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Lindmark Capital


mhdousa
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Has anyone here invested with Peter Lindmark?  I got the name when I brought up the question of which investment partnerships were using the Buffett fee structure.  I'm attaching his 2008 letter to partners.  It's hard not to be impressed with his 60% gain last year, but what's more impressive to me is the way he articulates his investment ideas and goals.  He throws in a little macro commentary as well, but, at the core, seems to remain a bottom-up investor.

I'd welcome any thoughts anyone has after reading it.

 

Thanks.

-M

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I know Peter very well.  He's a good manager, smart guy and a terrific person.  His fund is small at the present time, not unlike ours, but it will grow over time.  He has personal and family capital in his fund, so he naturally takes a very cautious approach.  Cheers!

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It seems majority of his returns have been due to being short in 2008. Timing of him going from "long" to "long/short" was good but this can't be easily replicated. I would prefer to see him performing well using only long positions.

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What are you basing this on, Parsad?

 

After talking and meeting him on numerous occasions.  I've spent days with him at a time.  His thinking.  His positions in the past.  His thoughts on markets.  His temperament.  His thoughts on managing investment capital.  Cheers! 

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What are you basing this on, Parsad?

 

After talking and meeting him on numerous occasions.  I've spent days with him at a time.  His thinking.  His positions in the past.  His thoughts on markets.  His temperament.  His thoughts on managing investment capital.  Cheers! 

 

Sanjeev, I appreciate the honesty and good thoughts about him, especially given the conflict of interest.

-M

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It seems majority of his returns have been due to being short in 2008. Timing of him going from "long" to "long/short" was good but this can't be easily replicated. I would prefer to see him performing well using only long positions.

 

Just curious as to why?  If a good value investor can identify an undervalued position, isn't the corollary also true?

 

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Geez, I really like the way that guy thinks.  Although his notion that companies with pricing power can protect against rising inflation is at odds with Warren Buffet's paper on inflation--the one that Sanjeev posted a few months ago (good read).  Anyways, that's someone I've been wanting to find to invest money with: someone that looks at the macro picture to protect against asset bubbles and black swan events, and then looks at oppty's for value.  Sitka Pacific also does a good job at looking at macro and value.

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It seems majority of his returns have been due to being short in 2008. Timing of him going from "long" to "long/short" was good but this can't be easily replicated. I would prefer to see him performing well using only long positions.

 

Just curious as to why?  If a good value investor can identify an undervalued position, isn't the corollary also true?

 

 

 

- A short's downside is theoretically unlimited but maximum reward you get is the price of stock your are shorting if it goes to zero. If you are long you can't loose more than your invested capital unless you are using leverage but you have potential for unlimited gain.

 

- A overpriced short could conceptually move sideways for a long time until its earnings eventually "catch up" with its valuation. So when you short, time value actually plays against you. When you are long, the time value is helping you and not working against you.

 

- Good short can become not so good and we can't control it. To some extent it applies to long as well but being short puts the sitution beyond our control. 

 

To make the point I will give simple example, Lets assume there is one company called "Ideal short" which has 1000 shares and cash value is 10,000(10K). Company does no operation and nothing comes in or goes out. Now we know the company has value of 10 bucks a share. Due to Mr Market being in good mood our "Ideal Short" stock is fetching 50 bucks a share in market. So it looks like no brainer short.

 

One of your intelligent friend owned this company at 10/sh and he saw the prices goes to 50/sh so he is very confident about the stock and he thinks you are stupid to short a stock which increased 5 fold. Here you can clearly see that we out to make a 40 bucks profit per share if we short it and you have identified the perfect short even if your intelligent friend doesn't get the picture. So you just need to wait till market realize that stock is not worth more than 10/sh.

 

Management — seeing a $50 stock price — calls their underwriters and investment bankers (the people who run IPOs and sell stock to the public) and explain that they want to have a "secondary" offering of "Ideal Short" stock.

 

The underwriters help "Ideal Short" company sell another 2,000 shares at the new price of $50 a share. They sell it to the public by continuing the hype (and bull) that "Ideal Short" is revolutionizing the world. So total cash raised here is 100,000 ( 100K)

 

Now our ideal short has  1000+2000 shares with 110K cash ( Initial 10K and newly raised 100K). Even after paying 7% to underwriter "Ideal short" still has cash of 103K with 3K share, making each share worth 34.33 per share.

 

Now suddenly our potential reward for shorting decreased from 40 bucks to 15.67.

 

 

Above given example could have been used by all fly by night .com's in 90's to simply increase their intrinsic value and it would have turned some "ideal shorts" to "not so lucrative shorts".I am using very simple example to convey my point . Value investor can easily identify undervalued and overvalued business but its much easier to capitalize on undervalued situation without taking undue risk. Selling short can be lucrative but more variables have to work for you as comapred to when you are long. Why add more variables?

