Greenlight Re (sell), Handelsbanken (buy) & Bill Ackman
Greenlight Re
Following the E.On discussion, I really asked myself if it was such a good idea to invest into Greenlight Re.
My argument was as follows:
- the stock looks historically cheap
- Einhorn had a few very bad years
- based on its track record hw might do much better in the future
After the E.On discussion however, I recognized the follwoing: Whenever I looked at a stock that Einhorn bought (Delta Lloyd, AerCap, SunEdison, Consol, E.on), I never understood why he did it or I thought it was not a good idea. Even if I look at his 20 bigest disclosed positions, I don’t find any stock that I would buy on my own:
APPLE INC AAPL US
GENERAL MOTORS CO GM US
ISS A/S ISS DC
CHICAGO BRIDGE & IRON CO NV CBI US
TIME WARNER INC TWX US
MICHAEL KORS HOLDINGS LTD KORS US
AERCAP HOLDINGS NV AER US
CONSOL ENERGY INC CNX US
ARKEMA AKE FP
AECOM ACM US
ON SEMICONDUCTOR CORP ON US
BANK OF NEW YORK MELLON COR BK US
TAKE-TWO INTERACTIVE SOFTWR TTWO US
GREEN BRICK PARTNERS INC GRBK US
MICRON TECHNOLOGY INC MU US
MARKET VECTORS GOLD MINERS GDX US
VOYA FINANCIAL INC VOYA US
LIBERTY GLOBAL PLC-SERIES C LBTYK US
DILLARDS INC-CL A DDS US
APPLIED MATERIALS INC AMAT US
That in effect lead me to the conclusion that I am most likely the wrong kind of shareholder for Greenlight Re. If things go really bad, I am not sure if I would have enough trust to keep the position or if I would get really nervous because I could not identify with the manager.
Secondly, I honestly don’t have much insight, how Einhorn generated his fantastic past track record.
Together with not liking his long position, I think it was a mistake to invest in Greenlight and I sold my stocks as mentioned in the comments at around 18,45 USD per share with a tiny profit of around +2,5%.
It could well be that Greenlight maybe has a spectacular 2016 but as I have mentioned above, one should not allocate money to someone where you don’t understand what that manager is doing. Conviction is important to withstand all kind of behavioural traps in investing.
Finally, I am not sure if there could be some isues on the Reinsurance side. AIG surpisingly disclosed a pretty massive reserve strengtening for Q4 and it looks like that this is mostly “long tail” exposure from long ago which is also the “bread and butter” business of Greenlight Re.
Handelsbanken
Following the market turmoil, I began to establish a first (2%) position in Handelsbanken. Purchase price was on average ~98 SEK per share. Valuation wise they are now at a level where I would expect to earn around 16-17% p.a. long term which looks atractive to me despite potential short term head winds.
I plan to increase this to a full position over the next months. I funded this position by selling some of the HT1 bonds, as I want to keep some cash (~10%) in order to be flexible if some of my watch list shares become really cheap.
Bill Ackman
Bill Ackman came out with his Q4 letter to investors just a few days ago. His results were similarily bad than Einhorn’s with -20,5% after fees for 2015.
There was already good coverage on his letter for instance from Matt Levine.
My 2 cents on this:
- compared to Einhorn, he mostly blames others for his losses (index funds, copycats, the market)
- he doesn’t seem to fully understand how index funds work
- funnily enough, he accuses index funds that their only goal is to “attract more funds” at low costs. Why did Ackman then create the public vehicle Pershing Square Holdings ? Well, he also wants to attract more fund but a high costs.
- he thinks that there are not enough activists. Understandable from an activist perspective. Subjectively I have the feeling that Carl Icahn alone is activist at every single stock in the US.
- at least he admits that “platform” companies like Valeant are not such fantastic cases per se.
On a personal level, I do think there might be already TOO MANY activists. Many of them only care for short term payouts which, in many cases, might not be benefitial for long term share holders.
