Michael Burry

Indirect Hard Lesson – Baker Street Capital

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The more hard lessons you can learn vicariously rather than through your own hard experience, the better.

– Charlie Munger

I recently came across this Forbes article [The 34-Year-Old Hedge Fund Manager Who Bet Everything On A Stock That Tanked] discussing about a doomed hedge fund due to heavy concentrated bets. In short, the fund invested over 85% of AUM in a single name, Walter Investment Management [WAC], and the stock suffered a 95% slump since its investment in 2015. Per this fund’s SEC 13F filing, WAC seems to be the only US long position it holds currently. Given the significant size and the drastic drop of stock price, regardless other non-US longs or other shorts, the WAC position will possibly wipe the whole fund out.

Out of curiosity, I further researched Baker Street and its founder Vadim Perelman. It appears that Perelman is a strict value investor, following legendary investors like Warren Buffett, Howard Marks & Seth Klarman’s doctrines closely. Before the WAC position, Baker Street had also played a concentrated bet on Sears Holdings (SHLD). More detailed info can be found on this Barron’s article.

Some resources and interesting reads:

Based on these writings, Perelman certainly appears as a talented and diligent investor (also with sense of humor for the sake of the Berkshire joke). However Buffett would hardly approve his approach as intelligent investing (remember the oracle of Omaha’s 2 rules: Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.) This drives me to think what went wrong to lead a talented value minded investor to such a flunk.

Trying to put myself in Perelman’s shoes, here are my further thoughts and some lessons I learned from this case study:

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Book Notes – So You Want to Start a Hedge Fund

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I know it sounds like a cheesy book name, but like Joel Greenbaltt‘s classic “You Can Be a Stock Market Genius“, this is another great book with cheesy name. The author Ted Seides is one of David Swensen‘s proteges, having worked on both asset owner and money manager sides. Therefore, this book offers unique perspectives (from both capital allocator and money manager angles) on how to build a great money managing business. Lastly, although the book name may be alluding to step by step how-to guidance on starting a hedge, it doesn’t have anything like that. Rather it is fully loaded with real cases, about how start up funds succeeded or failed,  which are invaluable lessons for anyone considering starting their own money managing businesses.

soyouwanttostartahedgefund

I think I probably read this book too early as it could serve these readers with more experiences and are closer to the point of setting up their own funds. Nonetheless, following are the lessons I found most valuable to me. They either significantly changed my existing views or offered brand new insights to me. Continue reading →

Thoughts on Nexpoint Residential (NXRT)

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Disclosure: I established a long position in NXRT on 4/4/2016.

First of all, I want to thank following posts drew my attention to this name. It caught my eye first that Michael Burry held it as his biggest position.

Michael Burry’s SEC 13F filing

Clark Street Value post about NXRT

Value Investors Club post about NXRT

 

After I made my trade, I wanted to write something about it, however I noticed there are this Gurufocus article on 4/4/2016 and this Seeking Alpha article published on 4/5/2016 already did most of the job and shared some of my views. Thus, I will be brief on the upside as you will be able to get them from articles listed above, and will try to dig more into the downside.

Short pitch: NXRT is one of the few REITs using “value add” strategy on class B properties. The management is very determined to execute on this strategy and thinks the market didn’t get them (small cap, spun off a year ago, only 2 analysts from some boutique sell sides covering them). In my view, this firm is actually a flipper partnership under a REITs cover (to avoid corporate level tax), and their flipping strategy seems to be very lucrative (if it works out).

Following I will touch some of the red flags that people dislike the most (and I disliked initially):

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[Pinned Post] Who’s Who – Behind VIC Anonymous Users

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[Latest update: 8/13/2019, please go to the bottom to see new additions]

Value Investors Club (VIC), founded by the legendary investor Joel Greenblatt, is an anonymous elite value investing club whose admission is said to be very selective. According to John Petry, the co-founder of the club, there’s “a lot of very well known money managers” and “very, very successful hedge fund managers” who all use the site. However, from traits left by these “anonymous” users, we may be able to tell these well known and successful investors. I firstly carried out some of these researches purely out of my curiosity, but later found identifying these great investors helps me focus on quality ideas and discussions. Sometime I cannot tell who exactly they are, but certainly can tell the ideas were from some greatest minds. By all means, these guys’ writings are great stuff to read regardless who’s behind.

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