3 Of Seeking Alpha’s Best, Part II
Summary As a hedge fund manager, who do I think is worth following on SA? 3 (more) writers I take seriously and think you should too. This is the second in a continuing series. In Part I , I looked at three of Seeking Alpha’s best contributors. In this sequel, I offer three more worth following. They all happen to be hedge fund managers and friends of mine. Whitney Tilson Whitney Tilson founded and manages Kase Capital and he wrote The Art of Value Investing and More Mortgage Meltdown . He has been a valuable contributor to Seeking Alpha, especially on the short side. I want to highlight some of his short ideas that I found most compelling at the time. He has been one of the most consistent voices on the issue of World Acceptance (NASDAQ: WRLD ) since publishing his compelling investment thesis, World Acceptance: A Battleground Stock I’m Short . One of the next up was K12 (NYSE: LRN ). Shorting can be a painful waiting game, but he did not have to wait long on An Analysis Of K12 And Why It Is My Largest Short Position . For more on LRN, he also published this slide presentation. Whitney is probably best known on Seeking Alpha for the quality (and quantity) of his devastating work on Lumber Liquidators (NYSE: LL ), starting with My Analysis Of Lumber Liquidators’ Updated Guidance . Here was my reaction to the 60 Minutes episode on LL: Whitney, Well done and congratulations! It was a terrific and compelling piece. The LL founder was evasive and deceptive. I replayed his comments several times. He knew . This is an important and favorable development for short sellers. Shorting and exposing truth is not a conflict of interest – it is a confluence of interest. Ethics involves not lying/cheating/stealing; we cannot rely on the cheap substitute of listening only to people with nothing at stake. Modern investment management has often tried to rely on both thinking substitutes and ethics substitutes. Thinking substitutes such as diversification and volatility minimizing have fared poorly but have not yet been abandoned. Ethics substitutes (“listen to me because I promise that I have at no time and in no place ever even thought about doing with my own money what I now tell you to do with yours”) have fared just as badly but are still in daily use. Your 60 Minutes segment is a big step towards real morality in business and investing. Sure, you are invested in the outcome, but you are invested because your view – and the evidence you lay out – supports that outcome. That is a bigger deal than whatever ultimately happens to LL. Finally, it serves the interest of free enterprise and free trade to have markets self-policed. Pieces such as this can protect markets from inevitable calls to have endless central planning and control. The best way to counteract the self-interest of cheaters is with the interest of short-sellers. While the government may have the resources, it never seems to have the speed to act when it counts. You have both and did something about it. Chris DeMuth Jr. InterOil (NYSE: IOC ) is one that we have both followed for a long time. I wrote about our IOC short on my blog and in InterOil Increases Production… Whitney’s thinking was helpful to the short thesis, including his article Why There’s More Downside To Come For InterOil . When he wrote The Beginning Of The End Of The 3D Printing Bubble… …it was, in fact, the beginning of the end of the 3D printing bubble. Unilife (NASDAQ: UNIS ) has been a favorite topic of mine on my blog here and here , as well as in an article on my favorite pairs trade. While I do my own work, Whitney’s contribution to the topic further solidified my thinking on this company. Ben Axler Ben Axler founded Spruce Point Capital, a long/short hedge fund. He has exposed over $1.0 billion of alleged listed frauds on NASDAQ and the NYSE. Want a great short idea? Read about Caesarstone Sdot-Yam (NASDAQ: CSTE ) in Ben’s article: Caesarstone: A Counter To The Bull Thesis On Quartz Countertops Suggests 40-75% Downside . It has declined by over 20% since publication, but remains expensive and risky. Value investors, skeptics, and debunkers should follow him here on Seeking Alpha and here on Twitter. You can also learn more about his hedge fund and other investment ideas on Spruce Point’s site . He was kind enough to join us for our last biannual ideas dinner in New York City last month where he gave us a devastating preview of what would happen to CSTE. His update is available here: Downgrading Caesarstone On Concerns About Its Capital Expenditure Accounting And Management’s History At Tefron . Andrew Walker A portfolio manager at Rangeley Capital, Andrew is a long-time friend. We have collaborated on investment ideas that we’ve posted on Seeking Alpha as far back as our early work on ALJ Regional Holdings ( OTCPK:ALJJ ), which I wrote about here . If you have an hour to learn about investing in small caps, you should listen to this interview. Additionally, I describe our work together here . Next year, we will launch our new Special Opportunities strategy that will focus on small-cap equity opportunities including special situations. Andrew has been chosen as the portfolio manager to run that new endeavor. He is exactly who I always wanted to run such a strategy. I will follow the example of Charlie Munger, who says that: Berkshire (NYSE: BRK.A ) (NYSE: BRK.B ) is run with decentralization almost to the point of abdication. While I plan to do the same at Rangeley, this requires the perfect people to manage specific businesses. Happily, I have the right people. Meanwhile, if you would like to hear more of Andrew’s investment ideas, he and I will both be speaking at an upcoming conference focusing on microcap investing. Conclusion These are the types of people I rely upon. Charlie Munger said that: The highest form that civilization can reach is a seamless web of deserved trust – not much procedure, just totally reliable people correctly trusting one another. This is what my web of deserved trust looks like. Who is in yours? Who should I add to mine? I intend to keep this series going, so please let me know if there is anyone who writes on Seeking Alpha who should be included in a future edition. I am always in search for idea candidates for Rangeley Capital as well as candidates for both new submissions and new members for Sifting the World . Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.