the leadership of Richard Handler and we have built a small stake that I’d like to add to over time.

http://www.leucadia.com/c-p_letters/luk_c-p2012.pdf

The Logic of Selling Options- Update on Markets

2013-06-24T07:57:00.002-07:00

Global equity and fixed income markets have been in a state of tremendous trepidation, as fears of central bank tightening, combined with still slow economic growth have market participants frightened. These issues really have been quite predictable and I don’t view much as having changed, as it is inevitable that at some point, interest rates will rise, and it has been pretty clear that global growth has been relatively anemic. The real problem in my estimation, is that most market participants are so focused on the short-term, that they create speculative positions along with the crowd, and then they try and stampede out of the movie theater at the first sign of smoke. This is not investing, which is why I differentiate between market participants and investors, as they are two very different groups of people. The common trade has been buying bonds and high yielding dividend stocks regardless of valuation, because of the limited options to generate income due to low interest rates. This sounds good on paper, but whenever you are paying a premium to intrinsic value, you are subjecting yourself to the risks of permanent losses of capital when price and value converge, which they almost always tend to do at some point.

At T&T Capital Management (TTCM) we use a deep value investing method predicated on extensive research and analysis. There are several other firms that I think also do a good job employing a value investing strategy, but what makes our firm unique is that we also intertwine various options and fixed income strategies to generate income, reduce risk, and to instill a disciplined selling process. None of our options strategies are speculative in the way that most market participants utilize options, but instead they enable us to generate very high fixed income-like returns when the options expire worthless, or at worst, we are able to dollar-cost-average into stocks that we already deem to be deeply undervalued. In bull markets, many investment managers look to be highly intelligent just being long stocks, but by using the options we provide ourselves with enhanced income and protection on the downside.

When long-term investors such as us, buy stocks, the holding period can be several years or more. For example, let’s say that we believe Citigroup is worth $70 a share, we might be willing to buy the stock aggressively up to $50 per share, thereby allowing us an adequate margin of safety. We rarely will sell a stock significantly below intrinsic value unless we have a much better opportunity, or if the client is looking to take out cash. The problems with just owning stocks outright is that you have no control over timing, and if you want to buy more of the stock, you need to hope that the stock declines in price. By selling put options, we can manufacture the terms of our investment with a specific expiration date and return expectation, and the biggest risk that we take is that we will own the stock we want to own at a much cheaper price than is currently available. Most often these options will expire worthless, allowing us to generate cash and to redeploy the capital, but when markets trend lower we will often get exercised on our options, allowing us to buy the stocks at a deep discount to intrinsic value. This is a disciplined way of only buying when there is blood in the streets.

Options enable us to scale into stocks, building bigger positions than we would be able to do buying stocks outright. It also allows us to take profits on our option positions, without selling any of our long-term stock positions. As long-term investors, this is very attractive because we maintain the favorable tax attributes of holding stock for long periods of time, while supplementing that with income that can be redeployed at attractive rates of return. Because we have alternative ways of generating income, we aren’t forced to load up on fixed income or high-dividend stocks at ridiculous valuations. Unsurprisingly, those areas of the market have been hammered in the recent sell-off.

Now while all of this sounds wonderful, it is important to balance our presentation. At TTCM, we seek to minimize the risk of permanent losses of capital while maximizing risk-adjusted returns, and I believe our strategy is the best way to accomplish this. We do not attempt to mitigate short-term mark to market losses though, because we believe that is virtually impossible, and more damaging than helpful. When stocks go down and volatility goes up, our portfolios’ will likely go down as well. Much of our options value is predicated on time and volatility, so when volatility goes up, our sold options go up in price, often putting us in a losing position. As long as we are willing to hold our options till expiration though, volatility and time will go to 0, and the only thing that will matter is where our stock prices are in relation to the strike prices of the options. This is often why we have seen substantial rallies towards the end of the year, as time decay picks up steam in our accounts.

