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Greenlight Capital: Q1 2012 Letter to Partners - May 30th, 2012

May 30, 2012

Greenlight’s latest… While certainly not the first time Einhorn has dazzled me with his wit, couldn’t help but be particularly delighted by this clever poke in Buffett’s eye vis a vis gold.

“The debate around currencies, cash, and cash equivalents continues. Over the last few years, we have come to doubt whether cash will serve as a good store of value. If you wrapped up all the $100 bills in circulation, it would form a cube about 74 feet per side. If you stacked the money seven feet high, you could store it in a warehouse roughly the size of a football field. The value of all that cash would be about a trillion dollars. In a hundred years, that money will have produced nothing. In a thousand years, it is likely that the cash will either be worthless or worth very little. It will not pay you interest or dividends and it won’t grow earnings, though you could burn it for heat. You’d have to pay someone to guard it. You could fondle the money. Alternatively, you could take every U.S. note in circulation, lay them end to end, and cover the entire 116 square miles of Omaha, Nebraska. Of course, if you managed to assemble all that money into your own private stash, the Federal Reserve could simply order more to be printed for the rest of us.”


Einhorn - Q1 '12 Letter to Partners

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Paulwitt - 3 years ago
While certainly not the first time Einhorn has dazzled me with his wit, couldn’t help but be particularly delighted by this clever poke in Buffett’s eye vis a vi Gold.Pretty clever poke. Except for one thing. He's got way less money than Warren Buffett.

Vgm - 3 years ago
Buffett doesn't advocate holding cash. In fact he warns against it.
Avishek - 3 years ago

TThe guy paid money to have lunch with Buffett when he was relatively unknown, and now he is taking a ddig at him publicly. Probably sucess has gotten better off him.
Power of Incentives
Power of Incentives - 3 years ago
poke in the eye, poke in the eye...

Let's look at it another way: Einhorn is such a fan of Buffett. He's showing the whole world that he's done his homework, reading the Chairman Annual Newsletter.

And he's now talking about cash using a similar analogy to what Buffett did regarding gold.

End of the story.

or not.

I think I'll take another look at GLRE...
Moneymaker5o1 - 3 years ago

Einhorn has generated somewhere between 7-8% annual returns since inception?
AlbertaSunwapta - 3 years ago
A couple more Buffett comments on gold for context... (Now, I'd love to study those gold buyers that bought gold early, in the early 1970s before the great inflation, and subsequently earned a higher compounded return than Buffett to date. Can someone, anyone, please provide the names? )

So here's Buffett's early comments mentioning gold:

"Buffett responded that, yes, he was well aware that the world is in a mess. "What the DeBeers did with diamonds, the Arabs are doing with oil; the trouble is we need oil more than diamonds." And there is the population explosion, resource scarcity, nuclear proliferation. But, he went on, you can't invest in the anticipation of calamity; gold coins and art collections can't protect you against Doomsday. If the world really is burning up, "you might as well be like Nero and say, 'It's only burning on the south side.'"

"Look, I can't construct a disaster-proof portfolio. But if you're only worried about corporate profits, panic or depression, these things don't bother me at these prices."

Buffett's final word: "Now is the time to invest and get rich."

- "Look At All Those Beautiful, Scantily Clad Girls Out There!, Forbes, 1974

And why does a man who is gloomy about stocks own so much stock? "Partly, it's habit," he admits. "Partly, it's just that stocks mean business, and owning businesses is much more interesting than owning gold or farmland. Besides, stocks are probably still the best of all the poor alternatives in an era of inflation - at least they are if you buy in at appropriate prices."

- How Inflation Swindles the Equity Investor, Fortune, 1977
Superguru - 3 years ago
I do not see that comment as dig against Buffett but it is actually appreciating the brilliance of Buffett's analogy.

He is using the same analogy and it applies well.

Cash is (almost) same as Gold except that cash can be easily devalued by central banks.
Batalha - 3 years ago
Einhorn is one of my favourite investors but in fairness to Buffett he didn't advocate holding cash in his last letter. On the contrary, he compares gold (a no income producing asset) to investing on cash generator assets aka equities, especially franchise business.

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