Greenlight Capital

[Broeb22]

 

The dumpster fire at Greenlight Capital continues...

 

https://www.institutionalinvestor.com/article/b19sztwcjhfl12/Greenlight-Capital-s-Big-August-Loss-Compounds-2018-Woes#.W47RhtkhwQc.twitter

[Spekulatius]

It’s one thing that he shirts don’t work in a bull market, but it’s quite another that his longs are uncannily mistimed and in a lot of value trap situations.

[muscleman]

It’s one thing that he shirts don’t work in a bull market, but it’s quite another that his longs are uncannily mistimed and in a lot of value trap situations.

 

I'd be curious to see how many more years it'll take before he admits that his strategy is totally flawed and he initially performed well only by luck. :)

[Spekulatius]

It’s one thing that he shirts don’t work in a bull market, but it’s quite another that his longs are uncannily mistimed and in a lot of value trap situations.

 

I'd be curious to see how many more years it'll take before he admits that his strategy is totally flawed and he initially performed well only by luck. :)

 

I don’t think his early performance was all luck, but maybe it played a role. I think he has changed, he doesn’t have the same drive or thoroughness or intellectual honesty any more that he used to have 15 years ago or so, when he got started.

[given2invest]

do not underestimate how much easier it is to manage 1 million, 10 million, 100 million than 1b+ let alone 10b. 

 

that's just a part of why he has failed but it's real.  yes, plenty can manage 10b but it's much harder than 100m.

[sleepydragon]

It’s one thing that he shirts don’t work in a bull market, but it’s quite another that his longs are uncannily mistimed and in a lot of value trap situations.

 

I'd be curious to see how many more years it'll take before he admits that his strategy is totally flawed and he initially performed well only by luck. :)

 

I don’t think his early performance was all luck, but maybe it played a role. I think he has changed, he doesn’t have the same drive or thoroughness or intellectual honesty any more that he used to have 15 years ago or so, when he got started.

 

Check the ADV form. His job title is Chief Marketing officer.

[Spekulatius]

It sounds like Einhorn's shorts are cartoonishly bad.

 

Maybe he should stop shorting, it doesn't sound like he's very good at it.

 

It’s not just his shorts, his longs are bad too. Delta Lloyd, BAYN.DE, BHF etc. while the jury on BHF is still out, his entry was quite bad and it’s clear that he depth in research stocks appears to be quite shallow.

[frommi]

He is pretty unlucky right now, but i can imagine that he makes a comeback sometime over the next 1-2 years. The market was very irrational on the short side over the past 3-6 months. Nearly every stock with a high short interest has gone up a lot. Maybe some of the last short hedgefunds are in liquidation? Really looks like the last leg up before the meltdown.

[mjm]

read article recently saying the long/short thesis of greenlight very difficult to achieve as so hard to short stocks --- may be right long- term but the timing is so difficult.  they thought a long/ cash type fund may be better suited for most of his picks.

[pcm983]

calling his recent performance due to "value investing" not working is misguided imo. like others have mentioned his longs and shorts have done poorly. also plenty "value investors" have been flexible and adaptable enough to adjust and go long AMZN. AMZN has literally none of the components of a good short case - one of best ceo's of all time, customers love the product and ecosystem, tremendous market power both as a buyer, supplier, distributor, etc. Long-term focused CEO on creating shareholder value. You can definitely argue for a lower valuation of AMZN, but then you are just trying to time the cycle and basically doing a broader SPY / NASDAQ short call, which could be better expressed by just putting a few percent of the portfolio in leap puts. The only potentially defensible "bubble short" he has on as you can make a real case of fraud, etc. But even then, why choose the pain of fighting against someone who will give everything he has to keep the company alive. I'd much rather short some poorly run cyclical business that's overearning where the CEO is apathetic because he is on his way to retiring. I think their performance will likely continue and there is a decent chance Greenlight RE is forced to unwind by regulators or downgrades by the ratings agencies. A turn around would imply that all of the sudden his shorts will all crash and his longs will rally but I don't see how its possible for that to happen without a major market crash. If AMZN is down 50+% I would bet that there is a big market correction underway (barring some crazy black swan event at AMZN like accounting issues or something like that), and many of his longs which are low p/e, lousy cyclical businesses would likely do very poorly as well. So maybe he would "outperform" the market and be down 10% in a 20% correction, but I think the odds of him making up the recent massive underperformance are very unlikely.

