In this Stream of Consciousness I am going to write about some recent moves I have made in my portfolio, a recent(ish) Carl Icahn interview, and briefly discuss Ryan Cohen’s Bed Bath and Beyond 13-D filing.
First, a brief end of February/status update on my portfolio and some moves. In my “Trend + Value” account (where I’m basically using trend following rules that toggle on and off based on valuation), I went 2/3rds into bills/cash in early December, 2021. Then, at the beginning of March (I test the moving average once a month near the beginning of the month), the rule indicated that the remaining 1/3 (which was in $SPY) was moved into cash. So I’m all in cash (actually one of those guaranteed return/short term lending funds) as of the first week of March in that account. The account was down (2.63%) YTD through 02/28/22. That compares favorably with the SPY (8.07%) and QQQ (12.83%).
During the several years I’ve been trying it out, I have really found this “strategy” suits me well . I definitely took some whipsaws and underperformed a bit in raging bull periods but I felt great about those costs overall (and especially in early 2020 and right now). I have been prioritizing new contributions to this account. I am considering increasing the allocation by applying this strategy to 1/2 of my larger [401(k)] account. But I’m not going to make any big changes like that during a time of market stress.
Carl Icahn and….
Carl Icahn (“Uncle Carl”) was recently interviewed on Bloomberg. Here’s the full interview:
The interview discussed the HBO film about Icahn’s career, which I’ve not yet seen. I noted two points from the interview.
First, Icahn touted his fantastic performance at $IEP. I have not looked at $IEP lately but he has a lot of energy and commodities exposure historically, which has to be working well right now. Since this interview, it has come to light that he has been cashing in an estimated $1 billion gain in $OXY. Warren Buffett’s Berkshire Hathaway appears to be the buyer of most of Icahn’s $OXY stock.
As I write on March 13, 2022, Berkshire has dropped a new filing revealing that it has acquired even more $OXY. Icahn has long been a successful energy/commodities investor. It will be interesting to see who is right about this one. (Though it’s not like Icahn won’t still have an outsized allocation to the sector). This interview reminded me of $IEP as something to look into.
My second observation from the interview, however, is that Icahn was asked about succession at $IEP (and his son Brett) and he didn’t really answer. He eventually said Brett could easily take over but he seemed to be emphasizing that the operating business managers would still be in place to run things. If I recall, the interviewer said Icahn is 86. I decided it’s a no-touch for me. There’s no succession lined up and I’m not comfortable with Brett (the only thing I know about him is he got Icahn to buy Netflix and give him a swap when he later sold it. Kind of ironic since Icahn is blamed for some as forcing Blockbuster to allow Netflix to rise rather than invest in their streaming product. I wasn’t paying attention at the time).
In the end, I think I just have to chalk $IEP up as one I missed (though I’ve participated in a small way in Icahn’s deals/proxy fights before).
So I started thinking, who might be the “next Icahn”? Now, that’s a lot to place on someone, but I’m just thinking about other possibilities/people to track in the future.
Of course, you’ve got Icahn’s former associates/proteges Keith Meister (Corvex) and Dr. Mark Rachesky (MHR Fund Management). Those are guys to follow/track in my opinion. I’ve invested/voted in some of their campaigns (not as part of their funds…I’m much too poor for that).
Ryan Cohen?
Then, based on recent news, I wondered if an unexpected answer might be Ryan Cohen.
If you’ve never heard of him, Cohen founded/built Chewy, an online pet specialty retailer. He sold it Petsmart in 2017 for about 3.5 billion. In June 2020, he told MarketWatch that he put most of his fortune from the sale of Chewy in two stocks: Wells Fargo and Apple.
I took note of that at the time, because I really understood his view on both and how dominant they are. They were also both quite out of favor and there were a lot of snarky comments. In the interview, he discussed the dominance of Apple. He also emphasized similar aspects of Wells and stated he didn’t think covid would impact their business long term. [He also said he liked the other big banks too, which I totally agreed with, as a newly formed oligopoly with yuge regulatory capture, maybe changing the whole industry and you didn’t pay for any of that.]
He must have crushed it with those two if he held them. He discussed adding to the positions in the interview (as I said, they weren’t popular at the time). Wells is up about 84% since 06/01/2020. Apple is up 94%.
