GLRE - Greenlight Capital Re

[frommi]

Sorry Gio, I will be more direct. None of this commentary has been specific to Einhorn. As stated earlier "It was and is about the reasonableness of assumptions used in the process of investment evaluation."  It is a mistake to take eight years as "the norm" and the subsequent 10 years as a "not the norm." It does not matter who the investor is. Similarly, to argue that after 10 years of outperforming by 2.3%, bringing the long range average down to 4-5% outperformance, that in the future the 4-5% outperformance will be maintained is not based on or supported by logic. That isn't reality; that is projection of belief.

 

Gio is right. Mr. Einhorns investment approach will pay off in the next crash and this will put his outperformance over the market right back to >5%. Its the same for Mr. Watsa. Past performance of an investment approach says nothing about future returns, the past 5 years where excellent for buy-and-hold investors i doubt that the next 5 years will be the same.

[giofranchi]

Similarly, to argue that after 10 years of outperforming by 2.3%, bringing the long range average down to 4-5% outperformance, that in the future the 4-5% outperformance will be maintained is not based on or supported by logic. That isn't reality; that is projection of belief.

 

Well starmitt,

we all are dealing with the future, right? Of course there are no certainties! But we must evaluate the prospects of a business and act accordingly.

That’s what I have done with GLRE (and with any other investment of mine).

 

Anyway, if you are more comfortable, take an outperformance of just 2.3% (if you really have read his book, and all his letters, you know he will do much better! ;))… results don’t change much! With a 100% combined ratio and some more leverage (which they can undoubtedly afford!), they will compound BVPS at a CAGR of 15%. But, of course I think they might do much better! ;)

 

Gio

 

[giofranchi]

Gio is right. Mr. Einhorns investment approach will pay off in the next crash and this will put his outperformance over the market right back to >5%. Its the same for Mr. Watsa. Past performance of an investment approach says nothing about future returns, the past 5 years where excellent for buy-and-hold investors i doubt that the next 5 years will be the same.

 

Well, of course also starmitt is right: that is just my own (or our own! ;)) evaluation of the business… it certainly is not a sure thing! … Therefore, we will see! ;)

 

Gio

 

[muscleman]

This is true. But unlike Pabrai and many other investors, Einhorn's returns are substantially more attractive on a risk-adjusted basis.

 

Could you please elaborate a bit on that? Is that based on his net long/short exposure?

[constructive]

This is true. But unlike Pabrai and many other investors, Einhorn's returns are substantially more attractive on a risk-adjusted basis.

 

Could you please elaborate a bit on that? Is that based on his net long/short exposure?

 

Yes, his net exposure and also his track record. Greenlight has only had one losing year since inception, when they lost 23% in 2008. In contrast Third Point lost 33%, the S&P 500 lost 37% and Pabrai lost 60%.

[peter1234]

He has been net long below 50% for the last 6 years (not sure about the years before). To outperform the S&P with such little net long exposures is very nice...

:) :)

[starmitt]

we all are dealing with the future, right? Of course there are no certainties! But we must evaluate the prospects of a business and act accordingly.

 

Anyway, if you are more comfortable, take an outperformance of just 2.3% (if you really have read his book, and all his letters, you know he will do much better!

 

To choose 2.3% outperformance would be the same mistake. In evaluating the prospects of a business, it is appropriate to use a range. That would include a range for the baseline (in this case you seem to be using the S&P 500) as well. Einhorn would tell you the same! 

 

 

[muscleman]

This is true. But unlike Pabrai and many other investors, Einhorn's returns are substantially more attractive on a risk-adjusted basis.

 

Could you please elaborate a bit on that? Is that based on his net long/short exposure?

 

Yes, his net exposure and also his track record. Greenlight has only had one losing year since inception, when they lost 23% in 2008. In contrast Third Point lost 33%, the S&P 500 lost 37% and Pabrai lost 60%.

 

Yes. I've been thinking about this. But I am not fully convinced just by 2008's record.

David's currently 120% long and 73% short.

