The Growth Factor

Needham Funds' Commentary

by John Barr

In This Issue
Preview of Grant's Fall 2013 Conference
Seth Klarman
Paul Isaac
Steve Galbraith
Paul Singer
Jim Chanos
James Aitken
Michael Price
Goodies at Grant's Conference

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Daily Performance 


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Q2 2013 Conference Call


Q2 2013 Conference Call Transcript


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Needham Funds Prospectus




John Barr
Chris Retzler   



Vol. 9 - October 18, 2013

A Preview of Grant's Fall 2013 Investment Conference

Grant's Interest Rate Observer is a must read investment publication.  Jim Grant writes with a keen sense of value, humor and an unrivaled knowledge of financial history.  He describes his publication below: 


"Twenty-four times a year, we strive to uncover good ideas and to expose bad ones. To identify the next important event in markets is the main prize. We try hard to win it, and sometimes - as with the 2008 crash in mortgages or the 2009 recovery in credit or the 2012-13 upturn in house prices - we succeed." 


Grant's bi-annual conferences are held in the Grand Ballroom at the New York Plaza.  They are reminiscent of an older age on Wall Street, when investing meant long-term and there was such a thing as interest rates.  I always leave the Grant's Conferences with a better understanding of the macro situation and one or two specific investment ideas.


Grant's Fall 2013 Conference will be held on October 22.  Nine speakers will present their view of the world and their specific investment ideas.  The audience will be a mix of investment advisors, hedge fund managers and a few mutual fund portfolio managers and investors managing their own portfolios.  


Speakers will include:  

Seth Klarman - Founder/CIO of Baupost Group

Baupost is one of the most successful hedge funds that most people have never heard of, as Seth is rarely in the press.   In 1991, he wrote a book titled, Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.   The title describes the investment philosophy that has served the Baupost Group well for over 30 years.


Yes, the best price on a used paperback is $1,877 + $3.99 shipping.  He has never had a second publishing run.  


Klarman has a long-term view of building an investment team.  He stresses ethics, collaboration, proper risk taking and long-term rewards, as outlined in this guest lecture Klarman presented for Harvard College's Psychology of Leadership course. 


Seth spoke at Grant's Spring 2011 Conference and his talk was titled, "A sound investment approach for precarious times."  At this conference, he will do a question and answer session with Jim Grant. 

Paul Isaac - Founder/CEO of Fort Hoosac Management

Paul is the Founder and CEO of Fort Hoosac Management, LLC, which manages Arbiter Partners. Paul is a value investor with a preference for tax efficiency.  He spoke at Grant's Spring 2009 conference, when the market bottomed.   


He said in a 2012 Barron's article, "The Value Gene," "The market is affording you reasonable real returns. The name of the game here is to keep on going in a reasonable low gear, position yourself not to get knocked out of the game if we have an interim crisis like another 1994, or a political breakdown in Europe that propagates more severe fears in the financial system, or a crisis of confidence in Japan's banking system. I'm also in the bear camp on China. I don't think we can assume the authorities can always contain another set of serious problems."  

I believe at this year's conference, Paul will talk about pockets of value, while recognizing the overvalued status of many of today's "hot" equities. He will also probably speak on the role of fundamental research in investing.  

Steve Galbraith, Managing Partner, Herring Creek Capital Management

Steve was a partner at Maverick Capital and the former CIO at Morgan Stanley.  At Grant's Spring 2010 Conference, he spoke on, "Mulligan:  Does anyone actually invest anymore?"  which was, correctly, a very bullish presentation.  

Paul Singer, Founder/CIO Elliott Management

At Grant's Spring 2011 Conference, Singer spoke of, "The shape of the next financial crisis."  This summary of his June 2013 investor letter  warned of difficult times ahead.  Elliott is an activist investor and currently leading a campaign to create value for investors in Emulex Corp. (ELX), which as of September 30 was a holding in all three Needham Funds.


Elliott also owned Chrysler and General Motors bonds in 2009, when the government put thru a workout that left Eliott's bonds at a disadvantaged position. 


Humorously, Elliott Management owns Argentinian bonds.  When the Argentine government defaulted, Elliott took Argentina to court, won a judgment and seized an Argentine navy training Tall Ship while it was in port in Ghana.

