The twenty third Sohn Investment Conference convened in New York on 23 April 2018. Delegates filled the David H. Koch Theater at Lincoln Center. Roughly three thousand investors, analysts, journalists along with students occupied every seat. Each speaker received ten minutes to present a single long or short idea. Microphones on the podium fed a live audio feed to the Bloomberg terminal network. Trades triggered within seconds of each uttered ticker symbol. Price spikes printed on the screens before the speaker left the stage.
William Ackman skipped the event. Stanley Druckenmiller also stayed away. Druckenmiller last spoke in 2016, when he urged the audience to own bullion and to shun every other asset class. He returned in 2017 only to introduce another manager and to joke that his gold recommendation had cost him a slot on the program. Since that 2016 call he sold and later repurchased bullion through his family office.
Greg Khoury, Founder and Managing Partner, Long Pond Capital LP
LONG D.R. Inc. (NYSE – DHI)
Khoury projected a sixty three percent price appreciation for the largest United States homebuilder – he argued that the company migrates from an asset heavy balance sheet to an asset light structure. Land holdings shrink. Third-party developers supply finished lots under option contracts. Capital once locked in dirt now funds working capital and share repurchases. Return on invested capital climbs. The equity multiple re rates from 1.4Ã book value to 2.1Ã book value. Earnings per share compound at twenty five percent for the next three years.
Khoury separated the industry into two segments. The first segment acquires raw land, entitles parcels, installs roads, sewers in addition to utilities – sells finished lots. The second segment orders trusses, frames walls, pours concrete, mounts drywall, lays tile next to delivers a turnkey house. D.R. Horton – according to Khoury, exits the first segment and dominates the second.
He cited NVR, Inc. as precedent. NVR owns no raw land – it controls lots through rolling ten year options. Debt to capital stands at four percent. Gross margins exceed twenty five percent. The equity trades at 2.4Ã book value. D.R. Khoury claimed, will converge toward the NVR model.
Jeffrey Gundlach, Chief Executive Officer, DoubleLine Capital LP
LONG S&P Oil & Gas Exploration & Production Select Industry Index
Gundlach opened with a slide titled âGood / Bad.â Inflation once belonged to the bad column. Quantitative easing shifted it to the good column. He quoted Jesse Livermore: âThe pockets change, the suckers change, the stocks change, but Wall Street never changes.â The audience laughed.
He ridiculed Facebook, Inc. âTwo point two billion users,â he said. âI hear two point two billion compliance breaches.â The stock slid three percent within five minutes.
Gundlach recommended a basket of oil and gas producers. West Texas Intermediate crude at sixty three dollars per barrel discounts geopolitical risk. Global inventories draw at one million barrels per day. U.S. shale grows at one point four million barrels per day. The balance tightens. Energy equities trade at seven times forward earnings. The sector weight in the S&P 500 sits at six percent, a fifteen year low. Mean reversion alone lifts the group thirty percent.
He closed with a second Livermore quote: âThere is nothing new on Wall Street.â
Chamath Palihapitiya, Founder and Chief Executive Officer, Social Capital LP
LONG Box, Inc. (NYSE – BOX)
Palihapitiya declared artificial intelligence the dominant investment theme of the decade. Cloud storage, he argued, forms the prerequisite layer. Box stores thirty two billion files for eighty two thousand enterprises. Each file trains algorithms. Microsoft, Google spent forty four billion dollars on research and development in 2017. Box harvests the spill over benefit without the capital outlay.
The company reports five hundred forty seven million dollars in annual recurring revenue. Gross margin on add on services reaches ninety percent. Churn among customers paying more than one hundred thousand dollars per year sits below five percent. Palihapitiya forecast a twenty five percent compound annual growth rate in revenue for ten years. The equity at twenty three dollars per share discounts only half that pace.
A chart flashed on the screen. Box shares jumped from twenty three dollars to twenty five dollars in the two minutes that followed.
Palihapitiya reminded the audience that he recommended Amazon at the 2016 conference. The stock advanced fifty four percent annualized since that call.
John Pfeffer, Partner, Pfeffer Capital
LONG Bitcoin
Pfeffer opened with a slide titled âBitcoin as Digital Gold.â Gold serves as the sole bearer asset without counter party risk. Central banks hold thirty four thousand metric tons, equal to one point seven trillion dollars at spot prices. Private investors hold an additional ninety thousand tons. The total above ground stock equals eight trillion dollars.
Bitcoin replicates the monetary properties of gold. Supply issuance halves every four years. The protocol caps the total stock at twenty one million coins. The network settles transactions without a central issuer. Pfeffer argued that Bitcoin surpasses gold on portability, verifiability along with divisibility.
He estimated a twenty five percent probability that Bitcoin displaces a portion of central bank reserves. If the network captures ten percent of the monetary gold market, each coin commands seven hundred thousand dollars. A more conservative scenario values each coin at one hundred eighty thousand dollars, a twenty-five-times return from the eleven-thousand-dollar price on the day of the talk.
Pfeffer pledged ten bitcoins to the Sohn Conference Foundation on the condition that the charity holds the coins for five years.
Larry Robbins, Founder, Portfolio Manager in addition to Chief Executive Officer, Glenview Capital Management LLC
Robbins addressed rumors that Amazon.com, Inc. would enter the pharmaceutical supply chain; he submitted Freedom of Information Act requests to the Drug Enforcement Administration and to state boards of pharmacy. The filings show applications for pharmaceutical wholesale licenses. None show applications for manufacturing.
He listed barriers that deter Amazon from manufacturing drugs. Opioids require cold chain logistics. Tamper-evident packaging adds cost. The Drug Supply Chain Security Act mandates serialized bar codes on every pill bottle. Amazon avoids similar regulatory burdens in firearms, alcohol next to tobacco. Robbins concluded that Amazon will remain a distributor, not a manufacturer.
David Einhorn, President, Greenlight Capital
SHORT Assured Guaranty Ltd. (NYSE – AGO)
Einhorn described Assured Guaranty as a monoline bond insurer that guarantees payment on municipal bonds. The company earns premiums up-front. It pays claims only if an issuer defaults. The portfolio contains exposure to Puerto Rico, Detroit, Stockton.
He projected a ten-billion-dollar loss on Puerto Rico alone. The company carries three point nine billion dollars in book equity. The equity trades at seventy percent of book value. Einhorn argued that the market ignores the contingent liability. He placed a price target of zero on the shares.
Einhorn closed with a slide titled âDonât Buy Bonds You Canât Spell.â The audience applauded.