Seven Petterns of Inefficiency in Pricing of Quality Businesses

[giofranchi]

https://fundooprofessor.wordpress.com:443/2015/05/17/seven-patterns/

 

 

Cheers,

 

Gio

[constructive]

Interesting framework.

 

8. The market tends to underprice industries which were previously fragmented but have become more concentrated through M&A. Examples: hard drives, DRAM, US airlines(?).

9. The market tends to underprice companies which have unpredictable earnings. Examples: Greenlight Re, Third Point Re, alternative / PE asset managers.

[Jurgis]

9. The market tends to underprice companies which have unpredictable earnings. Examples: Greenlight Re, Third Point Re, alternative / PE asset managers.

 

Can you elaborate why GLRE and TPRE should have higher valuations? They are subpar (re)insurers with subpar investment results and 2/20%-headwind costs. Why should market value them higher?

[constructive]

Can you elaborate why GLRE and TPRE should have higher valuations? They are subpar (re)insurers with subpar investment results and 2/20%-headwind costs. Why should market value them higher?

 

Greenlight and Third Point's short term investment results are average but their long term returns are excellent, after fees. I think their investment strategies will outperform in the future and their underwriting will not be a significant drag. If you look at their capital structure they are really long/short equity (& a bit of credit) funds with some underwriting tacked on.

 

Long/short equity has struggled since 2008 as asset prices have primarily moved upward and correlations between equities have remained elevated. I think the overall market offers limited returns over the next 10 years and high quality long-short funds will outperform, with less risk as well.

[Jurgis]

Thanks