In the meantime, however, we know he got actively involved with GME. That stock is only up 2,144% since 06/01/20 (!). So, he has had some pretty, pretty, pretty, good ideas over the last couple years. I’m sure he didn’t capture all of the GME move (I think his first filing for GME was in August 2020), but he launched a (successful) proxy fight, is now on the board, and is active in managing the company. He runs all this through RC Ventures, LLC by the way. It’s not a 13F filer to the best of my knowledge.
So the main reason I thought of Cohen in this context is that recently, on March 7 2022, RC Ventures filed a Form 13-D announcing that Cohen has acquired a $9.8% stake in $BBBY.
The filing also included a letter laying out his critiques of $BBBY management and recommending some actions to improve the situation and unlock value. These are:
- Focus the strategy. Cohen’s characterization of BBBY’s plans is that they are trying to be all things to all parties; including growing the retail offerings, launching store brands, cutting expenses, modernizing the supply chain (to support omnichannel commerce), and returning capital. Citing his chewy experience, he recommended a much sharper focus.
- Monetize Buy Buy Baby. Cohen says bb baby is the premier destination for baby shoppers and should be worth the entire market cap of BBBY . He argues for a spin or partial sale of baby to realize this value.
- Evaluate a full sale of the company. He argues that BBBY may fit well with better capitalized retail-focused buyer. Cohen argues that a private market operator could focus on improving the core operations, run them for cash flow without the public company overhead, and then IPO or sell baby at the appropriate time.
- He recommends that management compensation be more closely linked to performance and that there be more “skin in the game” for those on the board and involved in running the company.
Overall, it’s a really good letter. Cohen is definitely one to pay attention to in my book. One final note on the (kind of tongue-in-cheek) Cohen-Icahn links, Cohen reportedly has hired Harkins Kovler for his $BBBY campaign. Harkins is a proxy solicitor often used by Icahn.
TNG and a couple of potential investments
While we’re on the topic of “the next generation” of value investor/activists to follow for potential ideas, I thought I would throw out one other name. Jeremy Raper might be another young guy to watch in this regard.
You’re probably familiar with him if you read investing blogs, but if not, he’s a young independent investor who was a former HF analyst (I think Golden Slacks at some point too). He’s currently running a campaign concerning an Australian microcap E&P company ($FAR). Raper discussed the $FAR idea and his plans/campaign on the Yet Another Value Podcast on February 28, 2022. He similarly discussed a campaign concerning Hunter Douglas $HDG on the same podcast on April 27, 2021. The $HDG idea ended with 3G capital taking the company private, in December of 2021, for a reported 73% premium to unaffected close (and 64% premium to previous all time highs). So that one seemingly went pretty well. The guy is a sharp investor and is probably a good one to follow.
Finally, let’s run through a related idea I’m pondering: Nelson Peltz’s active campaign concerning Janus Henderson group $JHG. I think he’s on record as saying he thinks the industry should continue to consolidate and he basically wants Invesco $IVZ to buy $JHG (he ran this same playbook with Legg Mason which was acquired by $BEN).
Peltz and co. own big chunks of both $JHG and $IVZ but I noted, as of the last 13F’s, Trian has ramped up the $JHG purchases and Peltz and co. left the $IVZ board. So, I’m thinking he’s maybe freeing himself up to get more active with forcing a sale of Janus Henderson. I like the asset management business generally if you have alignment and capital allocation discipline. Yeah there are headwinds with Vanguard, but it’s a great business. I bet the stickiness of assets and the higher fee business will prove stickier than expected. I haven’t pulled the trigger on $JHG, as I think they have a big bond business which should get whacked with inflation and rising rates. Also, asset managers usually get hammered in market crashes. Maybe when my Value + Trend stuff tells me to get back long stocks in general I will check it out more closely.
I don’t really have much/any cash at the moment because I’m putting all my cash into a SPAC that is trading below its cash in trust/liquidating value. I will maybe write more about it next time. While I think the SEC is likely to slow-play and generally crack down on SPACs to a great extent, there are probably still some interesting things to do.
A SPAC quote to end: “What the fool does at multiples to trust, the wise man does below trust.”