[mwtorock]

slightly off the topic, but after a long bull market since 2009, the bulls (bullish hedge funds plus index funds) have total control of the market now. they are getting more money under management and they buy more of the same stocks, then they outperform and again get more money under management. it goes on and on. the high profile shorts are getting squeezed.

 

shorting is really hard.

[Liberty]

slightly off the topic, but after a long bull market since 2009, the bulls (bullish hedge funds plus index funds) have total control of the market now. they are getting more money under management and they buy more of the same stocks, then they outperform and again get more money under management. it goes on and on. the high profile shorts are getting squeezed.

 

shorting is really hard.

 

Interesting. The data seems to show that money has been going out of equities funds:

 

 

Why do you think it started in 2009? You don't usually calculate from the bottom, rather from when you reach the previous peak... and in between we've had lots of rough markets with lots of things down 10-20%+ (2011, 2015-2016, etc), has had people worry all the way up, with the bulls rarely being really in control (maybe part of last year when volatility was super low, until the market fell 10% in a few days in February).

 

 

"They need to stop w the false narratives (see article).

2015-2016 was a bear market!

Biotech -35% Jul 2015 - Jul 2016 $XBI

Consumer Good -21% Jul 2015 - Feb 2016 $IYK

Energy -64% Jun 2014 - Feb 2016 $XLE

Financials -22% Jul 2015 - Feb 2016 $XLF

 

Healthcare -18% Jul 2015 - Feb 2016 $XLV

Industrials -29% Jul 2015 - Feb 2016 $XLI

Materials -27% Jul 2014 - Feb 2016 $XLB

Technology -26% Jun 2015 - Feb 2016 $XLK

Russell 2000 -26% Jun 2015 – Feb 2016 $IWM

NYSE -20% May 2015 - Feb 2016

 

Globally...

Australia -20% in 10 months $EWA

Brazil -50% in 6 YEARS $EWZ

Canada -22% in 1.5 YEARS $EWC

China -50% in 10 months $FXI

France -25% in 10 months $EWQ

Germany -28% in 10 months $EWG

Hong Kong -35% in 10 months $EWH

India -24% in 1.2 YEARS $INDA

 

Italy -50% in 5 YEARS $EWI

Japan -28% in 10 months $EWJ

Mexico -45% in 4 YEARS $EWW

Russia -74% in 8 YEARS $RSX

South Korea -17% in 6 YEARS $EWY

Spain -36% in 10 months $EWP

 

You know what's interesting?

Almost every single market we track bottomed

simultaneously in February 2016. This could mark a

generational significant low.

$SPX $SPY $EEM $VEU $VT $FDN $SMH"

 

And things aren't so rosy around the world:

 

 

Not saying I know what tomorrow brings, but I keep hearing a revisionist narrative about the past few years having been smooth sailing and straight up, but all along I've seen people hand wringing and calling the last inning (since 2011)...

 

[Foreign Tuffett]

$GLRE is yet another example of the "long COBF threads = terrible stock performance" phenomenon

[Jurgis]

$GLRE is yet another example of the "long COBF threads = terrible stock performance" phenomenon

 

Sell BRK and FFH now!  ;D 8)

[Cigarbutt]

@mwtorock and Liberty

Many ways to skin a cat but if someone is selling equities, there must be some other buying.

Reminds me of the Dalbar studies suggesting that the individual investor may be his or her worst enemy (in terms of fees, taxes and especially timing).

 

Liberty,

 

Do you know if the funds data showed by Bluegrass include ETFs?

