Wall Street Pros Have a Tough Time Getting Into This Club
By Daren Fonda • Aug. 24, 2018 4:44 p.m. ET
Photo: Jim Stoten
Daniel Sundheim built a reputation as savvy stockpicker at Viking
Global Investors, a hedge fund where he helped oversee $32 billion in
assets. That helped him raise more than $4 billion in seed money when
he launched his own fund in July.
while Sundheim, 41, is now a big name in the hedge fund world, he
might not have broken in without an obscure website called Value
Investors Club. Writing anonymously on the site in 2002, Sundheim
posted a 3,700-word takedown of a dental company, Orthodontic Centers
of America, assailing its business model and financial results. The
post caught the attention of a few hedge funds that shorted the stock,
profiting as the shares slid. (The company filed for bankruptcy
protection in 2006 and emerged under the name OrthoSynetics in 2007.)
Sundheim, then a little-known analyst at Bear Stearns, brought the
write-up on job interviews to show his track record and analytical
work. That piqued the interest of Viking, which offered him a job as
an analyst. “It was a springboard for my career,” says Sundheim.
Social-media sites for stockpickers range from Yahoo! Finance’s
message boards to the free-for-all world of StockTwits. But Value
Investors Club is the rare medium where partners at hedge funds will
anonymously discuss stocks with investors they know nothing about.
It’s a place where anyone with good ideas can establish a reputation
as an ace investor—and make a name for themselves in the world of big
You’re a Pro? Five Tips for Joining the Group
1. Find an under-the-radar value
stock or special situation (forget about the FANGs).
2. Identify a catalyst (something
to get the stock moving).
3. Keep it punchy (don’t waste
space on charts or information from a 10-K).
4. Make a case that would impress
a hedge fund.
5. Try, try again.
beauty of VIC is that it offers anonymity in a carefully monitored
Whitney Tilson, a former hedge fund manager who has been a member
since the site was started in 1999. “You can talk to people who would
never speak publicly. It’s the smartest collection of investors I’ve
site has about 500 handpicked members, from big-name fund partners to
independent investors. The site is free and open to the public on a
limited basis—guests can see ideas and message threads after a 90-day
delay, or 45 days if they give an email address. Anyone can join.
About 60% of VIC members work on the “buy side” at hedge funds,
endowment plans, family offices (managing private accounts), and other
investment firms. The rest are financial professionals in other
fields, such as bankers, consultants, and business owners, along with
investors in other careers. One of the earliest VIC members was a
meteorologist; another worked in a delicatessen before retiring
several years ago.
accepts just one in 15 applicants. Whether you went to Harvard
University or manage a $10 billion fund makes no difference. The only
thing that matters is whether you have a good value-investing idea, as
judged by two of the site’s founders, hedge fund managers John Petry
Joel Greenblatt, an adjunct professor of finance at Columbia
Business School and founder of Gotham Capital, now called Gotham Asset
matter how talented you are, if you can’t explain an idea in a way
that makes sense to the community, you won’t get in—even if you’re
Warren Buffett” (who isn’t part of the club), says Petry.
many members, the site’s appeal is its mix of exclusivity and
anonymity. Message boards that are open to the public may have nuggets
of useful information, interspersed with reams of off-topic posts and
personal insults. VIC’s exclusive membership keeps the site focused on
high-quality ideas and analysis.
Bets From VIC Members
Celestica / CLS
Date: Jan. 8, 2018
Closing price 1/8: $10.77
Closing price 8/23: $12.29
Thesis: An electronics contract
manufacturer, Celestica had a depressed share price after
issuing forecasts below Wall Street estimates. VIC member Rii36
said the stock looked like a buy from many angles, given the
company’s cash and “hidden assets” equal to 35% of its market
value. “We believe Celestica is a very cheap stock, any way you
slice it,” Rii36 wrote, with a business mix better than it
appeared and a stock worth at least $13.50 a share.
