Sunday, May 30, 2010

Whitney Tilson: May 2010 Letter to Investors

May 30, 2010

Dear Partner,

Amidst the worst May for the Dow Jones Industrial Average in 70 years and the worst month for the markets since the depths of the crisis in February 2009, our fund held up quite well, declining 2.8% net vs. -8.0% for the S&P 500, -7.6% for the Dow and -8.2% for the Nasdaq. Year to date, our fund is up 5.1% net vs. -1.5% for the S&P 500, -1.6% for the Dow and -0.2% for the Nasdaq.

As you might expect, our long book dropped significantly (though not as much as the market), while our shorts offset much of these losses. Losers of note on the long side were Liberty Acquisition Corp. warrants (-52.2%), Resource America (-33.7%), Borders Group (which we have mostly exited) (-22.4%), American Express (-13.6%), General Growth Properties (-10.7%) and Berkshire Hathaway (-8.2%). In the plus column were Iridium, with the stock up 12.4% and the warrants up 21.9%, and EchoStar, up 9.5%.

On the short side, our largest position, InterOil, tumbled 26.5% (in addition, the puts we own jumped 70.2%), MBIA fell 22.2%, DineEquity dropped 17.9%, and the homebuilder ETF (ITB) declined 11.5%.
During the month, we did what we normally do when the market has violent swings: the precise opposite of the herd. On weakness, we initiated a few new long positions, added to some existing holdings like General Growth Properties, and trimmed certain shorts like Simon Properties Group, which we owned primarily as an industry hedge against GGP and felt was no longer necessary with GGP falling into the $12 range.

Ltr to Investors-May 10