The Best Investor You've Never Heard Of

9.9% ... That's the total cumulative return of the S&P 500 from January 1999 to December 2009.

An investor who plunked down $10,000 in an S&P index fund in 1999 was sitting on just $10,990 11 years later. That's a measly annualized return of 0.9%, far short of inflation and worse than you would have done just keeping the money stuffed in a savings account.

Let's call it what it is: 11 years of straight-up market misery. Kind of makes you think buy and hold really is dead after all.

Then there's this: 219.6%. That's the total cumulative return of T2 Partners over the same period. Now that's more like it: 11% per year, turning $10,000 into $32,000, more than a triple.

Buy and hold may be dead, but investing in T2 sure isn't!

T2 Partners? Who dat?
T2 Partners is a small fund run by Whitney Tilson, a guy I've had the great fortune of meeting a few times. Tilson and his team are hard-nosed value hunters with a proven knack for finding investment opportunities where very few are willing to tread. We're talking special situations, spinoffs, stock warrants, and even companies in bankruptcy.

You read that right, companies in bankruptcy. In fact, one of Tilson's bankrupt investments was up almost 800% last year. Overall, T2's portfolio was up 40% in 2009, clobbering the market.

It's easy to see why I've made it a personal requirement to check in regularly to see what Tilson has been up to. Here's a snapshot of T2's top 10 holdings at year's end 2009:

Position

Holding

2009 Performance

1

General Growth Properties

796.1%

2

Berkshire Hathaway (NYSE: BRK-B  )

2.7%

3

Iridium (Nasdaq: IRDM  ) / Iridium Warrants

(10.8%) / 1,300%

4

Microsoft (Nasdaq: MSFT  )

56.8%

5

American Express

118.4%

6

Huntsman (NYSE: HUN  )

228.2%

7

Pfizer (NYSE: PFE  )

2.7%

8

dELia*s

(15.0%)

9

Sears Canada

35.3%

10

Yahoo! (Nasdaq: YHOO  )

37.5%

Sure, T2 owns a nice slug of Berkshire Hathaway, as well as several other well-known blue chip names such as Microsoft, American Express, and Pfizer. Hardly revolutionary.

But nestled at the top of that list is General Growth Properties, a major commercial-property owner that was forced into bankruptcy last year. Tilson and his team made a mint shorting General Growth when it traded in the $40s a couple of years ago. Then, in a classic Tilson move, T2 actually started buying the stock when the company was in the throes of bankruptcy and trading for less than $1. Tilson believed the liquidation value of the company's assets was worth far more than its post-bankruptcy debt obligations.

As is usually the case, he was proven right when General Growth received a bid from Simon Property Group (NYSE: SPG  ) for as much as $9 per share. Wouldn't you like to make an investment for less than $1, then turn around and sell it for $9 or more a year later? I sure would.

Also in Tilson's top 10 is Huntsman, a Utah-based chemical company that was left for dead by the market last year after a failed buyout attempt and a severe drop-off in its business. But Huntsman won a few major settlements from its previous suitors, took a slew of costs out of its businesses, paid down and renegotiated part of its debt, and re-emerged a much stronger company. For patient investors like Tilson, who are willing to dig deep and stick their nose in places other investors won't dare, this is how the home runs are made.

Investing the T2 Way
So here's the rub. Most of us can't invest directly alongside Tilson. We don't have $1 million, T2's minimum investment requirement, lying around. And keeping up with Tilson's moves is nearly impossible because, like most hedge funds, he's only required to disclose his positions once a quarter. Even then, there's a 45-day reporting lag. That might as well be an eternity when you're trying to pounce on some of those lucrative special situations Tilson and his team are hunting for.

Still, it's possible to uncover the General Growths and Huntsmans of the world without Tilson's help. Start by screening for stocks that have lost more than 75% of their value over the past 12 months. The market hates these stocks, and probably for good reason: They're often teetering on the edge of bankruptcy.

Once you've put together your list, it's time to don your best Sherlock Holmes deerstalker, grab a magnifying glass (and a pipe if you're so inclined), and start working your way through their SEC filings. If you're diligent, and a bit lucky, you may find a situation where the business and its balance sheet are in better shape than the market is giving it credit for. If you invest before the market gets a clue, you'll be rewarded big time.

