Greenlight Re (sell), Handelsbanken (buy) & Bill Ackman
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.
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 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.