Jim Chanos, Kynikos Associates

Jim Chanos of Kynikos Associates is a short seller.  He last presented at Grant's Fall 2010 Conference, "A walk on the (Asian) wild side." 


More recently, Chanos said, "If you believe as we do strongly that the Chinese credit-driven investment boom has to ultimately come to no good, then there is probably no better place to be short than iron ore..."  He has spoken about Fortesque Metals (ASX: FMG) and Vale (NYSE: VALE), a Brazilian shipping and steel company, as shorts.  I believe Chanos will reiterate his negative view on China.

James Aitken, Aitken Advisors, LLP

Before Jim started Aitken Advisors, he worked for AIG Financial Products in London.  He was the lone voice of sanity in that office, and was the expert in collateral and operations.  Jim spoke at Grant's Spring 2012 Conference.  His message then was:  

  • Understand where your securities are held, who has title, does the holder have a right to borrow against the securities? 
  • Collateral is money.  

I suspect at this conference,he will quantify how the Federal Reserve's Quantitative Easing program is taking a significant amount of collateral out of the financial system, which has a depressing impact on the velocity of money. 

Michael Price, MFP Investors

One of my all-time favorite presentations at a Grant's Conference was in Fall 2012 - famed investor Michael Price gave a speech titled, "Ecclesiastes Ch. 1:9, Turn, Turn, Turn."  His advice was never to forget a company or a corporate manager.  Companies go through lifecycles and you can make money many times on the same knowledge.  


He also counseled to "Forget the bankers, lawyers, salesmen and research analysts.  They all have jobs and have nothing to do with your job of investing."  As our readers and investors know, we are believers in doing our own research.  


In June 2013, he spoke about his approach to value investing at the London Value Investor Conference.

Goodies at Grant's Conference

Hank Blaustein is an old-school cartoonist.  His works will be available at the conference and are also available for sale online


Jim Grant will also surprise the attendees with a gift bag of several books of his selection.  In the past these have included Jim's authored biography Bernard Baruch: The Adventures of a Wall Street Legend.   I am currently reading Jim's Mr. Speaker! The Life and Times of Thomas B. Reed, the Man Who Broke the Filibuster.  Reed was from Portland, Maine, and served as Speaker of the House from 1892 to 1900. He served in the House in the very interesting post-Civil War years of 1872-1900. 


Another recent selection was Newton and the Counterfeiter: The Unknown Detective Career of the World's Greatest Scientist by Thomas Levenson.  It is little known that after his scientific career at Cambridge, Sir Isaac Newton took a position as a Warden of His Majesty's Mint to look after the sanctity of the late 17th century currency.  Newton successfully pursued William Chaloner, a counterfeiting criminal.  


If you have the chance to attend Grant's Fall 2013 Investor Conference, please do.  If you subscribe to Grant's Interest Rate Observer, you will see a summary of the conference in early November.  Finally, send an email or call and we'd be glad to discuss our view of stocks and the markets at any time.

*The Needham Funds aggregate ownership as a percentage of net assets in the stated securities as of 9/30/13:  ELX, 4.43%.
The information presented in this commentary is not intended as personalized investment advice and does not constitute a recommendation to buy or sell a particular security or other investments.
This message is not an offer of the Needham Growth Fund, the Needham Aggressive Growth Fund or the Needham Small Cap Growth Fund. Shares are sold only through the currently effective prospectus. Please read the prospectus and consider the investment objectives, risks, and charges and expenses of the Fund carefully before you invest. The prospectus contains this and other information about the Fund.


Investment returns and principal value will fluctuate, and when redeemed, shares may be worth more or less than their original cost. Shares held 60 days or less are subject to a short-term redemption fee of 2%. Past performance does not guarantee future results and current performance may be higher or lower than these results.  Current month-end performance and a copy of the prospectus is available at or by contacting the Fund's transfer agent, U.S. Bancorp Fund Services, LLC at 1-800-625-7071.


Funds holding smaller capitalized companies are subject to greater price fluctuation than those of larger companies. Also, the Fund's use of short sales, options, futures strategies and leverage may result in significant capital loss. Total return figures include reinvestment of all dividends and capital gains. Needham & Company, LLC, member FINRA/ SIPC, is the distributor of The Needham Funds, Inc.