Whitney Tilson in his email discusses lessons from a dozen years of short selling, facing cash crunch, retailer Jet.com racing to complete funding round and the Baupost letter. Excerpted from an email which Whitney Tilson just sent to investors. Note – definitely read the great article below but stay tuned for more coverage of Seth Klarman’s letter from us.

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1) Every year or so, the Columbia [Business School] Student Investment Management Association (CSIMA) invites me to speak on campus and, as I did last year, I decided to present Lessons from a Dozen Years of Short Selling (attached and also posted at www.tilsonfunds.com/Shorting.pdf). I hadn’t updated it in a year, and as I did so, it was great to see that nearly every obvious short that I identified a year ago has blown up (at a glance, they appear to be down an average of 50%): LL, EXAS, WRLD, DDD, XONE, VJET, ONVO, BLDP, PLUG, FCEL, CSLT, ARNA and RPTP. Only one has risen (HLF) and one is flat (TXTR). For this update, I removed LRN and NSR (both are down moderately) and added CPST and TRUE (both of which I was short a year ago, but which weren’t in my original presentation), which have also blown up.

Whitney TIlson's take on jet.com

2) In the mass email I sent out on July 27th, I wrote the following about Jet.com:

If you are looking for proof that there is a massive bubble in tech startups in Silicon Valley, read this. This has to rank up there as one of the dumbest ideas I’ve ever heard. Amazon is going to CRUSH them! In fact, Amazon is already taking steps to do so – when I went to order some stuff on Amazon today, it offered free shipping on orders over $35 – exactly matching Jet.com:

Sure enough, an article in yesterday’s WSJ entitled Facing Cash Crunch, Retailer Jet.com Racing to Complete Funding Round notes that:

Jet.com Inc. is close to completing a $550 million cash infusion that would prevent the e-commerce startup from running out of money by the end of the year.

The company projected it would have $63 million of cash on hand at the end of October, according to a recent financial plan reviewed by The Wall Street Journal. The plan forecast a cash drain of $76 million in November and December, largely for marketing. A company spokesman said Jet plans to scale back its anticipated marketing over the holidays.

The new round of funding would value Jet, which began operations in July, at $1.55 billion, according to people familiar with the matter. Mutual-fund giant Fidelity Investments is in talks to lead the round with a $90 million investment, according to these people. They said the financing wasn’t yet closed.

When Jet began the fundraising effort in October, it had hoped for a $2 billion valuation, the Journal reported earlier. Over the summer, Jet discussed a valuation of $3 billion with investors.

I’m not sure which is more mind-boggling: that this obvious foolishness raised $225 million before launch, or that supposedly savvy investors are pouring good money after bad into a company that is sure to file for bankruptcy and liquidate in a matter of months. It kills me that this isn’t public so I could short the sh*t out of it… So many other total bags of crap manage to go public – why not this one?!?!

Whitney TIlson: Business Insider gets a hold of Baupost letter

3) Julia LaRoche of Business Insider with a nice scoop – she got a hold of a letter to Baupost’s LPs written by a retiring partner (as I’m sure you know, Baupost, which was founded and is still led by the legendary Seth Klarman, has one of the best long-term investment track records of all time):

Spector, a senior member of the fund's public investment group, will retire at the end of the year after 17 years at the fund to focus on his family and philanthropy, according to the third-quarter update, dated October 15 and obtained by Business Insider.

Klarman, the author of the famed book on value investing "Margin of Safety," described Spector as "an outstanding investor, collaborator, and mentor."

Klarman also asked Spector to write directly to investors.

"Because of his unique perspective and insights, I asked Brian to draft a letter to you that accompanies this letter. He alone determined the content. I hope you find that it furthers your understanding of Baupost," Klarman wrote.

A Letter Gives A Rare Glimpse Into One Of The World's Most Secretive - And Most Successful - Hedge Funds by Julia La Roche, Business Insider

There are two types of investing, according to the departing partner of hugely successful and secretive hedge fund Baupost Group: "needle in a haystack investing" and "tide comes in and tide goes out investing."

One type takes rigorous work as you search for a small number of opportunities. The other, "chutzpah."

The partner, Brian Spector, made those comments in a letter to investors in the $27 billion hedge fund.

The letter, included with Baupost's quarterly update, provides a rare glimpse into the Boston-based fund, which is led by iconic value investor Seth Klarman.

Spector, a senior member of the fund's public investment group, will retire at the end of the year after 17 years at the fund to focus on his family and philanthropy, according to the third-quarter update, dated October 15 and obtained by Business Insider.

Klarman, the author of the famed book on value investing "Margin of Safety," described Spector as "an outstanding investor, collaborator, and mentor."

Klarman also asked Spector to write directly to investors.

"Because of his unique perspective and insights, I asked Brian to draft a letter to you that accompanies this letter. He alone determined the content. I hope you find that it furthers your understanding of Baupost," Klarman wrote.

As of the end of last year, Baupost Group had achieved net gains (after fees) of $23.4 billion since its inception in 1982, placing it amongst the top-performing funds in the world, according to data from LCH Investments.

In more than three decades, it has had only two down years. Right now, the fund is on track for its third annual loss, suffering a "mid-single-digit year-to-date decline" after what Klarman described as a "painful" third quarter.

See full article here.

Lessons From a Dozen Years of Short Selling-Columbia B School-Whitney Tilson-11-6-15

Whitney Tilson
Whitney Tilson