About two weeks ago, many hedge funds began releasing their end-of-year investor letters. In the spirit of Warren Buffet, who made the dear investor letter famous, these letters are usually insightful, humorous, and really interesting for non-professional investors. This year, it’s these letter might even provide some reassurance as many professionals were stung badly by the turmoil in the financial markets.
Generally speaking, only hedge fund investors are allowed to read these yearly updates as there are strict regulations on publicly advertising their funds. If you’re resourceful enough, however, it is possible to get a peak at some of the more famous fund managers’ letters. I’ve done some of the heavy lifting and collected a few particularly interesting ones in this post. I’ll summarize the points I think are most interesting but feel free to click the headings for links to the whole letter.Â
GMO - Jeremy Grantham
Jeremy Grantham and GMO are known to many as “permabears” and he sure as hell doesn’t disappoint in this letter. I believe I saw him referenced in several blogs and mainstream financial sites over the last few weeks particularly with respect to Jeremy’s now very popular theory that the recovery from the housing bubble/credit crisis/subprime crisis/whatever you want to call it will be slow, painful and most assuredly follow one of three equally disappointing paths:
While Grantham expects declines to new lows during the next year, he also believes that the current market provides a better risk/return profile than any time in the last fifteen years. In addition to being interesting, Grantham provides an eloquent description of the macroeconomic events of the last year and puts them in perspective versus other historical financial crises. I think this letter is a must read.Â
Greenlight Capital ([David Einhorn)<- zip file
Greenlight Capital has $6 billion under management and has averaged 20% annual returns. Einhorn is well-regarded long-short value investor and his fund famously does not use leverage to achieve its outsized gains. Over the past year, David Einhorn has reached public stardom this year as the writer of the best seller, Fooling Some of the People All of the Time, his expose on Allied Capital’s poor accounting standards and his rationale for shorting their stock. Though, it took three years and the greatest credit and financial crisis of our lifetimes for Allied Capital’s stock to actually capitulate to Einhorn’s will.Â
Greenlight didn’t fare so well this year with 20% losses in two of three funds. Despite this, it seems that Einhorn is in a buying mode and he sees opportunity all over the capital structure - debt, bonds, equities, commodities, you name it. In fact, he repositioned the fund during the 4th Quarter of 2008 from 9% net long to 43% net long. Similar to Grantham, Einhorn makes a cogent case to bet against the Dollar and backs it up by disclosing that he’s aggressively purchasing gold, gold miners, and foreign currencies. Other highlights from this letter include a very interesting recounting of Greenlight getting caught on the wrong end of the Volkswagen infinite squeeze as well as a run down of stocks bought and sold last quarter - a great resource to add to your own watchlist.Â
Perry Partners International
Perry Partners announced its first losing year in 20-years in 2008. Much in the same spirit, Perry produces an invaluable table of long held market maxims and descriptions of how they failed us in 2008. Here are three I found particularly interesting:
Dan Hung
thecuriousinvestor.com
Generally speaking, only hedge fund investors are allowed to read these yearly updates as there are strict regulations on publicly advertising their funds. If you’re resourceful enough, however, it is possible to get a peak at some of the more famous fund managers’ letters. I’ve done some of the heavy lifting and collected a few particularly interesting ones in this post. I’ll summarize the points I think are most interesting but feel free to click the headings for links to the whole letter.Â
GMO - Jeremy Grantham
Jeremy Grantham and GMO are known to many as “permabears” and he sure as hell doesn’t disappoint in this letter. I believe I saw him referenced in several blogs and mainstream financial sites over the last few weeks particularly with respect to Jeremy’s now very popular theory that the recovery from the housing bubble/credit crisis/subprime crisis/whatever you want to call it will be slow, painful and most assuredly follow one of three equally disappointing paths:
Steep and long term resetting of market valuations at lower levels (i.e. depression)
Slow and painful recovery allowing consumer and corporate debt levels and earnings to reach healthier levels (i.e. Japan for the last twenty years)
Rampant inflationÂ
While Grantham expects declines to new lows during the next year, he also believes that the current market provides a better risk/return profile than any time in the last fifteen years. In addition to being interesting, Grantham provides an eloquent description of the macroeconomic events of the last year and puts them in perspective versus other historical financial crises. I think this letter is a must read.Â
Greenlight Capital ([David Einhorn)<- zip file
Greenlight Capital has $6 billion under management and has averaged 20% annual returns. Einhorn is well-regarded long-short value investor and his fund famously does not use leverage to achieve its outsized gains. Over the past year, David Einhorn has reached public stardom this year as the writer of the best seller, Fooling Some of the People All of the Time, his expose on Allied Capital’s poor accounting standards and his rationale for shorting their stock. Though, it took three years and the greatest credit and financial crisis of our lifetimes for Allied Capital’s stock to actually capitulate to Einhorn’s will.Â
Greenlight didn’t fare so well this year with 20% losses in two of three funds. Despite this, it seems that Einhorn is in a buying mode and he sees opportunity all over the capital structure - debt, bonds, equities, commodities, you name it. In fact, he repositioned the fund during the 4th Quarter of 2008 from 9% net long to 43% net long. Similar to Grantham, Einhorn makes a cogent case to bet against the Dollar and backs it up by disclosing that he’s aggressively purchasing gold, gold miners, and foreign currencies. Other highlights from this letter include a very interesting recounting of Greenlight getting caught on the wrong end of the Volkswagen infinite squeeze as well as a run down of stocks bought and sold last quarter - a great resource to add to your own watchlist.Â
Perry Partners International
Perry Partners announced its first losing year in 20-years in 2008. Much in the same spirit, Perry produces an invaluable table of long held market maxims and descriptions of how they failed us in 2008. Here are three I found particularly interesting:
Maxim:Â Luxury goods are typically non-cyclical due to the demand for high-end goods typically being immune to recession.
2008 Result:Â This was definitely not the case as deflation and layoffs targeted many of America’s most wealthy.
Maxim: The BRICs will lead the way.
Result: Turns out these emerging economies could not survive weakness in the U.S. economy and have all fallen significantly versus broad market declines in the U.S.
Maxim: Diversification protects you.
Result: 2008 will go down as the year diversification failed. No asset class was safe. Equity markets around the world reached close 100% correlation. High yield debt and other debt securities were similarly manhandled.
Dan Hung
thecuriousinvestor.com
