Whitney Tilson just released his annual letter to shareholders for his T2 hedge fund. The fund's gross return since inception in 1999 is a whopping 260% versus the S&P500's return of 26.5%. The fund's returns after fees is still a very impressive 185%.
Tilson discusses in depth his twelve largest long positions, and his short positions (which did not work out as well). Netflix so far has been a big loser as Tilson was short the stock, while Netflix was the best performing S&P500 stock of the year (up 226% see chart here-_http://www.valuewalk.com/value-stocks/worst-sp-500-2010/)
Tilson discusses in depth his twelve largest long positions, and his short positions (which did not work out as well). Netflix so far has been a big loser as Tilson was short the stock, while Netflix was the best performing S&P500 stock of the year (up 226% see chart here-_http://www.valuewalk.com/value-stocks/worst-sp-500-2010/)
Overview of 2010
We had four huge winners in 2010, each accounting for more than four percentage points of return (indescending order of contribution): General Growth Properties, our biggest winner for the second year ina row, which emerged from bankruptcy as two companies; Berkshire Hathaway, thanks to our big betearly in the year that the stock would be added to the S&P 500; Liberty Acquisition Corp. warrants,which skyrocketed when the merger with Grupo Prisa was consummated; and BP, in which we correctlyanticipated that the company would weather the Gulf of Mexico crisis.
We had no losers of note on the long side the biggest was Winn-Dixie, which fell 28.5% and cost us 0.6% of performance but we took quite a beating on the short side. Among the most costly shorts,each costing us more than 1% of performance, were Netflix, MBIA, DineEquity, and LululemonAthletica. We short both to make money and protect our portfolio from a market downdraft, but in 2010we only succeeded in the latter, as we discuss further below.
Our first priority is always capital preservation, so we are usually playing defense, even if this means we sometimes trail the market when it’s ripping upward. On rare occasions, however, in periods like late 2008 and early 2009, the market offers enough opportunities that we can go on offense and practice get-rich-quickly investing. We wish we were in such a period today, but don’t believe we are Instead, we are in a time of unusual uncertainty (to quote Ben Bernanke), yet the market is complacent, so we think it s prudent to be quite defensive, both by maintaining a robust short book and also, on the long side, by focusing on big-cap, blue-chip stocks with strong market positions, cash flows and balance sheets.
We had no losers of note on the long side the biggest was Winn-Dixie, which fell 28.5% and cost us 0.6% of performance but we took quite a beating on the short side. Among the most costly shorts,each costing us more than 1% of performance, were Netflix, MBIA, DineEquity, and LululemonAthletica. We short both to make money and protect our portfolio from a market downdraft, but in 2010we only succeeded in the latter, as we discuss further below.
Our first priority is always capital preservation, so we are usually playing defense, even if this means we sometimes trail the market when it’s ripping upward. On rare occasions, however, in periods like late 2008 and early 2009, the market offers enough opportunities that we can go on offense and practice get-rich-quickly investing. We wish we were in such a period today, but don’t believe we are Instead, we are in a time of unusual uncertainty (to quote Ben Bernanke), yet the market is complacent, so we think it s prudent to be quite defensive, both by maintaining a robust short book and also, on the long side, by focusing on big-cap, blue-chip stocks with strong market positions, cash flows and balance sheets.
Performance Objectives
In every year-end letter we repeat our performance objectives, which have been the same since our fund's inception (no changing the rules in the middle of the race): Our primary goal is to earn you a compound annual return of at least 15%, measured over a minimum of a 3-5 year horizon.
We arrived at that objective by assuming the overall stock market is likely to compound at 5-10%annually over the foreseeable future, and then adding 5-10 percentage points for the value we seek to add, which reflects our secondary objective of beating the S&P 500 by 5-10 percentage points annually over shorter time periods. While a 15% compounded annual return might not sound very exciting, it would quadruple your investment over the next 10 years, while 7-8% annually about what we expect from the overall market would only double your money.
Since inception 12 years ago, we have not met our 15% objective, thanks in part to one of the worst periods ever for stocks. We have, however, outperformed the S&P 500 by 7.1 percentage points per year, near the midpoint of our 5-10 percentage point goal. There are few funds that have beaten the market by this margin over the past dozen years, but nevertheless we are not satisfied with our performance and aim to improve it.
Below is the full document in scribd format, for best reading view in full screen mode.
Whitney Tilson T2 Accredited Fund Annual Letter-2010
Disclosure: Long BP
http://www.valuewalk.com/
We arrived at that objective by assuming the overall stock market is likely to compound at 5-10%annually over the foreseeable future, and then adding 5-10 percentage points for the value we seek to add, which reflects our secondary objective of beating the S&P 500 by 5-10 percentage points annually over shorter time periods. While a 15% compounded annual return might not sound very exciting, it would quadruple your investment over the next 10 years, while 7-8% annually about what we expect from the overall market would only double your money.
Since inception 12 years ago, we have not met our 15% objective, thanks in part to one of the worst periods ever for stocks. We have, however, outperformed the S&P 500 by 7.1 percentage points per year, near the midpoint of our 5-10 percentage point goal. There are few funds that have beaten the market by this margin over the past dozen years, but nevertheless we are not satisfied with our performance and aim to improve it.
Below is the full document in scribd format, for best reading view in full screen mode.
Whitney Tilson T2 Accredited Fund Annual Letter-2010
Disclosure: Long BP
http://www.valuewalk.com/
