Gregmal

It's just a covenant that effectively gives the lender the option to call their loans. I'm not familiar with RCII but it looks like this covenant was put in by the lenders to prevent the large owner (a PE firm) from taking a majority stake. I imagine the lenders were probably concerned that cash flow would be distributed to equity holders to the point that they might not be able to fully recover their principal if the company faced a temporary or sustained decline following these distributions. In this case, I would guess it's probably included because of the reputation of PE firms aggressively distributing to equity holders at the expense of creditors (again, I really don't know RCII's situation but that would be my guess). Management already has a 'veto vote' for takeovers in the sense that board gets to choose whether or not to entertain offers (with some limitations). This has nothing to do with management fear mongering or poison pills. This is just a lending covenant. All else equal, the covenant does not benefit management in any way. To give some perspective, change-of-control covenants were fairly common at the bank I worked at for SMID businesses. In my limited experience, they were almost always waived as long as the bank's expected recovery rate was unaffected or 'LGD remained unencumbered' (sometimes covenants related to equity holder distributions were added as a condition of the waiver (if they weren't already present) - depends on the purpose of including the covenant). The point of this type of covenant (from the bank's POV) is the bank lent to RCII and their current management. The bank may or may not want to lend to whoever the new ownership group ends up being. The primary purpose is to prevent the obligation from being automatically transferred to unknown owners/counterparties (and potentially, unknown stewards/managers). You are correct in terms of the reasoning behind it and the perspective of the underwriters. This is absolutely accurate. I was more so referring to Mr.B's presentation of this covenant within the context of a proxy fight for board seats. Most often change of control is thought of in the perspective of a takeover or go private deal(PE type stuff as you mentioned). However it can also simply be a hedge fund taking 5/9 board seats at an Annual Meeting. The fear mongering comes into play when during a proxy fight you have company executives telling shareholders "if the dissidents take 5 seats we could be in default and have to liquidate/etc". I've seen that before and it's basically dishonest bullshit.

It is basically just a scare tactic from management. Saw the same thing last year from Consolidated Tomoka's disingenuous fear mongering campaign. Management tries to use this as a poison pill of sorts. Additionally in many instances, change of control can trigger onerous golden parachutes. That said, if activists are involved, chances are they feel a shake up is necessary. So I guess in the absolute worst case that it triggers a default, what is the problem? That a company that is probably already over leveraged is forced to sell off some assets and pay it down. Don't be fooled by these clowns. The lawyer in me would also point out the word "could" in your bold highlighted paragraph. A change in control "could" cause one. But it also "could' not. All this stuff is usually negotiable.

I think the above term means something different to everyone. For me, it just means sleeping at night knowing what I am invested in and being brutally honest about what my permanent loss probabilities are. There are certain areas of the market I've found much more success investing in than others. Real estate for instance, has great optionality. Additionally, there isnt a single company or person in the world that in one way or another doesn't need real estate. The only times in history its been given away for nothing, the recipients became immensely wealthy. So to me, I understand that there is a certain floor on the value. Where as with things like tech, value is here today and maybe gone tomorrow. So I just don't want to deal with that type of headache; monitoring whether Apple will become the next Nokia or Blackberry. Or whether Blackberry will have an Apple like trajectory and recovery. Too much work to do. Same with oil and gas. Just too many moving parts and external risks. So I guess my circle of competence would be defined as "old economy" businesses. That and I've always had a pretty remarkable ability to rely on a gut feeling that ends up paying off big time. But that's an intangible and not something I can really quantify or articulate in precise terms. I'd also say brutal intellectual honesty and constant reflection are pretty equally the most important aspects of investing. Keeping your psychological state of investing sharp, even keeled and rational is probably even more integral than simply understanding a business. Knowing I'm being greedy and thus likely looking at more speculative investments helps me take a step back and re-evaluate when otherwise maybe I'd pull the trigger thinking I've done my normal due diligence. Knowing I'm pissed at management and tired of an investment might lead me to want to sell when otherwise it's not be the right move. Investing is pretty much 100% a mental game.

You can buy bitcoin and ether with a cc on Coinbase. Or you can link your bank account. Or you can use cash at a bitcoin ATM, there is probably one near you. I think that's incredibly dangerous given the majority of what's driving this insanity is the retail investor. Getting rich quick. Allowing people to speculate with high interest, non secured credit is mind boggling.