All in all, if I would have money invested with Ackman, I would really ask myself if I would trust a guy who only blames others for his misfortunes.
value and opportunity 
“I sold my stocks as mentioned in the comments at around 18,45 USD per share with a tiny profit of around +2,5%.”
That was a 25% annual return mistake.
If you have read my blog, you might have noticed that I made much bigger mistakes than that one…..
Well I can’t argue with that. I have too :). I was unsure of chipotle when it was trading during the recession. I paid somewhere around $45 (if memory serves me correctly without looking). I held it for two weeks and got nervous about it because I had never purchased a company in the food & beverage sector. Imsecond guessed my rationale and lost out big. Luckily, VNDA came along and kept me from being disheartened too much.
Here’s a little spreadsheet I put together for myself. I’ll share it with you. I don’t go into detail because I didn’t write it with the intention of letting anyone else see it; just for me. It’s a .PDF
http://bit.ly/1Xk6gis
Incidentally, I do all my analysis long hand. I’ve used excel add-ins that automatically compute the information for you and have found that the data they return is wrong enough times that I can’t trust them; even ‘paid for’ services. Unfortunately, what it takes someone 5 minutes to compile, takes me 2-3 hours. However, I know that when I’m finished,mt he information is correct as I use only data supplied by the SEC and nowhere else. With that said, it’s very possible that a flaw will pass through every so often due to human error (mine). If you find one, don’t be afraid to point it out to me. I’d be indebted to you if you did.
I gave advice to Jae Jun on his DCF when he was in the early stages of development. I played a significant role in leading him to include the Earnings Power Valuation, and several other things. Since then, I’ve decided to go into secrecy until recently. Your website reminds me what many were producing pre-recession. It’s very good and I’m impressed, even though I find disagreements here and there.
“annual return mistake” 😉
I have to remember that one. At least I made an 30%% “anual return profit”……
Interesting buy with Handelsbanken …
How do you compare this investment with Wells Fargo? (my “opportunity cost” for every bank). Wells is cheaper by P/B with similar RoEs.
The 16-17% p.a. return estimate strikes me as a bit high, given that multiple expansion will be tough. Can you break-down where you expect the return to come from?
I do think Handelsbanken has a very good growth opportunity in UK and Netherlands, maybe even in Germany. In comparison to Wells Fargo, Handelsbanken is small and should have apretty long runway.
Interesting analysis on Handelsbanken. Have you looked at the Benelux banks, e.g. KBC?
I own Van Lanschott, I don’t think that I want to touch KBC….
I really like your decision to sell the company. That’s a good way of investing and deinvesting.
I also like your investment in Svenska Handelsbanken. But there still is a concern I have on this stock. It’s the high debt level in the Netherlands and in Sweden and therefore the increased risk of loan default. What do you think about that risk?
I have to thank you because one of your post on activism and ackman made me sell my holdings on Pershing square avoiding a significant decline. I think is not so difficult to understand Ackman’s companies (try with baupost!), all of them seem solid business with shareholder oriented managers or big margin for improvement What is difficult to understand is the price paid I.e: when you see nomad foods going from 10 to 20 just for acquiring a company from PE you are paying upfront all the benefits from synergies, same thing applies for platform specialty products. I suppose that ackman cannot benefit from this absurd prices by selling due to his significant position in these companies but he considers long term he will do fine (of course he will have mistakes) Mr. Einhorn seems softer klarman style some of them not so good companies and hated/misunderstood by the market that needs investors willing to tke the pain short- medium term. From my experience if you invest your money and you want to allocate part of your portfolio is not bad idea to give to a manager with different style as a kind of uncorrelated bet as long as you trust the manager ( integrity and good track record).
“After the E.On discussion however, I recognized the follwoing: Whenever I looked at a stock that Einhorn bought (Delta Lloyd, AerCap, SunEdison, Consol, E.on), I never understood why he did it or I thought it was not a good idea. Even if I look at his 20 bigest disclosed positions, I don’t find any stock that I would buy on my own”
“Beeing interested in shares, if I would still search for people to let them invest my money, I’d prefer people like Buffet, Matze and Katjuscha, where I admire or at least really like some of their share picks (for its purchasing price!), so I understand they have a good touch for selecting shares.”