 

Equity funds often consist of retail and smaller individual investors. It seems that the small investor has not enjoyed the ride.

Mathematically, some did as this is, outside of fees, a zero-sum game.

I've seen data that the top 10%'s share of stock holdings has been increasing and foreign investors have also loaded up.

From 2009 to 2017, I understand that US total market cap went from 15,1T to 32,1T, including buy-back activity.

https://data.worldbank.org/indicator/CM.MKT.LCAP.CD?locations=US&view=chart

If the mutual fund and ETF crowd has increased ownership only by 0,2T, the difference has been made up by others: direct holders of equity, rest of the world (international investors, sovereign wealth funds and even central banks) as well as public and private pension funds, insurance company funds and hedge funds.

 

It's very hard to distill insights from all this but the growth in market cap has been driven by a fundamental recovery but also by a significant increase in price multiples and the latter can be related to sentiment somehow.

 

Who knows what the future holds?

 

Philosophicaleconomics tried to answer this question around 2013 by looking at average household equity allocation and subsequent return. Interesting to note that the long historical inverse correlation trend has broken down recently. New plateau?

 

For investors like Greenlight Capital, using certain value metrics has resulted in relatively poor results on the long and short side.

 

[Gregmal]

$GLRE is yet another example of the "long COBF threads = terrible stock performance" phenomenon

 

It's something I've also noticed. It seems many here, and with value investors in general, there is some prerequisite for one to be so crippled by fear of "the next big one" that they spend all their time burying their acorns, however unlike squirrels, the events they prepare for are not annual, they're pretty much generational. Yet the next notion of the "value investor" is to act as if these generational events happen much more frequently than they do, and believe that they(the investor) will be waiting right there with a huge pile of cash to pick up all the great, cheap businesses when it happens. Historically, this is not how it works. Not only does this make them so frugal it becomes counter productive, but it makes it a miracle for them to even get within an earshot of beating a benchmark. If you are a half skilled investor, or simply put in the time, it's pretty darn easy to regularly generate alpha producing ideas. I think "being hedged" or crying about valuations became a clever institutional tool used to milk fees and justify shitty performance.

[mwtorock]

@mwtorock and Liberty

Many ways to skin a cat but if someone is selling equities, there must be some other buying.

Reminds me of the Dalbar studies suggesting that the individual investor may be his or her worst enemy (in terms of fees, taxes and especially timing).

 

Liberty,

 

Do you know if the funds data showed by Bluegrass include ETFs?

 

Equity funds often consist of retail and smaller individual investors. It seems that the small investor has not enjoyed the ride.

Mathematically, some did as this is, outside of fees, a zero-sum game.

I've seen data that the top 10%'s share of stock holdings has been increasing and foreign investors have also loaded up.

From 2009 to 2017, I understand that US total market cap went from 15,1T to 32,1T, including buy-back activity.

https://data.worldbank.org/indicator/CM.MKT.LCAP.CD?locations=US&view=chart

If the mutual fund and ETF crowd has increased ownership only by 0,2T, the difference has been made up by others: direct holders of equity, rest of the world (international investors, sovereign wealth funds and even central banks) as well as public and private pension funds, insurance company funds and hedge funds.

 

It's very hard to distill insights from all this but the growth in market cap has been driven by a fundamental recovery but also by a significant increase in price multiples and the latter can be related to sentiment somehow.

 

Who knows what the future holds?

 

Philosophicaleconomics tried to answer this question around 2013 by looking at average household equity allocation and subsequent return. Interesting to note that the long historical inverse correlation trend has broken down recently. New plateau?

 

For investors like Greenlight Capital, using certain value metrics has resulted in relatively poor results on the long and short side.

 

Maybe it is my wording that is misleading. The case in point is the short position of bubble basket, which consists of probably growth stocks and moment stocks like AMZN, NFLX, TLSA, and so on.  The funds that short these names underperformed and had large outflows over last couple of years(looking at Greenlight), and the funds that long these names (including a few guys here) outperformed and hopefully had inflows. When the long funds get new money, they tend to buy the same kind of businesses/stocks, and put further pressure on other positions of the short side.

