In recent weeks, we have become less pessimistic about the state of the economy. It appears that steps taken by the Obama administration have averted a worst case scenario, at least for the near term. This is not to say that all is well with the global economy. I am particularly concerned about the massive deficits being rung up and the free passes being handed out to some of the bad actors in the financial crisis. Nevertheless, I am heartened by the favorable economic and industrial data, but only time will tell.
Accordingly, we have repositioned the portfolio and have covered or reduced a significant number of our short positions, particularly in financial stocks. We have also closed out all of our “doomsday”, “fat tail risk” trades (including gold-related investments), which served their purpose of keeping us alive to fight another day. We are completely focused on our core areas of expertise: event-driven and special situations, short selling, high yield and distressed debt.
It is astonishing how many attractive opportunities we are able to find in these areas, even after the market’s rally. We are still in the midst of building many of these positions and thus are hesitant to mention them, but one early winner in this effort was a timely purchase of the shares of Sun Microsystems, a classic busted takeover deal, which we entered on the thesis that someone would scoop up this gem of a company even if IBM couldn’t come up with enough cash for a deal. Shortly after we established a position, Oracle announced a cash takeover of Sun, and we are significantly in the money on the trade.
Read the complete shareholder letter
Accordingly, we have repositioned the portfolio and have covered or reduced a significant number of our short positions, particularly in financial stocks. We have also closed out all of our “doomsday”, “fat tail risk” trades (including gold-related investments), which served their purpose of keeping us alive to fight another day. We are completely focused on our core areas of expertise: event-driven and special situations, short selling, high yield and distressed debt.
It is astonishing how many attractive opportunities we are able to find in these areas, even after the market’s rally. We are still in the midst of building many of these positions and thus are hesitant to mention them, but one early winner in this effort was a timely purchase of the shares of Sun Microsystems, a classic busted takeover deal, which we entered on the thesis that someone would scoop up this gem of a company even if IBM couldn’t come up with enough cash for a deal. Shortly after we established a position, Oracle announced a cash takeover of Sun, and we are significantly in the money on the trade.
Read the complete shareholder letter
