David Einhorn is president of Greenlight Capital and manages a $2.6 billion portfolio. Einhorn considers himself as a “bottom up” or value-oriented investor. Greenlight achieved annual returns of 29%, from May 1996 to August 2009. David Einhorn believes an investment approach emphasizing intrinsic value will achieve consistent absolute investment returns and safeguard capital regardless of market conditions. He is a noted activist investor, taking positions in companies, and then pushing management to implement changes. In his latest speech, he said, “Having my eyes open to the big picture doesn’t mean abandoning stock picking, but it does mean managing the long short exposure ratio more actively, worrying about what may be brewing in certain industries, and when appropriate, buying some just-in-case insurance for foreseeable macro risks even if they are hard to time.”
Greenlight has interest in 53 companies. Some of the top holdings are in technology (16%), financials (18%), consumer services (14%), and health care (17%).
Greenlight Capital Performance
In the 3Q letter to investors, Greenlight summarized their performance, “Consistent with the rising market, eleven of the fifteen largest gainers in the Partnerships were long equities and two were long debt positions. The other two were an equity-short and gold. The ten largest losers were all short equities. Altogether, longs (including gold) contributed 18% to the gross return, and shorts lost 12%.”
Greenlight closed their holdings on 7 companies in 2009’s third quarter: (pg 4)
We can compare weighting changes throughout the year and observe investment trends made between second to third quarter of 2009, and between third quarters of 2008 & 2009. *** Please Upgrade to Premium Membership to see investment trends for all Gurus.
Greenlight Capital Investment Trends:
For 3Q, Greenlight disclosed that their largest “long positions are Arkema, CIT Group debt, Ford Motor Company debt, gold, Lanxess, and Pfizer. The Partnerships had an average exposure to equities and fixed income (excluding credit derivatives, gold and foreign currencies) of 99% long and 59% short.”
Here are Einhorn’s commentaries in Value Investing Congress Speech: He believes “[CDS] should be banned.” CDSs are highly anti-social because they force bankruptcy. He spoke wittily, “I think that [the government] trying to make safer CDS is like trying to make safer asbestos.” Einhorn disagrees with government’s actions to protect special interest and “backs-pot” giants with bail-outs, stimulus packages, and loans. He stated several reasons: government has large deficit ($1.6 trillion or 11% of GDP, projected 10-year is $9 trillion), the market is not allowed to grow & compete, it creates the “stock bubble”, and the list continues (pg 4-8).
He explains that the government will not have enough liquidity to divest these debts: “There is a basic rule of liquidity. It isn’t the same for everyone. If you own 10,000 shares of Greenlight Re, you have a liquid investment. However, if I own 5 million shares it is not liquid to me, because of both the size of the position and the signal my selling would send to the market. For this reason, the Fed cannot sell its treasuries or Agencies without destroying the market. This means that it will be challenged to shrink the monetary base if inflation actually turns up.”
Einhorn brings out a good comparison between today’s economic tide and to 1938’s “double dip”: this boost is artificial and temporary. “So whenever [stimulus] is eventually removed, there will be significant economic fall out. Our choice may be either to maintain large annual deficits until our creditors refuse to finance them or tolerate another leg down in our economy by accepting some measure of fiscal discipline.”
Einhorn stated his concerns for the value of the paper dollar, and deficit driven hyper inflation. He will manage risks and go with “Grandma Cookie’s investment style” for the long term (Nike, IBM, McDonalds, Walgreens). He viewed gold as neither a bet on inflation or deflation long-term. He said, “I subscribed to Warren Buffett’s old criticism that gold just sits there with no yield and viewed gold’s long-term value as difficult to assess…Of course, gold should do very well if there is a sovereign debt default or currency crisis.” (pg 8)
The international petroleum shipper plans to offer 3.5 million shares at $24.40 per share. The sale will provide capital for debt repayments. Teekay Corp reported loss for 3Q on weak petroleum demand. The company lost $142.2 million or $1.96 a share compared to profit of $103.1 million or $1.41 a share. Net revenue decreased 36% to $428.7 million from $667.2 million in 2008.
Einhorn owns 84,365 shares as of September, which accounts for 0.07% of the $2.6 billion portfolio of Greenlight Capital Inc.
Patterson is under investigation for racial discrimination charges this week. The judge ordered the company to supply all personnel records. The company released that its CEO James Wiltz will retire April 2010. For the 3Q ending in July 2009, Patterson reported income of $45 million, or $0.38 per share compared to $46 million or $0.39 per share in prior year. Revenue increased 6% to $790 million comparing those periods.
David Einhorn owns 3,115,000 shares as of September. Gurufocus considers Patterson to be an under valued company in Einhorn’s portfolio.
This 3Q, the hospital management company doubled on profits, but reported lower admission. HMA made net income of $25.4 million, or $0.10 per share, compared to $10.8 million, $0.0 4 per share, in the same quarter a year ago. Revenue was 5.8% higher at $1.12 billion compared to $1.06 billion a year ago.