 

even if DE is right about the bubble, it is a lot easier to benefit from the long side than from the short side.

 

agree about the market since 2009 was not all smooth sailing. we even had EU crisis. and i was not talking about the broad market. the reference to 2009 was just that the bull market started then. one thing though, i dont know whether we can look at just pure equity funds as active has lost AUM to passive index funds or ETFs. for market cap weighted indices, the new inflow drives up the large cap growth names as their weights increase. also other types of funds may also buy stocks. for example, most of the macro funds i know of also have US stocks positions, and they tend to be following the trends a lot (from what i hear). so for things like AMZN that has been in a long term up trend, it naturally goes up because of moment trades or trend followers. that is until the trend changes.

[Cigarbutt]

Maybe it is my wording that is misleading. The case in point is the short position of bubble basket, which consists of probably growth stocks and moment stocks like AMZN, NFLX, TLSA, and so on.  The funds that short these names underperformed and had large outflows over last couple of years(looking at Greenlight), and the funds that long these names (including a few guys here) outperformed and hopefully had inflows. When the long funds get new money, they tend to buy the same kind of businesses/stocks, and put further pressure on other positions of the short side.

 

even if DE is right about the bubble, it is a lot easier to benefit from the long side than from the short side.

 

agree about the market since 2009 was not all smooth sailing. we even had EU crisis. and i was not talking about the broad market. the reference to 2009 was just that the bull market started then. one thing though, i dont know whether we can look at just pure equity funds as active has lost AUM to passive index funds or ETFs. for market cap weighted indices, the new inflow drives up the large cap growth names as their weights increase. also other types of funds may also buy stocks. for example, most of the macro funds i know of also have US stocks positions, and they tend to be following the trends a lot (from what i hear). so for things like AMZN that has been in a long term up trend, it naturally goes up because of moment trades or trend followers. that is until the trend changes.

I may understand better your perspective.

To be clear,

-Do you think that Mr. Einhorn was/is right but was/is unable to wait long enough for his thesis to work out given the unusual

preeminence of a population of momemtum and price action investors and the larger proportion of passive indexing?

-Have you considered that he may have been fundamentally wrong or that he may have overestimated his capacity to predict a shift in investor sentiment?

-What makes you say that bulls have total control of the market?

[mwtorock]

-Do you think that Mr. Einhorn was/is right but was/is unable to wait long enough for his thesis to work out given the unusual preeminence of a population of momentum and price action investors and the larger proportion of passive indexing?

 

Yep. i would definitely think that he is or was right at least on some of the ideas. But he was/is too confident that he chose to profit from the thesis by shorting the 'bubble' stocks. To me, shorting is very difficult with timing, size, etc. It is probably better to try to profit in a different way.

 

-Have you considered that he may have been fundamentally wrong or that he may have overestimated his capacity to predict a shift in investor sentiment?

 

Yes, probably. I dont personally know david, but i feel like he probably overestimated his influence  especially in the short positions. Several years ago whenever greenlight 13F filing is up, the long positions would jump the next day, and whenever DE discloses a short, the stock would tank. Those days are long gone now, but i dont know if he recognize that.

 

-What makes you say that bulls have total control of the market?

 

I think it is a natural result of bull cycle. How many successful high profile shorts we heard in the last two years? We had short positions that made perfect sense fundamentally but got taken private at a price that probably only happens with rates near zero. And then you have momentum traders, growth investors and passive indexing continue to push the growth/momentum stocks higher. AMZN almost doubled in less than a year from 500B to 1T. it is probably still undervalued per my barber and my realtor, and they are buying it. They are probably going to make money, but they are not buying it for any fundamental reasons.

 

I dont know if we are in a late stage of bull market, but i have seen more and more people care about price action or growth potential more than anything else, even in the circles of 'value investors'. I think until the trend changes, it is very hard to short a basket of stocks. And probably nobody knows when the trend would change.