 

I am intersted to hear what others have to say on this but to me being long always looks better on risk/reward basis as compared to being short specially when market has long term upward bias.

 

 

 

 

 

 

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It seems majority of his returns have been due to being short in 2008. Timing of him going from "long" to "long/short" was good but this can't be easily replicated. I would prefer to see him performing well using only long positions.

 

Just curious as to why?  If a good value investor can identify an undervalued position, isn't the corollary also true?

 

 

 

 

I am intersted to hear what others have to say on this but to me being long always looks better on risk/reward basis as compared to being short specially when market has long term upward bias.

 

 

 

 

 

 

 

You've effectively made my point.  Successful shorting, as you've described, is often harder than making money going long.  So, shouldn't that be a positive aspect of Lindmark, that he is able to effectively identify under- and overvalued securities and succesfully capitalize on this?

In "Margin of Safety", Klarman makes the point that, far from being a negative thing, shorting actually contributes to market sanity by putting downward pressure on overvalued securities.  I'm always surprised that more good investment managers, like Pabrai, don't actively short.  Up until 2008, Lindmark didn't allow it in his fund, and then seems to have changed the charter when things got too frothy.

 

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It seems majority of his returns have been due to being short in 2008. Timing of him going from "long" to "long/short" was good but this can't be easily replicated. I would prefer to see him performing well using only long positions.

 

Just curious as to why?  If a good value investor can identify an undervalued position, isn't the corollary also true?

 

 

 

 

I am intersted to hear what others have to say on this but to me being long always looks better on risk/reward basis as compared to being short specially when market has long term upward bias.

 

 

 

 

 

 

 

You've effectively made my point.  Successful shorting, as you've described, is often harder than making money going long.  So, shouldn't that be a positive aspect of Lindmark, that he is able to effectively identify under- and overvalued securities and succesfully capitalize on this?

 

 

Identifying overvalued situations are not a problem but its very difficult to capitalize on it consistently over a long period.

 

No doubt that he has done it sucessfully this time but question is can he do it consistently over very long period like 30 years. I wouldn't be so confident about it.  If you can get good returns over long term by doing simple things then I don't see the need to do more difficult things which also exposes you for unlimited risk. Its easy to do simple things consistently over long duration as comapred to difficult things.

 

If I have to choose between two fund managers , both producing similar results over long term , I will pick some one who produces good results by going only long. I will even forgo extra few percentage of return which short/long manager can produce due to risk/reward situation. 

 

In "Margin of Safety", Klarman makes the point that, far from being a negative thing, shorting actually contributes to market sanity by putting downward pressure on overvalued securities.

 

I agree with Mr Klarman that shorting brings the sanity in the market. Being good for market sanity is ok but in my opinion its not a good strategy for producing good and consistent returns over long term without taking undue risk. Some people might be able to do it but odds of doing so is very less.

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I thought I would post this here before somebody jumps on me!  ;D  Due to Peter's macroeconomic bets and closeouts of short positions, he's had a tough first half as his 2nd Quarter Letter came out today...down a little over 30% for the year.  Just like Mohnish last year, or Sardar when he started buying Steak'n Shake, or Peter today, investors could very easily face significant volatility when they have capital allocated in the markets or within concentrated funds.  I expect just like Mohnish, and just like Sardar, Peter will turn around the tough first half, and over the long-term investors will do fine with him.  In July he was up 9% already.  My thoughts on why that will happen are simply because good, ethical managers learn from errors and improve on their strategy.  Anyway, I thought I should post that here since everyone was discussing Lindmark Capital, and I didn't want someone looking surprised when they read the 2nd Q Letter.  Cheers!   

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I thought I would post this here before somebody jumps on me!   ;D  Due to Peter's macroeconomic bets and closeouts of short positions, he's had a tough first half as his 2nd Quarter Letter came out today...down a little over 30% for the year.  Just like Mohnish last year, or Sardar when he started buying Steak'n Shake, or Peter today, investors could very easily face significant volatility when they have capital allocated in the markets or within concentrated funds.  I expect just like Mohnish, and just like Sardar, Peter will turn around the tough first half, and over the long-term investors will do fine with him.  In July he was up 9% already.  My thoughts on why that will happen are simply because good, ethical managers learn from errors and improve on their strategy.  Anyway, I thought I should post that here since everyone was discussing Lindmark Capital, and I didn't want someone looking surprised when they read the 2nd Q Letter.  Cheers!     

 

Read the letter and I continue to really like his thought process and humility.  He makes big bets and is net short now, but he has great reasons for what he does.

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  • 1 year later...

Unfortunately, I believe the short positions caught up with Peter and the fund was closed to new investors.  He is now just running his money and family money.  It's too bad, as he's a terrific guy.  He's working on his Ph.D. and has become a father.  Best of luck to him!  Cheers!

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