Excuse me for being new to this, and admittedly uninformed, but I was having a talk with someone earlier today and couldn't believe what I was hearing. Is it accurate that one can buy Bitcoin on these exchanges using a credit card?

I would say that is true mainly of places like Yahoo message boards, but to a lesser degree here. Basically IMO lower quality sites. VIC is great because real investments are thoroughly discussed. To me it is a trait of gamblers/speculators to fawn over exciting and sexy. Getting rich quick. I am not close enough to the CVS situation, but it broadly falls into a similar category as most stocks I follow and discuss. Boring, undervalued, great long term runway as an investment and little to no discussion on the threads of the sites I read through. To me that is sexy. To me that is exciting. I kind of ignore all the noise of the FNMA type threads where it's really just speculation and get rich quick wishful thinking. That offers me very little as a patient long term investor. And I own FNMA for what its worth. I bought it realizing my investment would either be a multibagger or a complete zero. Therefor, nothing to discuss; discussing it is a waste of time if that is my understanding of the investment. Whereas something like DVA is an evolving situation that is not exactly binary, and a better use of one's time and/or resources. Just my 2c though. I know I can come off as a douche. Not intentionally, but I don't really care either. We're all here to discuss and help each other with investments. Thats what makes the community useful. Differing opinions.

+1 on USLM. Great all around company and investment

Oddly enough, as someone who's shied away from the stock for reasons relating to it's valuation and fears of it blowing up during a recession, I'd say AMZN. Any economic slowdown would crush most retailers, making AMZN even stronger. MSG is a stock I'd consider unbreakable simply because of the balance sheet and exposure to assets that typically trounce inflation.

The rejection itself wasn't surprising. It probably is just a maneuver designed to bump the price. But nonetheless the arrogance of some of these guys is crazy. QCOM has lingered in the 40's/50's to low $60's through a massive tech bull run. These guys have not really succeeded with anything. Their business plan has shown few positive results, and none where it matters; for shareholders. IMO simply coming out and scoffing at a 40% or so premium to where the stock has lingered and simply dismissing it as "undervaluing the company" without supplying any sort of credible plan on how you(management) can do better(especially in regards to how you can do better when you've had years of opportunity yet havent done jack but now all of a sudden will...) for stockholders is reprehensible. IMO the most useful thing they've tried doing is buying NXP, and even that they can't seem to do right.

In relation to the QCOM?AVGO deal- I was a bit surprised today. How does QCOM reject such an obvious value creating event for it's shareholders when it's done nothing but fall all over itself and destroy shareholder value over the past several years? Especially when the reasoning is that the bid "dramatically undervalues the Company". I've learned over the years that it really doesn't matter how undervalued a company is if the management team is incompetent and unable to unlock this for shareholders. Where do management teams get off making statements like this? QCOM may have been undervalued, but these guys have shown zero ability to do anything about it. Now, an event comes along that unlocks some/most of that value, and these guys all of a sudden think that could/can do better? Unbelievable No position in either FWIW

IMO indexing is always moronic. But IMO most people are in fact morons; at least in terms of their ability to make investment decisions. At best, indexing is just lazy. But most people are also lazy. So maybe it's for the best...

I'll extrapolate a tad just to narrow the scope as the comments already have touched on some good points. For less liquid securities it's obviously a little bit trickier. One must also be aware of unique market conditions. Obviously Ackmans GGP trade doesn't turn out the way it does if it's sold because of a quick gain. But one had to have been aware that 2008-09 was a unique circumstance. On the other hand, something like FNMA has similar characteristics and a crazy high IV if the thesis plays out. Yet if you had taken the approach to sell FNMA after every 30% short term pop since 2011 you'd probably already have your $20 a share in gains. So as has been said, it's hugely challenging. I'd use for shit's sake, today's environment as the basis. Most securities are fairly priced. Many see big downside in the market. It also may go up more but nonetheless it's a pretty ho-hum environment. If you bought DVA at $53 a week or two ago or whatever, isn't it kind of a no brainer to take the $9 gain and free up cash?(FD: I own a small DVA position at $58, have held for a few months, and am not looking to sell but just using this as an example being it's a liquid large cap stock)