Our strategy really forces us to only buy stocks when we have a tremendous margin of safety. We have bought very little stock in the last 6 months as markets have rallied, and instead we have focused on selling long-term put options on the most undervalued securities in our portfolios’. This should greatly reduce our chances of taking permanent losses of capital but you should expect to see a lot of volatility over the short-term and the smart move is to ignore it. Of course, we will be looking to buy aggressively when our favorite names go on sale, setting the stage for attractive long-term returns.

As always, if you have any questions, please don’t hesitate to contact us. We put this information out to educate and update you, as it has been our experience that the more educated you are on investing, the less likely you are to be prone to panicking, which in our experience over the years has been the biggest mistake that we have seen market participants make. Fortunately, our clients seem to take a different and more long-term approach, and I believe that if we continue to do that we will be quite happy with our results. Thank you very much!

Bloomberg Article on AT&T Potentially Looking at Telefonica

2013-06-21T06:12:00.000-07:00

I believe that an AT&T (T) merger or investment in Telefonica (TEF) would be extremely intelligent at this stage in the game. Right now the U.S. mobile market is performing wonderfully and Europe is incredibly depressed. There is no reason to believe that conditions won't improve in Europe and this would be an excellent opportunity to buy high quality assets at a very cheap price. I believe that the lower valuation makes for a better utilization of cash than a dividend or stock buyback. Telefonica's best assets are in Latin America aand AT&T would benefit tremendously through increasing its exposure to that market. The 9% ownership stake in AMX creates a bit of a quandary, but I believe this would be a real positive step for AT&T. It also would be healthy for Spain in my opinion to promote foreign investment into the country.

http://www.bloomberg.com/news/2013-06-20/at-t-said-to-explore-deals-with-telefonica-eyeing-europe.html

TTCM Research Report on Fiesta Restaurant Group

2013-06-19T12:09:00.002-07:00

Below is our most recent research report on a company that I find very interesting. They have two outstanding quick service restaurant concepts that have been under-invested in. I believe it has huge long-term potential.

http://seekingalpha.com/article/1478771-fiesta-s-long-term-growth-potential-could-be-unlocked-by-an-equity-issuance-or-merger

TTCM Article on Superior Industries written by Tim Travis

2013-06-19T12:07:00.003-07:00

Below is our most recent research report on Superior Industries.

http://seekingalpha.com/article/1480371-superior-industries-is-a-buyout-candidate-despite-new-plant-build

TTCM Article on Salesforce.com: The Charade Continues With Recent Acquisition Written by Tim Travis

2013-06-19T12:06:00.000-07:00

Below is my most recent research report on Salesforce.com. This is a company that I believe is very deceiving in how it presents its financial results and it has a complicit analyst community, which focuses way too much on revenue growth and far too little on actual profitability or business value.

http://seekingalpha.com/article/1482511-salesforce-com-the-charade-continues-with-recent-acquisition

TTCM Article on Viacom-Written by Tim Travis

2013-06-19T12:02:00.001-07:00

Below is our recent research report on Viacom. We believe that the company's strong competitive position and business economics will allow it to generate prodigious free cash flows. The company has a solid capital allocation policy, which favors stock buybacks below intrinsic book value.

http://seekingalpha.com/article/1508022-viacom-strong-capital-allocation-and-a-competitive-position

Interesting Bloomberg Article on Negatives of REITs

2013-06-19T12:00:00.002-07:00

I came across a prescient article discussing the dangers of mortgage REIT’s, particularly as interest rates begin climbing. These companies’ use huge amounts of leverage to buy mortgage backed securities, and because they pay out the vast majority of net income as a dividend to shareholders’, the companies’ benefit from better tax treatment on the corporate side. This is a similar structure to master limited partnerships (MLPs), which cater towards infrastructure assets, such as pipelines of gathering systems. The problem with both of these structures is that because the companies can’t retain earnings to qualify for the tax treatment, they are forced to continuously access capital markets for debt and/or equity. This works great until at some point, liquidity freezes up, which can put these companies at risk. When interest rates rise, their huge and leveraged mortgage books get written down, reducing book value unless they are completely hedged. There is not as much regulation in this arena, which is also known as “shadow banking.”