David Einhorn owns 9,282,966 shares as of September, a decrease of 35.34% of from the previous quarter. This position accounts for 2.68% of the $2.6 billion portfolio of Greenlight Capital Inc.
BJ reported 4Q loss on decreased drilling. The company lost $9.9 million, or 3 cents per share, compared with a profit of $168.1 million, or 57 cents per share, in the same period in prior year. 4Q revenue was lower at $878.2 million compared to $1.51 billion a year earlier.
David Einhorn owns 2,300,000 shares as of September, which accounts for 1.72% of the $2.6 billion portfolio of Greenlight Capital Inc.
The Texas public school sports commission made an agreement to buy Nike’s sportswear and footwear. Nike surged dividend to $0.27 per share from $0.25 for the quarter, payable to its investors on Jan. 4th 2010. The company named Michael Spillane the CEO of its Converse subsidiary.
David Einhorn owns 6,500 shares as of September, which accounts for 0.02% of the $2.6 billion portfolio of Greenlight Capital Inc. Dodge & Cox owns 4,000 shares as of September, which accounts for less than 0.01% of the $78.78 billion portfolio of Dodge & Cox.
Source:
Greenlight Capital 3Q Letter to Investor (Oct 2009)
Value Investing Congress (Oct 2009)
Greenlight has interest in 53 companies. Some of the top holdings are in technology (16%), financials (18%), consumer services (14%), and health care (17%).
| Year | Return (%) | S&P500 (%) | Excess Gain (%) |
|---|---|---|---|
| 2008 | -17.6 | -37 | 19.4 |
| 2007 | 5.9 | 5.61 | 0.3 |
| 2006 | 24.4 | 15.79 | 8.6 |
| 2005 | 14.2 | 4.91 | 9.3 |
| 2004 | 5.2 | 12 | -6.8 |
In the 3Q letter to investors, Greenlight summarized their performance, “Consistent with the rising market, eleven of the fifteen largest gainers in the Partnerships were long equities and two were long debt positions. The other two were an equity-short and gold. The ten largest losers were all short equities. Altogether, longs (including gold) contributed 18% to the gross return, and shorts lost 12%.”
Greenlight closed their holdings on 7 companies in 2009’s third quarter: (pg 4)
| Companies Sold Out in 3Q | Internal Rate of Return (%Gain from sell)[/b] |
|---|---|
| Allegheny Energy | 5% |
| Clear Channel term loan | 1% |
| First Data term loan | 33% |
| [b]Harman International | 687% |
| Oesterreichische Post (Austria Post) | 13% |
| Alcoa | 38% |
| China Life Insurance | 14% |
We can compare weighting changes throughout the year and observe investment trends made between second to third quarter of 2009, and between third quarters of 2008 & 2009. *** Please Upgrade to Premium Membership to see investment trends for all Gurus.
Greenlight Capital Investment Trends:
| 2Q to 3Q | 3Q to 3Q | |
|---|---|---|
| Technology | Add | Add |
| Financials | Add | Add |
| Consumer Services | Add | Trim |
| Health Care | Add | Add |
| Consumer Services | Trim | Big Trim |
| Industrials | Add | Add |
| Basic Materials | Add | Almost Unchanged |
| Oil & Gas | Add | Trim |
For 3Q, Greenlight disclosed that their largest “long positions are Arkema, CIT Group debt, Ford Motor Company debt, gold, Lanxess, and Pfizer. The Partnerships had an average exposure to equities and fixed income (excluding credit derivatives, gold and foreign currencies) of 99% long and 59% short.”
Here are Einhorn’s commentaries in Value Investing Congress Speech: He believes “[CDS] should be banned.” CDSs are highly anti-social because they force bankruptcy. He spoke wittily, “I think that [the government] trying to make safer CDS is like trying to make safer asbestos.” Einhorn disagrees with government’s actions to protect special interest and “backs-pot” giants with bail-outs, stimulus packages, and loans. He stated several reasons: government has large deficit ($1.6 trillion or 11% of GDP, projected 10-year is $9 trillion), the market is not allowed to grow & compete, it creates the “stock bubble”, and the list continues (pg 4-8).
He explains that the government will not have enough liquidity to divest these debts: “There is a basic rule of liquidity. It isn’t the same for everyone. If you own 10,000 shares of Greenlight Re, you have a liquid investment. However, if I own 5 million shares it is not liquid to me, because of both the size of the position and the signal my selling would send to the market. For this reason, the Fed cannot sell its treasuries or Agencies without destroying the market. This means that it will be challenged to shrink the monetary base if inflation actually turns up.”
Einhorn brings out a good comparison between today’s economic tide and to 1938’s “double dip”: this boost is artificial and temporary. “So whenever [stimulus] is eventually removed, there will be significant economic fall out. Our choice may be either to maintain large annual deficits until our creditors refuse to finance them or tolerate another leg down in our economy by accepting some measure of fiscal discipline.”