I was having an interesting conversation with someone who had recently bought GM. I've owned GM for years. Only recently has it been paying off. On the other hand, if you bought GM in June or whenever at $33, your IRR is insane. I still love the thesis, and the inherent value, but looking at it from strictly a mathematical perspective, this sort of short term return(50% or so in 4 months) is clearly unsustainable. Thus it got me thinking. Would there be a scenario where one uses set investment parameters to dictate sell decisions based off of statistically abnormal price movements on a short term basis? This would seemingly come down to a clash between one's dedication to the long term thesis and one's faith in statistics. Outside of trading around the core of a long term holding, wouldn't it kind of being a given that one should capitalise on a short term aberration? The odds that the performance will continue and you will never see your selling price again are rather slim. On the other hand, is there anything to lose really from taking a crazy IRR and wait for a pullback, consolidation, or more compelling idea? This may also depend on whether one is trading with leverage; I do quite frequently. The example I guess I'll give is that you own stock XYZ. 4 weeks after buying it at $10, it is trading at $13. 30% in a month is crazy. Maybe you think the shares are worth $20 longer term. Or CoBF favorite SHLD. You bought the other day at 5.75 and see your shares sitting at 6.60 a few days later. Berkowitz tells you it's worth $150 though. Do you sell or hold a 15% 4 day return? Be curious to hear people's thought from a mathematical perspective as well as the obvious fundamental one.

CTO

Pretty remarkable if you extract some of the numbers. His longs outperform generally, so his short book must be running -30% or so in 8-9 months. Pretty brutal.

From my experience, around 2x EBITDA. The restaurant business is a shitty business to be in. That's a direct quote from somebody I know who has started from scratch dozens of restaurants and currently owns several very high profile restaurants in NYC. For LPs or private investors, you generally look to recoup your initial investment in about 3 years.

This varies but more often than not the fund managers not willing to talk about stocks are just self absorbed schmucks who don't want to waste their time unless it's something they can get publicity out of. I've actually had decent luck with this, although hands down the best place to approach them is shareholder meetings.

lol. This thread reads like a bill of rights of managers of opm. If you read some of the comments, it's all the fault of the investor. Not leaving the money in the hands of the manager for a long time, being fickle minded, demanding annual performance for paying annually etc. Them poor souls need saving from selling and buying the index at the wrong times. The biggest joke is name dropping Buffett partnership from 50 years ago. It doesn't matter that Buffett wound up the partnership for some of the same reasons as Tilson today. Buffett was early even then. His investors would have lost money had the partnership continued. Denial does last a long time. ;) I just have never seen a fund manager who is beating the market say that investors shouldn't compare them to the market. Is investing in a hedge fund less risky than a index fund? who knows I guess. I think that's part of the problem of the modern day fund manager. Marketing is probably even more important than performance. Look at Paulson. The guys had a handful of years since the crash of -20% up to even -45% type years. He's still "The guy who made a fortune shorting the housing bubble". When guys can literally pull in assets worth hundreds of millions in fees after a few years of beating the index, I'd guarandamntee that guys marketing material is guys to start calling him "The guy who beats the market". Which is why it's dangerous to rely on a manager. Very dangerous to be lazy in your vetting of a money manager. Guys that are humble and honest are rare. So I'd say it's moreso up to the individual to find a manager or a strategy that is a good fit.

If your job(the one I am employing you to do) is to responsibly manage my money, your performance against the index is irrelevant for 1 year, 3 years, 5 years, 20 years. Because I am not paying you to simply chase some collection of assets that I may or may not want exposure to. If a manager returns 50% vs 10% for the index but I found out he did it by concentrating in out of the money options, I'd probably either send him packing or allocate a much less meaningful percentage of my assets to him. If I have a guy who consistent buys low risk value securities and can consistently return me high single digits-low teens with little market correlation, I'm there all day. If I have a couple income properties that are generating 8-10% years returns for me I don't really give a hoot what the S&P is doing. Finding a good manager is much more like finding a wife than finding a stock to buy. You need to be able to trust them, and they need to be skilled with the things that are important to you. If my money is with somebody I know is talented, trustworthy, and patient, I sleep well at night knowing my money should do ok. The index syndrome to me is really just indicative of where we are in the current cycle, the prominence of ETF's, the ease with which one can make outsized returns for taking huge risks, etc. Someone mentioned earlier the lost decade; good comparison. Surely in 2011 and 2012, none of the S&P fan boys had wished the owned the almighty index. This is all very much cyclical and part of the psychological element that make markets efficient over time.

