Value Investing

Whitney Tilson: Kase Fund 3Q15 Performance; Long Spirit; Short Wayfair

Whitney Tilson’s email discussing Kase Fund’s third quarter letters, the S&P 500 divergence, board meeting of Bridge International Academies in London; his long position in Spirit Airlines Incorporated (SAVE) and short position in Wayfair Inc (W). We previously reported on his Q3 letter which you can see here.

1) I’ve posted my Q3 and October letters for the Kase Fund at www.tilsonfunds.com/KaseQ3&Oct15ltrs.pdf. In them, I discuss Platform Specialty Products, Berkshire Hathaway, Micron Technology, Spark Networks, and four of my largest short positions: Wayfair, Herbalife, Lumber Liquidators and Exact Sciences. Through yesterday, the fund is down 2.6% for the year vs. +2.8% for the S&P 500.

Whitney Tilson: 10 largest stocks in the S&P 500 are up 13.9%

2) I thought this was really interesting (and certainly explains why a lot of money managers are trailing the market this year, including me): the 10 largest stocks (by market cap) in the S&P 500 are up 13.9%, while the other 490 are down 5.8% on average. This 19.7% spread is the largest in 15 years and has only been larger twice (in 1998 & 1999, at the peak of the internet bubble).

(If the chart didn’t come through in your email, it’s posted at: https://www.valuewalk.com/2015/11/whitney-tilson-the-10-largest-stocks-in-the-sp-500-are-up-13-9-chart)

PS—The 10 largest stocks are (in order): Apple, Google (both classes of shares), Microsoft, Exxon Mobil, GE, J&J, Wells Fargo, Berkshire Hathaway, Amazon and JPMorgan Chase (the numbers would be even more skewed if the #11 stock, Facebook, were included, as it’s up 38% YTD).

3) I will be in London for two days and one night, Monday, Nov. 30th and Tuesday, Dec. 1st, for a board meeting of Bridge International Academies (one of the most innovative businesses I’ve ever encountered, which has the potential to change the world – see: www.tilsonfunds.com/Bridge and www.bridgeinternationalacademies.com; it’s a private company).

I have the day free on that Tuesday (12/1) before my 5:10pm flight from Gatwick and always like to catch up with old friends and make new ones, so I’m going to host a lunch from noon-2:00pm open to anyone who wants to come and talk stocks (or any other topic) – no presentation or agenda, I just like to meet people. Email me if you’d like to come (and feel free to bring others) and I’ll confirm the location, but for now assume it’ll be a room at my hotel, the St. James Court Taj, 45-51 Buckingham Gate.

Whitney Tilson discusses his long/short positions from the Robin Hood Investors Conference

4) I blasted through 74 slides in 20 minutes on Monday at the Robin Hood Investors Conference, laying out:

  • The performance of my stock picks at the last two Robin Hood conferences (I had the top short ideas two years ago (LL and IOC; I didn’t pitch a long) and both the top long and short ideas last year (EXAS and JBLU);
  • The long case for the newest addition to my portfolio, Spirit Airlines; and
  • The short case for Wayfair.

I posted the full presentation (80 slides plus a 23-slide appendix on formaldehyde) at: www.tilsonfunds.com/TilsonRH15.pdf

Regarding Spirit:

Regarding Wayfair:

  • I published an article last week, Why Wayfair Is My Largest Short Position. Here’s the summary:
    • In an article on its web site yesterday, the New York Times revealed that Wayfair was, until very recently, likely selling toxic, formaldehyde-drenched Chinese-made laminate flooring to at least a handful of customers.
    • The formaldehyde problem, by itself, isn’t a major issue; rather, it’s compelling evidence to me of Wayfair’s gross incompetence and/or a business that’s completely out of control.
    • I am also short Wayfair because it has one of the worst business models I’ve ever seen. Competing head-to-head vs. Amazon, Home Depot, Target, Williams-Sonoma, etc., I think the company’s odds of ever reaching breakeven, much less earning a profit, much less earning enough of a profit to justify a $4 billion market cap are close to zero.
    • I predict that Wayfair’s stock will be below $10 within a year.
  • Last week, the New York Times broke a story in which I was quoted that major U.S. public companies, including Wayfair and via Wayfair, Wal-Mart (I’m sure they were horrified to learn), were, until around the time the Times reporter called, likely selling toxic, formaldehyde-drenched Chinese-made laminate flooring seven months after the 60 Minutes story aired that has destroyed Lumber Liquidators.
  • On Wednesday, I published a follow-up article, Wayfair Doubles Down On Poisoning Its (And Its Partners’) Customers. Here’s the summary:
    • I had three items of furniture sold by Wayfair tested for formaldehyde, and two of them showed toxic levels.
    • In addition to selling these two items on its own website, the company is selling them on the websites of the partners for which it does fulfillment.
    • I suspect that these two toxic cabinets are only the tip of the iceberg.
    • Wayfair continues to sell both and actually slashed the price of the most toxic one in what appears to me to be an attempt to dump it.
    • The deny-and-attack strategy that Wayfair appears to be adopting is what Lumber Liquidators tried in the 2-3 months after the devastating 60 Minutes story.

Sincerely yours,

Whitney Tilson

KaseQ3&Oct15ltrs

Lumber Liquidators LL Tesla Whitney Tilson K12 Questcor Pharmaceuticals QCOR
Whitney Tilson