Lone Pine To Investors: We Had A 'Tough Third Quarter'

Steve Mandel of Lone Pine Capital told investors in a letter dated October 14 that the hedge fund "had a tough quarter" with all of the losses occurring in the last week of the quarter which erased "previously solid results." The fund's Lone Cypress lost 3.5 percent in the third quarter, Lone Kauri lost 3.6 percent, Lone Tamarack lost 3.7 percent while Lone Cascade lost 9.6 percent. Over the same time period, the S&P 500 lost 6.4 percent while the MSCI World Index declined 8.3 percent. However, the recent "sharp" declines in the equities market has presented the "potential for outsized appreciation" over the coming years. The fund highlighted that it added to its investments in merging natural gas pipeline companies

and

. Both stocks fell along with the entire energy sector, despite both companies economics "having very little to do with the price of oil." Mandel continued that specialty pharmaceutical stocks have fallen "over what we believe to be misplaced concerns" about potential drug price regulations. The fund manager highlighted his investments in

,

,

, and

are all trading between 10x and 15x next year's earnings and these earnings should grow at a double-digit rate which "should drive very healthy returns." Mandel stated that his fund also holds "significant" positions in several "internet disrupters," including

,

,

,

, and

which also happens to be the fund's single largest holding at 5.3 percent of total equities. The fund also invested in

, an Israeli-based "disruptor" within the automotive market that develops software that controls active safety features (automatic emergency braking, lane keeping assist) and more advanced semi-autonomous functions in a car. "We invest in innovation, but above all, we invest in people – managers who are driving value by running their business well and allocating capital appropriately," Mandel concluded. "In many cases, this means investing behind the innovators described earlier or behind managers who are sustaining and improving existing strong franchises."