Personally I think the excuse that Tilson uses about holding too much cash because of Trump is bullshit. First, hardly anyone expected Trump to win. Literally no one. So why would you be all in cash as if it was a given? If you did think Trump would win, how in the world would you think it would be bearish when his entire platform were things like tax reform, deregulation, and pro-business? Icahn saw it right away, as did many investors. I think it's just the latest round of justifying his inability to invest in the current market. Certain people have spent almost a decade being scared of their own shadow when it comes to the market, or blaming the Fed for their inability to take advantage of a very robust market. Not just being wrong but then compounding that by being short and not knowing when to throw in the towel. To me, investing is a lot like fishing. Sometimes the conditions are right and you can pull in walleye all night. Other times you throw 100 casts and maybe pull in one. Sometimes you can go days and even weeks without catching anything. But patience is a necessity and knowing the landscape/environment is a huge plus. Having a passion for it also helps. And when catching fish is your job, and the walleye are not there, maybe it's time to go to the shallow end with a worm and catch bluegills. With Tilson, and quite a few others, "the market" isn't an excuse. Your job is to find ideas. Finding ideas is not necessarily dependent on "the market". If ideas aren't plentiful, you can always do fixed income, merger/arb(which for the past 2 years has been filled with great opportunities), and easier, lower return strategies to at least do something for your investors while you wait for the environment to be better. What's interesting about Tilson though, and why the more I think about this, the way he closed his fund almost comes off somewhat sanctimonious, is that he was ALWAYS out there pitching his ideas. It wasn't that the environment wasn't right, it was that HE WAS WRONG. The thread is about Tilson although the same applies to plenty of others. Guys like Tepper and Loeb are so dynamic because they are constantly adapting. One minute Tepper was "balls to the wall" levered, the next he's short Europe, then going activist, then he's squeezing currencies and short bonds, etc. Granted those two are probably some of the best ever, but the contrast that with some of these slugs who just consistently get it wrong and then make excuses and you can see the difference. I also think there is a certain type of investor, the academic type, usually the ones from families with money who give them seed money straight out of Harvard are way too textbook in their approaches. They've never had to grind it out on a trading desk or get their hands dirty. They just use metrics and analytic skills they learn at business school and that only goes so far. So when presented with a market that is kind of unique, they don't know what to do. Guys like Pabrai(BG too) sit back and wait for a fat pitch and when they get it their batting average is great. Meanwhile other guys are coming up with new ideas every few weeks, not getting the results, and then blaming the market. Massive difference.

Prasad, Mohnish, is certainly impressive in that he had the integrity to make his clients whole: + 6% / annum after 10 yrs. However, 6% return in 10 yrs is a 80% gain, the S&P 500 TR has return more than that in 10yrs, so as you said, he made a profit something like $8M above expenses, all for lagging the S&P500 TR. Just want to clarify things for real...... thanks I've mentioned it before but it amazes me how misguided the entire "he did/didn't beat the index" logic is. When someone puts their money in a CD, they'd be foolish to then say "darn, I under performed the S&P". If one buys a government bond, I'm sure they are not thinking about "beating the index". It is about risk adjusted returns and ultimately there are tons of different products out there that offering varying degrees of risks and rewards. There is a reason one puts money with, and pays a guy like Pabrai. Maybe it's just me, but at the forefront of the list would be the fact that he is both a talented investor, and a good, honest man, so he will be prudent with my money. There was a time when hedge funds were viewed as alternative investments with little correlation to the markets and security against big declines. I guess now a days there is sooooo much focus on this "beat the index" syndrome that the by-product is 90% of fund managers, guys like Ackman, are just gunslingers who redefine "value investing" so they can sell excessive risk taking as "safe" to the investors, and then swing for the fences with OPM. I have a ton of respect for guys who under perform the almighty index because they stick to their core investment philosophy and er on the side of caution with their investor's money. In relation to this thread, as nice a guy as Tilson was, he was not one of those guys. Pabrai is.