Einhorn stated his concerns for the value of the paper dollar, and deficit driven hyper inflation. He will manage risks and go with “Grandma Cookie’s investment style” for the long term (Nike, IBM, McDonalds, Walgreens). He viewed gold as neither a bet on inflation or deflation long-term. He said, “I subscribed to Warren Buffett’s old criticism that gold just sits there with no yield and viewed gold’s long-term value as difficult to assess…Of course, gold should do very well if there is a sovereign debt default or currency crisis.” (pg 8)
Teekay Corp. (TK, Financial)
Teekay Shipping Corporation has a market cap of $1.78 billion; its shares were traded at around $24.56 with and P/S ratio of 0.6. The dividend yield of Teekay Corp. stocks is 5.1%. Teekay Corp. had an annual average earning growth of 29.6% over the past 10 years.The international petroleum shipper plans to offer 3.5 million shares at $24.40 per share. The sale will provide capital for debt repayments. Teekay Corp reported loss for 3Q on weak petroleum demand. The company lost $142.2 million or $1.96 a share compared to profit of $103.1 million or $1.41 a share. Net revenue decreased 36% to $428.7 million from $667.2 million in 2008.
Einhorn owns 84,365 shares as of September, which accounts for 0.07% of the $2.6 billion portfolio of Greenlight Capital Inc.
PattersonUTI Energy Inc. (PTEN, Financial) 1.81% Weightings
Oil service company Patterson has a market cap of $2.26 billion; its shares were traded at around $14.72 with a P/E ratio of 28.9 and P/S ratio of 1. The dividend yield of Pattersonuti Energy Inc. stocks is 1.4%. Pattersonuti Energy Inc. had an annual average earning growth of 26% over the past 10 years.Patterson is under investigation for racial discrimination charges this week. The judge ordered the company to supply all personnel records. The company released that its CEO James Wiltz will retire April 2010. For the 3Q ending in July 2009, Patterson reported income of $45 million, or $0.38 per share compared to $46 million or $0.39 per share in prior year. Revenue increased 6% to $790 million comparing those periods.
David Einhorn owns 3,115,000 shares as of September. Gurufocus considers Patterson to be an under valued company in Einhorn’s portfolio.
Health Management Associates Inc. (HMA, Financial)
Health Management Associates, Inc operates 56 hospitals in the U.S. It has a market cap of $1.66 billion; its shares were traded at around $6.67 with a P/E ratio of 14.8 and P/S ratio of 0.4. Health Management Associates Inc. had an annual average earning growth of 25.2% over the past 10 years. GuruFocus rated Health Management Associates Inc.This 3Q, the hospital management company doubled on profits, but reported lower admission. HMA made net income of $25.4 million, or $0.10 per share, compared to $10.8 million, $0.0 4 per share, in the same quarter a year ago. Revenue was 5.8% higher at $1.12 billion compared to $1.06 billion a year ago.
David Einhorn owns 9,282,966 shares as of September, a decrease of 35.34% of from the previous quarter. This position accounts for 2.68% of the $2.6 billion portfolio of Greenlight Capital Inc.
BJ Services Company (BJS, Financial)
Oilfield BJ Services Company has a market cap of $5.3 billion; its shares were traded at around $18.06 with a P/E ratio of 27 and P/S ratio of 1.3. The dividend yield of Bj Services Company stocks is 1.1%. Bj Services Company had an annual average earning growth of 24.7% over the past 10 years.BJ reported 4Q loss on decreased drilling. The company lost $9.9 million, or 3 cents per share, compared with a profit of $168.1 million, or 57 cents per share, in the same period in prior year. 4Q revenue was lower at $878.2 million compared to $1.51 billion a year earlier.
David Einhorn owns 2,300,000 shares as of September, which accounts for 1.72% of the $2.6 billion portfolio of Greenlight Capital Inc.
NIKE Inc. (NKE, Financial)
Nike, Inc. has a market cap of $31.43 billion; its shares were traded at around $64.54 with a P/E ratio of 16.8 and P/S ratio of 1.6. The dividend yield of Nike Inc. stocks is 1.7%. Nike Inc. had an annual average earning growth of 13.8% over the past 10 years.The Texas public school sports commission made an agreement to buy Nike’s sportswear and footwear. Nike surged dividend to $0.27 per share from $0.25 for the quarter, payable to its investors on Jan. 4th 2010. The company named Michael Spillane the CEO of its Converse subsidiary.
David Einhorn owns 6,500 shares as of September, which accounts for 0.02% of the $2.6 billion portfolio of Greenlight Capital Inc. Dodge & Cox owns 4,000 shares as of September, which accounts for less than 0.01% of the $78.78 billion portfolio of Dodge & Cox.
Source:
Greenlight Capital 3Q Letter to Investor (Oct 2009)
Value Investing Congress (Oct 2009)