If you're not Sherlock Holmes, or don't have the time to wade through hundreds of pages of SEC filings, check out our new Special Opportunities service. Tom Jacobs and his team at Fool HQ are busy looking for the things most investors aren't seeing. If you'd like to learn more about Tom's approach to special situations investing, just enter your email address in the box below.

Matthew Argersinger doesn't own any of the stocks mentioned. American Express, Berkshire Hathaway, Microsoft, and Pfizer are Motley Fool Inside Value picks. Berkshire Hathaway is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Berkshire Hathaway. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (48)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 02, 2010, at 5:17 PM, a2gsg wrote:

    i believe that GSAT in the MSS sub-sector is a much Best InvestMENT You've Never Heard Of than IRDM in T2's portfolio.

    here's my case in brief:

    just on the Export Crecit Agency COFACE financing alone (finalized last july) GSAT is worth ~$5/share.

    if you add in the Book/Fair Value of the all the assets, i.e. the value of the 30 Mhz WORLD WIDE LICENSED (in 160 countries) HARMONIZED spectrum (along with the ATC licensing/authorization/leasing with IRDM dose not have), the gateways owned around the world, the remnant satellite constellation, the technological developments such as SPOTSATELLITE MESSENGER ( http://findmespot.com ), etc, money raised, loans arranged and guaranteed, SOCC/GOCC, supply agreements arranged, market testing so far, existing customer base (largest in the world), employment agreements, and all the rest GSAT should be trading in the $20 range....

    but this illustrious industry segment is just soooooooooo out of favor at the moment and still has HUGE over hang (I call it malaria) from its and iridiums and ICO's previous (chapter 11'd) incarnations, it's why it trades at what it dose and is a significant steal at this price -- if you can just let the shares sit for the next 12 to 18 to 24 as GSAT's FULLY FINANCED (unlike IRDM) next generation constellation gets launched and becomes operational and let Mr. Market take recognition you'll have a multi-multi bagger on hand.

    btw, for a fair read on GSAT check out the equity analysis at http://devilcapital.com/investments/GSAT as well at the latest investor presentation under [Investor Relations] at http://www.globalstar.com/en/ -- oh, and don't miss out noticing the recent share transactions at http://www.mffais.com/gsat

  • Report this Comment On March 02, 2010, at 7:03 PM, DaytonFlyers wrote:

    I really thought this article was going to be about me

  • Report this Comment On March 02, 2010, at 8:47 PM, AllenBoyce wrote:

    This was realy helpful. Telling us about something we cannot invest in. Thanks. Very helpful. Kind of like a s creen door on a submarine.

  • Report this Comment On March 02, 2010, at 9:46 PM, drkazmd65 wrote:

    Ha! I bought a small stash of GGWPQ (=GGP) back in April @$0.60/share. Sold Half of it back in December at ~$9.50/share and am trying to decide whether to hold the other half until after the bankruptcy hearings & buyouts are laid out, or just hold it.

    Just wish I had bought a considerably larger stash,.....

    Have also done well with some YGE & WPRT bought at >$4/share each last spring,....

    But I definately blew it on the DSTI, GRH and ESLR last spring. ESLR might still come back, but the other two are toast.

    Am sitting on a wad of CLYW right now,.... also 'distressed' but with litigation pending. At $0.03/share or less it was good enough for some 'fun' money investment.

    Good luck all!

  • Report this Comment On March 02, 2010, at 10:57 PM, ecloud wrote:

    I did pretty well with Select Comfort that way too. Sure was a lousy investment back when the Fool recommended it... but I bought more near the bottom to try to recover my lost capital. I did much better than that and sold most of it off as a multi-bagger. Not that I would recommend that stock these days... it's still a luxury goods company trying to sell into a down economy after all.

    Then there's Six Flags and Jones Soda as counterpoints in my portfolio. Geez... win some lose some I guess.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1125415, ~/Articles/ArticleHandler.aspx, 10/25/2014 8:10:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement