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- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
No. of Recommendations: 16
David Einhorn of Greenlight Capital is among the traditional headliners at the Sohn Investing Conference, which raises money to fight childhood cancer and has metastasized to iterations around the globe. The annual U.S. version is today in New York.
Mr. Einhorn likes to make fun of market sentiment, and for a number of years he used his time at the Sohn lectern to promote short ideas, which became his public identity after he proposed shorting Allied Capital in 2002. His long-running battle to defend this position is the subject of his 2008 book, Fooling Some of the People All of the Time, which is one of the more entertaining investing books around.
This year, in addition to a long idea, he made an interesting argument around value investing. He is not the first to observe that the Bogle-ization of stock market investing -- the massive shift from active, high-fee mutual funds to passive, low-fee index funds and ETFs -- has reduced the number of active managers and the idea generators who worked for them.
He's now arguing that the number of active, professional value investors has been reduced so dramatically that it is once again a fertile area for industrious value investors. It was either in his talk or subsequent interview on CNBC that he suggested "this must be what Warren Buffett felt like in the '50s."
His long idea this year was Solvay SA, a Belgian chemicals business that recently spun out its specialty chemicals business. He called it his AI play -- as in Solv-a-y. He makes a lot of puns like that. He said his best returns in recent years have come from spinout situations due to the various well-known phenomena that tend to follow spinouts -- general confusion, miscast shareholders, irrational selloffs, etc.
Solvay trades under the ticker SOLB in Brussels, where the exchange closed before Mr. Einhorn's remarks. It trades on the pink sheets in the U.S. under the ticker SLVYY, which predictably exploded with his talk at Sohn, which CNBC took live. He called it a solid chemicals business irrationally trading at a P/E in the low single digits and a yield of nearly 10% after the spinout of the specialty business to a new entity apparently named by a Scrabble player (Syensqo). He finished buying Greenlight's 5% position in December following completion of the spinout.
The U.S. listing was up 14% today on 203x its normally very light volume following his remarks.
This is a top-5 position at Greenlight, he said. So is gold, both the GLD ETF and actual gold bars, because he thinks the unsustainable U.S. fiscal policy will bring about a reckoning at some point.
He tends toward extremes on a number of topics and the performance of Greenlight's public listing, GLRE, has been really bad. It still trades below its 2007 IPO price of $19. Mr. Einhorn says the loss of competitors due to the rise of passive investing has improved his prospects and GLRE has doubled from its lows in 2020. He and Mr. Buffett, obviously, disagree on the subject of gold.
So no endorsement, but I thought his views might be of interest to value investors here.
No. of Recommendations: 23
He is not the first to observe that the Bogle-ization of stock market investing -- the massive shift from active, high-fee mutual funds to passive, low-fee index funds and ETFs -- has reduced the number of active managers and the idea generators who worked for them.
He's now arguing that the number of active, professional value investors has been reduced so dramatically that it is once again a fertile area for industrious value investors. It was either in his talk or subsequent interview on CNBC that he suggested "this must be what Warren Buffett felt like in the '50s."
Another, less cheery, view of this development might go like this:
The reason value investing was a good way to make a buck is that if you bought something well below its t rue value, you could be pretty darned sure it would be trading at a fair valuation level some time in the next few years. Usually 3-4, sometimes 5-6, let's say 7 at the very outside. Given the ongoing (though perhaps modest) ongoing growth in intrinsic value during this interval, the growth plus the mean reversion would lead to good annualized rate of return with very low risk.
But...with fewer and fewer investors even considering the intrinsic value of where they are putting their money (indexers, closet indexers, and fad chasers), the typical time frame for the weighing machine to kick in might well be twice as long as it used to be, or longer. The annualized rate of return from value investing, even if done prudently and successfully, may therefore no longer be very interesting on average.
So he may be right that the value orientation target set is pretty big these days, but it might not do much good for those who pursue it.
Jim
No. of Recommendations: 1
perhaps I am to naïve but maybe he's just bought cheap companies that were cheap for a reason. Surely if a company is cheap, throwing off cash and management is not doing anything stupid with the FCF, you dont need price discovery for the investment to do well, buybacks should assist in that?
No. of Recommendations: 3
"but it might not do much good for those who pursue it."
Yes, we should all switch to day trade and chase mo-mo. ;) No thanks.
Spot on, Jim...the weighing machine just takes longer to adjust currently. All the more reason to start investing as early as possible, never quit and stay invested in your chosen businesses through thick and thin.
No. of Recommendations: 0
No. of Recommendations: 8
Here is the algorithm for under performing fund managers
1. Blame indexing - for making the market inefficient and for their brilliant picks being under appreciated
2. Blame the fed - low rates causing x, y & z leading to their underperformance
3. Blame the stupid investors for chasing bubble/hot stocks and overlooking their picks
Einhorn underperformed because markets became more efficient and cheap stocks are cheap for good reason. No more buy something at 5-10x PE and wait for it to turn.
A good example is his experience with GM.
No. of Recommendations: 1
He finished buying Greenlight's 5% position in December following completion of the spinout...
The U.S. listing was up 14% today on 203x its normally very light volume following his remarks.
Talk about talking your book!!! Einhorn just made himself a boatload of new money! "Value investing?" Ha!
Maybe he feels like Buffett in the '50s, but Buffett wasn't going on TV to pump a low-float pink sheeter he'd put some of his capital into. This is pretty rich.
FC