Sounds like we follow a comparable philosophy again. Even if I feel a bit sorry our bet is closed that early. 😉
The bet is still on. I wouldn’t invest into Katjuscha’s portfolio either…
Sounds good that the bet is still running. 🙂
Jut for the records, Katjuschas Wikifolio (ISIN DE000LS9BTJ4) had a price of 195,95€ at 22.12.2015, the day of our bet.
Until today (188,67 €) he would have lost 3,7%.
Einhorn Under Pressure as Greenlight Shrinks by $3.2 Billion
http://tinyurl.com/j298j6m
I will definitely feel more comfortable having money in your portfolio picks than Einhorns, but why anybody invest with Ackman is perplexing.to me. You should be always able to trust the analysis in any scenario before you invest, or sudden turns will make you panic – Ackman’s analysis of Herbalife f.e. is worthy of Monty Pythons.
Great blog + great calls on Einhorn’s failed investments. Would love to read your thoughts on Apple.
Hauke, I am afraid that I am not able to contribute anything useful with regard to Apple.
mmi
“I am most likely the wrong kind of shareholder for Greenlight Re”
If this is true then you made a good decision with selling, no matter the other reasons 😉
Ackman:
Honestly, I never understood his Valeant-investment (he was not alone though).
Icahn:
“Subjectively I have the feeling that Carl Icahn alone is activist at every single stock in the US.”
Maybe this is due to my (not so good) english: how do you mean that?
Tom
Hi sir, usually love reading ur articles. But the ending part of this one.
I think it does Ackman injustice to say he “only” blames others for his misfortunes.
This is just wrong. He talks specifically wrongly overly relying on “platform” value and not selling at least a portion when that was warranted
And comparing what Ackman said with what Einhorn said also doesn’t seem to justify your claim here either.
What Einhorn really did was just to say nothing worked for him, especially highlighting how difficult this past year’s environment was for value strategies.
I don’t see anywhere that he admits he was wrong or stupid. He just spells out “no big positions of theirs went right”.
Basically he didn’t explain anything. He didn’t say whether he was wrong with his valuation work, his understanding of the businesses or timing or whatever.
On the other hand, Ackman specially talked about his mistakes. Just that, in addition to that, he also pointed out a few additional forces working against his favors. Would you say those factors he discussed are in no way reasonable?
Is there no way to correct my typos after I submitted my comment? 😂😂😂
Nope, only I can change the comments 😉
With regard to Einhorn/Ackman:
That was exactly my point. Einhorn said nothing worked, but he didn’t blame index funds for that. Ackman admitted some mistakes but 2/3 of his letter is about the “evil index funds” which make the life of a “poor activist” so difficult.
Well put! The criticism on Bill Ackman is weak at best. Not that I think Bill shouldn’t warrant criticism just that he did indeed blame himself for mistakes before blaming others in an overall balanced manner.
Regarding “only wanting to raise money” of course Bill wanted to raise money and to do it through a permanent capital structure better aligns investors with his longer term outlook. The point he is making regarding index funds is that they have no concern for improvement in corporate efficiency or indeed market efficiency at that.
As always love your blog and admire your humility to exit an investment in short notice having admitted to making a mistake.
I see some nice thing on David’s list
Voya
Liberty
Chicago
Don’t you think they are worthy stocks?
No,none of them are within my “comfort zone”.
I was more surprised when you made the investment in Greenlight Re than now when you sell it.
Handelsbanken is a good buy. Some of the Swedish bloggers have also bought it but the most focus from the bloggers have been on H&M that they now consider to be very reasonably priced.
Good for you! Einhorn is a great guy, but it’s easy to get bedazzled by a star manager like him. Think all of your blogs readers (including him) probably prefer having you allocate capital and write about companies rather than otehr managers.