Gogo / GOGO
Date: Feb. 1, 2018
Closing price 2/1: $9.22
Closing price 8/23: $4.40
Thesis: VIC member TheUnicornHunter
recommended that investors short Gogo, which provides wireless
internet service to the airline industry. (A short sale
represents a bet that a stock will decline.) “Gogo is
encountering significant competition from well-funded companies
that own their own satellite capacity and can provide airlines
enhanced service at significantly lower prices,”
TheUnicornHunter wrote. “These trends...do not bode well for
Longfin / LFIN
Date: March 18, 2018
Closing price 3/19: $53.39
Closing price 8/23: $5.60
Thesis: Longfin was touted on social
media as a cryptocurrency darling, pushing its market value
above $4 billion. VIC member Jcoviedo urged investors to short
the stock. Longfin is “run by a professional Indian stock
promoter,” he wrote. Its share price “is highly likely to
implode” due to a big increase of stock issuance. Longfin’s
stock plummeted soon after Jcoviedo posted on VIC, with the
shares now down around 90%.
Anonymity puts everyone on the same footing. There are no career
repercussions for criticizing a company—no banking relationships or
access to a management team that could be jeopardized. Activist
investors might run ideas by the community before going public with a
campaign. Partners at hedge funds or other regulated entities don’t
have to worry about violating compliance rules that would prevent them
from mentioning a stock publicly.
Investors also use the site to get valuable criticism. “If you’re a
billionaire fund manager, worried your analysts won’t stand up to you,
you can pitch an idea on VIC and people at opposite ends of the
spectrum will shoot holes in it,” says Tilson.
hedge fund manager who runs a $3 billion fund says he can debate
stocks with investors who never set foot on Wall Street. “I’m a big
believer in the meritocracy of ideas,” says the manager, who requested
anonymity. One of his favorite VIC members is the former deli worker
who would post ideas and converse with him extensively. “I messaged
him like 100 times. He had amazing ideas,” the manager says.
site features discussion threads on hundreds of stocks and a database
of more than 10,000 companies scrutinized by members over the site’s
19-year history. About three new ideas are posted a day, and the site
hums with message threads about all sorts of companies. Members
recently exchanged dozens of messages about
Tesla(ticker: TSLA), discussed the impact of Chinese competition
on the NAND flash memory business of
Western Digital(WDC), and tried to make sense of
Fiat Chrysler Automobiles’ (FCAU) many moving parts, including
plans to spin off its auto-parts business.
heart of the site is research on value stocks that aren’t widely
covered, typically with a market cap well below $10 billion. Many
discussions focus on special situations or catalysts—companies
involved in a spinoff, change of management, or other one-time event.
Investors also pitch stocks largely ignored by brokers and banks. An
author named Hbomb5 recommended
National Energy Services Reunited(NESR), describing it as an
“under-the-radar energy service stock that has the fastest growth rate
in the sector and the lowest valuation.”
Claar, a founding partner of the activist fund Jana Partners, used the
site to help evaluate a European online gambling company,
JPJ Group(JPJ.UK). It wasn’t covered by brokers in the U.S. and
had gone through a major refinancing. The posting on VIC provided
insights that he couldn’t find elsewhere. “It’s invaluable to see a
write-up from knowledgeable investors addressing things you’re
wrestling with,” says Claar, now a partner at Arex Capital Management,
a hedge fund that bought shares of JPJ.
Theoretically, VIC could be an outlet for stock manipulation or “pump
and dump” schemes (making a quick buck as other investors pile into a
trade). But as a members-only site with a limited audience, Petry
says, it would be the worst place to engage in such behavior. “If you
want to tout something, you do it to a wide, unsophisticated
audience,” he says. Members would quickly seize on someone trying to
game the system.
Everyone’s picks get ranked by the community, creating a performance
record for all to see. That can be valuable for building a reputation
within the fund world or broader buy-side community. Members also get
to know one another through word-of-mouth at conferences and industry
dinners, making contacts that can lead to a job or capital investment
in a fund.
runs an invitation-only program that connects members to “capital
allocators” such as endowment funds, family offices, and others
looking to invest in small, midsize, and start-up managers. The way
into the program is to win one of VIC’s stock-picking contests.
Everyone who posts an original stock idea is automatically entered,
getting a shot at a $5,000 prize every two weeks, paid by Petry and
bigger reward is access to endowment managers and others, including
“some of the most respected allocators in the investment community,”
according to an email that Petry sends out to site members. Members
find out if they won in emails sent periodically to the entire VIC
community, and can see a list of contest winners on the site. And
investors who rack up wins are likely to get noticed by capital
allocators (who aren’t disclosed), leading to an asset-management job
or infusion of capital into their funds. Indeed, many members pad
their résumés with VIC to help them land jobs with hedge funds or
other asset managers, according to Petry.
competes against other social networks for professional stockpickers,
which has become a thriving business.