Dan Leob's 75% long and 11% short. That sounds more risky, right? But he also has 36% of net long exposure to bonds. Normally I think when equity goes down, bonds go up, so that kind of reduces the equity's net long exposure.

In addition, even if both two guys have the same net long exposure, say 50%, but if one guy has 70% long and 20% short, and the other guy has 140% long and 90% short, which one is more volatile? I think the answer is very hard to say.

[no_free_lunch]

I don't get this one.  It's track record since IPO in May 2007 is about +32% cumulative.  With dividends, the S&P is +46%.  That's pretty much a full cycle and it has under-performed the S&P.  People talk like he's the next Buffet but I think most people on the board have a better track record.

 

The only thing I can see is that if we're near the end of the cycle you should be able to get most of the index gains with GLRE but have a smaller drawdown during the next crash.  The plan would be to time the crash, pull out of GLRE and deploy to whatever's down.  Full cycle I don't think it makes sense.

[giofranchi]

To choose 2.3% outperformance would be the same mistake. In evaluating the prospects of a business, it is appropriate to use a range. That would include a range for the baseline (in this case you seem to be using the S&P 500) as well. Einhorn would tell you the same!

 

Ahahahahahah!!!!

Ok, starmitt, if you want to know a 2.3% outperformance is my WORST case scenario! … I just thought I had been clear enough about that!! ;)

As far as the S&P500 performance is concerned, just take the first page of BRK AL, and use that number… I am not interested in the next year or two… I am interested instead in the next two decades! If I were interested in the next year or two, GLRE would be the last issue on my mind… because probably I wouldn’t be able to seriously invest in any business!

If you are interested in the next year or two… well, then good luck to you! ;)

 

Gio

 

[starmitt]

Gio, at this point I think it is clear that for whatever the cause of the communication breakdown, this conversation is not going to be productive. Good luck to you.

[giofranchi]

Gio, at this point I think it is clear that for whatever the cause of the communication breakdown, this conversation is not going to be productive. Good luck to you.

 

The only way this conversation could really be productive is if you tell me your assumptions about GLRE. If they are much different from mine, I will be very glad to examine them and try to understand why you think GLRE in the future won’t do as well as I believe.

This I would like. Instead, I am not a great fan of philosophy! ;)

 

Gio

 

[starmitt]

 

The only way this conversation could really be productive is if you tell me your assumptions about GLRE. If they are much different from mine, I will be very glad to examine them and try to understand why you think GLRE in the future won’t do as well as I believe.

 

Gio, this is a perfect example of how this conversation has not been productive. I have made no comment to imply how GLRE will do in the future, yet you are writing "why you think GLRE in the future won’t do as well as I believe." I could pull similar examples out of nearly every post. (By the way, I do not consider the valuation process to be "philosophy.")  So again - good luck to you.

 

 

 

 

[giofranchi]

Gio, this is a perfect example of how this conversation has not been productive. I have made no comment to imply how GLRE will do in the future, yet you are writing "why you think GLRE in the future won’t do as well as I believe." I could pull similar examples out of nearly every post. (By the way, I do not consider the valuation process to be "philosophy.")  So again - good luck to you.

 

I consider “philosophy” the process of talking “abstractedly” about valuation… That’s why I asked you to be a little bit more down-to-earth, and show me how you actually value GLRE…

Why “philosophy”? Because, when it comes to valuing a business, you and I can proceed along different lines, yet come to very similar conclusions! So, how are you accustomed to thinking about business? How am I accustomed to thinking about business? It is a little bit like comparing Nadal’s forehand with Djokovic’s forehand: they might be technically very different, yet in the end they both are extremely effective shots!!

That’s why I always want to examine practical examples: show me your conclusions about a business’s future prospects… and I will tell you if I agree or I disagree, and why. Period. It is that easy. … Everything else is “philosophy” to me… ;)

 

Gio

 

[bargainman]

I don't get this one.  It's track record since IPO in May 2007 is about +32% cumulative.  With dividends, the S&P is +46%.  That's pretty much a full cycle and it has under-performed the S&P.  People talk like he's the next Buffet but I think most people on the board have a better track record.