Hm, I would be careful about this. IIRC, Rick Guerin did something similar, and he ended up selling his Berkshire shares to Buffett @ $40 a piece to satisfy a margin call. Works until BRK falls 50% as it has done 2 or 3 times. And when it crashes 50% shift some of your non-equity assets into it and watch it rebound and make multiples on your money! Partially kidding. I guess my main point is that leverage in the right hands is extremely profitable. Ya, ya I know about the banks in 08 but they were levered 40x. Banks have historically been profit machines using leverage. Buffett himself is actually kind of a hypocrite regarding leverage(and derivatives for that matter). He's always used them. Heck his largest investments are WFC and AMEX which are levered. Yea there are different types and whatnot but provided you are buying real value assets(vs bull market fantasies like VRX where you have to tell a story to find some angle to claim "value") a successful investor/competent risk manager should be fine. Again this isn't some off the cuff endorsement of EXTREME leverage. But buying undervalued/ low beta names and being levered 2-1 or 3-1 is definitely not as risky as a lot of people think provided 100% of your personal assets are not in equities and should "the big one" happen you have the ability to add cash to those 50% declines in BRK, BAM, etc.

That's basically it. Higher rates you have to be super short term. The worst I've ever seen is BVSN was 120% during the big Jon Lebed pump in March/April of 2012. But otherwise, it's tricky and it's also why it's dangerous to follow some of the big guys on their investments. I know Ackman, despite shorting HLF in the 40's, now has a break even around $25 because of the huge negative carry and option decay. It's why I don't think Berkowitz or Lampert have really done as bad as some people think on SHLD. SHLD at various points has been 75%+ to borrow, the highest I've seen it was 90% in late 2011- early 2012. Imagine being short SHLD at $30 in late 2011, paying 90% pa to borrow, and getting squeezed to $80?

If the guy did indeed lever a BRK quality position, he made a great move. Many people are terrified of leverage, but if used properly it's a necessity to outperformance. Something like BRK is not going anywhere. So theoretically, if I put 100% of my portfolio in BRK and then with a 1-2% interest charge consistently operated at 1.5-2x leverage buying what I believed where value investments, I'll probably do pretty damn well over the long run.

That would be a shame if it is, just when his short would have worked out. I recall Tilson actually writing a great piece on exactly this. Quite humble It was maybe late 2015 into mid 2016 where he acknowledged no longer being able to take it and covering almost all of his short book in November, only to see 90% of them declined by something crazy (like 60% on average) over the next 6 months. Seems like he got whipsawed quite a bit? Was short Netflix back in 2010/2011ish. Realized a good losses on the way up and flipped at the top when he suddenly went long - right before it dropped by ~75%. Maybe he just doesn't have the right personality for being a contrarian? Or maybe should've focused a bit more on risk management so he could stay in his positions? As someone else mentioned, it seemed many of his ideas were derived by others. Maybe that's why he didn't have the conviction to stay with them? He did always seem like a nice and sociable guy, but I never really had any reason to have much respect for him as a "super" investor that he seemed to gain a reputation as within value circles. I think being too giddy, something that plagues a lot of managers, has harmed him. In the GM thread several people were discussing this with Einhorn too. I've never understood how some people so frequently go bullish, to bearish, to bullish or whatever on a specific name or sector so regularly. At a certain point you are gambling. He was never really a contrarian IMO, more of an idea gatherer. I wanna say Pabrai also does this frequently, as do probably a lot of no name managers and investors. The guy was well connected. But I question whether he fully internalized all the work being done on a basis frequent enough to keep up with it. No question he loves investing. He's also a really nice guy from what I've heard, although I've never met him. But his investment results seem to be all over the place fundamentally, informationally dated a lot of the time, and unoriginal(as in someone else's idea). Combine that with smart guy ADD(having to be constantly active with a portfolio), and idk, I can kind of see why he got whipsawed. Reacting instead of acting. The criticisms I've heard are kind of consistent with your last statement. He kind of became a braggart, and promoted himself(as well as being promoted by others) as this super investor when a lot of people didn't think he deserved that credit. LL for instance, he did victory lap after victory lap on, when the ironic thing was that it wasn't even his idea to begin with! And then after the thing tanks to the low teens, there must have been at least 3-4 times when "Tilson covered his short and is now long", only followed by "Tilson is reshorting LL", and then "Tilson is adding to his short", which comes back to basking in the sun light and probably over-analyzing to the point of flip flopping so regularly. I've actually learned a ton from reading his work and especially his reflections on a lot of his mistakes. He's incredibly candid with all of this, especially for a hedge fund guy. Hedge funders are notorious for being non-engaging, antisocial dick heads who avoid regularly engaging with the general public. Tilson was the antithesis of that which was hugely refreshing.