 

[pcm983]

thats a really interesting point about this stuff becoming self-fulfilling - it's a feedback loop in a way. I've never thought about it like that but thanks for opening up my perspective. It makes a ton of sense. The more the MoMo stocks work, the more funds they raise, and the more money flows into those stocks, and the more they go up, etc. That said, this likely works the same in reverse, probably even more quickly.

[Spekulatius]

The fact that it’s dangerous shorting Momo stocks is nothing new - people got killed shorting yahoo and other internet stocks in 1999, even though the valuations were ridiculous. any short seller worth it’s salt knows that shorting just based on valuation is dangerous and really not recommended.

 

In the case of Einhorn, I would say that hs shorts were ill chosen and even worse his longs too. timing was bad and in many cases, he clearly didn’t understand the circumstances - one example his recent buy of Bayer (BAYN.DE) where he didn’t really understand the merger implications, (had no clue about the lawsuits), ignored that Bayer overpaid and didn’t understand that gene manipulated foods are considered toxic in Europe and the investor base may not like the merger especially either. This to me is just shoddy research.

[muscleman]

-Do you think that Mr. Einhorn was/is right but was/is unable to wait long enough for his thesis to work out given the unusual preeminence of a population of momentum and price action investors and the larger proportion of passive indexing?

 

Yep. i would definitely think that he is or was right at least on some of the ideas. But he was/is too confident that he chose to profit from the thesis by shorting the 'bubble' stocks. To me, shorting is very difficult with timing, size, etc. It is probably better to try to profit in a different way.

 

-Have you considered that he may have been fundamentally wrong or that he may have overestimated his capacity to predict a shift in investor sentiment?

 

Yes, probably. I dont personally know david, but i feel like he probably overestimated his influence  especially in the short positions. Several years ago whenever greenlight 13F filing is up, the long positions would jump the next day, and whenever DE discloses a short, the stock would tank. Those days are long gone now, but i dont know if he recognize that.

 

-What makes you say that bulls have total control of the market?

 

I think it is a natural result of bull cycle. How many successful high profile shorts we heard in the last two years? We had short positions that made perfect sense fundamentally but got taken private at a price that probably only happens with rates near zero. And then you have momentum traders, growth investors and passive indexing continue to push the growth/momentum stocks higher. AMZN almost doubled in less than a year from 500B to 1T. it is probably still undervalued per my barber and my realtor, and they are buying it. They are probably going to make money, but they are not buying it for any fundamental reasons.

 

I dont know if we are in a late stage of bull market, but i have seen more and more people care about price action or growth potential more than anything else, even in the circles of 'value investors'. I think until the trend changes, it is very hard to short a basket of stocks. And probably nobody knows when the trend would change.

 

No I think he is simply wrong. These growth stocks have tremendous operating leverage and can grow insanely fast without much capital. Therefore it is extremely hard to value them. Just like value investors, growth investors buy these stocks based on market mispricing due to the above reasons. How can Einhorn be so sure about his valuation on AMZN such that he would hold onto the short no matter how big the loss is? The truth is that no one can be sure about AMZN’s valuation. If he can’t accept that fact then he does not deserve super performance

[Cigarbutt]

https://www.bloomberg.com/graphics/2018-shrinking-hedge-fund/

Why search for "alpha" with Mr. Einhorn and other high-profile hedge fund managers when all one has to do is to ride the wave, the wave with no end in sight.

"And yet it moves", he apparently muttered.

[Lakesider]

New letter from the boards favourite hedge fund.  ;)

 

https://drive.google.com/file/d/1W8cHASX6-hodil8f2KsnZdbWwkERXCjw/view

 

 

[muscleman]

New letter from the boards favourite hedge fund.  ;)

 

https://drive.google.com/file/d/1W8cHASX6-hodil8f2KsnZdbWwkERXCjw/view

 

-34% is horrendous. I thought a long short fund is supposed to do better in a down year?