Many of these stocks have had wonderful runs over the last several years so they will boast a great track record, but it is important to look forward instead of driving through the rear-view mirror. Often, unscrupulous salesmen will offer private REIT’s with high-load fees, which can be 7-8% up-front. These REIT’s also are not usually liquid and have long and costly lock-up periods. Most often, that commission is paid off of your principal, as is the high stated dividend in the beginning years. I’ve invested in REIT’s and MLP’s in the past so I’m not saying they are all bad at all, but there are risks that don’t get as much discussion due to the recent low interest rate environment, which has made it easy for these companies to raise capital at attractive prices. Be wary of investments offering obscenely high yields in this environment because usually there is a catch to it. This is why I’m a huge proponent of our strategy of selling options. We have the ability to generate high yields on expiring put options on value stocks, while our biggest risk is that we will end up owning these undervalued stocks at prices, which we can’t buy them at today giving us an even larger margin of safety. The biggest risk we are accepting is short-term market to market risks when volatility goes up, increasing the value of our options, but at expiration volatility goes to zero and the only thing that matters is where the stock is trading at relative to the strike prices of our sold options. Thank you very much and as always if you have any questions please don’t hesitate to contact us!

http://www.bloomberg.com/news/2013-06-18/wall-street-raising-reits-causes-subprime-hangover.html

Sears Holdings 2013 Investor Letter

2013-02-28T06:47:00.002-08:00

http://www.searsholdings.com/invest/index.htm#letter

TTCM Article on AIG- Written by Tim Travis

2012-12-17T13:12:00.001-08:00

http://seekingalpha.com/article/1068791-america-loves-comeback-stories-and-there-is-none-greater-than-aig

TTCM Article on National Oilwell Varco - Written by Tim Travis

2012-12-17T10:24:00.004-08:00

http://seekingalpha.com/article/1068441-national-oilwell-varco-continues-to-increase-its-competitive-advantages-and-the-price-is-right

TTCM Article on MetLife - Written by Tim Travis

2012-12-17T10:24:00.001-08:00

http://seekingalpha.com/article/1068481-metlife-s-leverage-creates-both-opportunity-and-risks

TTCM Article on CSX- Written by Tim Travis

2012-12-11T13:15:00.003-08:00

The following article is our most recent research report on CSX. We feel that the difficult environment for coal has created a great opportunity to buy the railroads, which have historically relied on coal for a large part of their revenue. I hope that you enjoy!

http://seekingalpha.com/article/1058121-csx-long-term-growth-prospects-and-attractive-valuation-make-it-a-buy?v=1355258971&source=tracking_notify

TTCM Article on Kohl's- Written by Tim Travis

2012-12-06T15:10:00.000-08:00

Below is a research report on a stock we just began investing in today as it finally got cheap enough. I hope that you enjoy!

http://seekingalpha.com/article/1050331-kohl-s-is-ripe-for-a-strong-rebound

TTCM Article on Berkshire Hathaway Written By Tim Travis

2012-12-05T17:53:00.000-08:00

Below is our recent article on Berkshire Hathaway. I believe it is a compelling long-term investment, and most market participants would be better off allocating a reasonable percentage of their portfolio to this security, than actively trading other stocks.

http://seekingalpha.com/article/1047751-berkshire-hathaway-is-loaded-for-long-term-appreciation

Bloomberg Article on Gundlach

2012-11-30T09:26:00.001-08:00

This was a wonderful article on Jeffrey Gundlach, who is one of the most famous bond investors in the world right now. I believe he makes a lot of excellent points in the article, and the fact that he helped solve his own robbery case (he had millions of dollars in paintings stolen from his home) was fascinating. Few people are as intelligent as this man. I hope that you enjoy.

http://www.bloomberg.com/news/2012-11-30/bond-investor-gundlach-buys-stocks-sees-kaboom-ahead.html