SumZero, launched in 2008 by social-media pioneer Divya Narendra,
is a commercial version on a much bigger scale. The site has more than
15,000 members who post their own ideas, compete in stock-picking
contests, and network for jobs and capital. SumZero offers recruiting
services for asset managers, and it ranks analysts’ performance.
Anyone on the buy side can join or buy a license to access the firm’s
is smaller, homier, and decidedly noncommercial. The site has no
advertising or other revenue streams. Petry and Greenblatt run it like
a nonprofit organization, taking no salary. The site looks old-school,
lacking graphics, extensive filtering tools, and social-networking
features. “We want all discussions to occur publicly for the benefit
of the community,” Petry says. VIC’s logo is an old man in reading
glasses poring over a paper.
Unlike some other social-media sites, VIC enforces a few obligations
on its members to stay in good standing. They must submit at least two
original investment recommendations and should rate at least 20
write-ups every year. The requirements keep the site humming with
fresh ideas and discussions, says Petry. Investors can’t freeload off
others’ ideas for long, and get kicked out if they don’t stay active.
came to life in the early days of the internet, when Yahoo’s message
boards and a few other sites were the only places to dish about
stocks. Greenblatt, who was grading papers at Columbia, set the
admissions bar at the equivalent of an A+ paper by an M.B.A. student.
He also wanted an online club where fund managers could converse
freely under a cloak of anonymity and unheralded stockpickers could
build a reputation, potentially getting noticed by hedge funds. “You
need real investing talent to get in,” says Greenblatt. “But it’s
based on what you’re able to produce, not on who you are.”
Stock-picking merit may be subjective, but it’s at the heart of VIC’s
application process. Academic credentials, industry connections, or a
job on Wall Street make no difference. “We’ve had offers from people
who want to pay for access, but that’s not the model we have,”
Petry says he gets 20 to 30 applications a week. His office in New
York includes a three-foot tower of printed applications, and he goes
through them all with a few colleagues, sometimes discussing them on
calls with Greenblatt. They accept one or two a week, on average.
Making it into the club takes a top-notch value idea. A stock doesn’t
have to trade at a low price/earnings or price/book ratio. But the
write-up should illustrate why the stock trades below its intrinsic
value, “as Buffett would articulate it.” (Short-sale ideas would be
Applicants should identify a catalyst—such as a spinoff or
restructuring—that will cause the market to “recognize the value
Applying with a well-known stock pick like
Apple(AAPL) would be a tall hurdle. Pitches that resemble
brokerage-firm treatises won’t make the cut, either. “We’re not
looking for book reports, industry analysis, or initiation pieces,”
Petry says. “We want people who can communicate good investment ideas
in a clear and concise way.” More than half of the applications he
received in a recent week were from Wall Street professionals and
others in the investment industry. None made the cut: Some ideas
weren’t original or differentiated from consensus views; others fell
short because the write-ups weren’t concise or effectively written.
Greenblatt says he has kept the site open, on a limited basis, to be
an educational tool for anyone who wants to learn value investing (a
subject of his books and Columbia courses). “These are good thinkers,
and it’s valuable to see how they think,” he says. Sundheim says the
site helped him learn the business. “Reading the write-ups taught me
how to invest as much as any text book, class, or mentor at Wharton,”
Berna Barshay, a hedge fund manager, didn’t make it in with her first
pitch of apparel company Tommy Hilfiger. The stock wasn’t cheap enough
to be a good value, she was told in her rejection letter. But she
appealed the decision, sending in a follow-up analysis with a detailed
rebuttal. “Eventually, they relented and said, ‘We still don’t think
it’s a good value, but you argued your case so well that we’ll let you
in.’ ” The stock ended up being acquired a few months later, in 2005,
at a steep premium.
Barshay, who recently launched a new fund, Viola Capital Management,
says VIC is one of the few places on Wall Street where gender bias
isn’t an issue. The industry remains a boys club where women aren’t
always invited to meetings or events where deal-making happens, she
says. On VIC, no one knows if they are talking to a male or female.
That focuses conversations solely on the investment idea.
“When people don’t know if you’re a man or a woman, if you’re young or
old, you stand on the quality of your idea,” Barshay says. “I’ve never
had trouble being taken seriously once I have a seat at the table with
other investors. The problem is getting a seat in the first place.”
Write to Daren Fonda at
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