 

The only thing I can see is that if we're near the end of the cycle you should be able to get most of the index gains with GLRE but have a smaller drawdown during the next crash.  The plan would be to time the crash, pull out of GLRE and deploy to whatever's down.  Full cycle I don't think it makes sense.

 

hmm  7 years x 2% annual fee is 14% which is exactly the underperformance :)

[giofranchi]

Q2 2014 Letter

 

http://www.scribd.com/doc/235091729/Greenlight-Capital-Q2-2014

 

 

Gio

[Straddle]

Q2 2014 Letter

 

http://www.scribd.com/doc/235091729/Greenlight-Capital-Q2-2014

 

 

Gio

 

The report is not longer available apparently. I cannot find another version of the 2014Q2 online.

[rainman]

http://finance.yahoo.com/news/greenlight-announces-second-quarter-2014-200100794.html

 

Greenlight Re Announces Second Quarter 2014 Financial Results

[peter1234]

Q2 2014 Letter

 

http://www.scribd.com/doc/235091729/Greenlight-Capital-Q2-2014

 

 

Gio

 

The report is not longer available apparently. I cannot find another version of the 2014Q2 online.

 

You might still find it here:

 

www.valuewalk.com/wp-content/uploads/2014/07/Qlet2014-02-1.pdf

[giofranchi]

I have just bought more.

IMO nothing but good news in Q2 2014 results: BVPS has increased 26% during the last 12 months, insurance underwriting is pressured but they are breaking even, and they are reducing business like you want to see in a difficult environment... Share price today has declined 6%...

 

GLRE is a better long term investment than it was yesterday.

 

Cheers,

 

Gio

[matts]

I agree with Gio, they are doing all the right things in this environment. If they can break even on underwriting I trust Einhorn to do great things with the cost free float in the long run.

[james22]

How about TPRE, Gio?

 

In the not to distant future I expect to reopen substantial positions in both TPRE and GLRE.

[giofranchi]

How about TPRE, Gio?

 

I have also an investment in TPRE, but it is a bit smaller than my investment in GLRE.

 

Cheers,

 

Gio

[WolfOfMainStreet]

Just to sum up a few good points about this company that I gathered from the thread + my own:

 

1) Grew diluted BVPS during the last TTM at almost 26%

2) Trading at only 5.2 P/E TTM (P/E doesn't matter much since earnings vary widely)

3) Trading at a diluted P/B of 1.09 (1.21 average over the last 5 years)

4) Einhorn has generated around 18% annually since 1996

5) Combined ratio of 100.7% (cheap access to capital)

6) Einhorn owns 13% and other insiders have skin in the game as well

7) If the CR goes down further and investment returns do well BVPS can continue to grow

 

Attaching a quick worksheet I made just to throw down some yardsticks. I took the price from a month after the filings were made to see how the market reacted. I think this would be a better measure to find a normalized P/E or P/B. Am I missing anything? Small circle of competence, just looking to grow it  :)

 

Gio, I know you have positions in both GLRE and TPRE. If you had to pick just one which would it be and why? My capital is limited and any input would be greatly appreciated. I'm leaning more towards GLRE because it is trading roughly at the same premium to BV as TPRE but has a much longer record. The CR is also lower.

GLRE_Yardsticks_-_Copy.xlsx

[giofranchi]

Gio, I know you have positions in both GLRE and TPRE. If you had to pick just one which would it be and why? My capital is limited and any input would be greatly appreciated. I'm leaning more towards GLRE because it is trading roughly at the same premium to BV as TPRE but has a much longer record. The CR is also lower.

 

 

Hi,

I admire Einhorn very much. And I wouldn't mind having GLRE as my only investment, if I had to.

 

Anyway, I like the possibility to split my investments among GLRE and TPRE. Mostly for one reason: to diversify insurance risk. My idea is the more insurance contracts I own, the less each contract, if something unexpected and bad happens, will affect my net worth.

 

Owning both GLRE and TPRE I think is a good way to reduce insurance risk.

 

Right now I have 60% in GLRE and 40% in TPRE.

 

Gio