…as Buffett noted in his Superinvestors speech–see tab above–despite having little overlap in their portfolios.
I liberally copied from the business models used by Ben Graham, Warren Buffett, David Einhorn, Seth Klarman, and Mohnish Pabrai. Those investors started small with family-and-friends capital; employed a value-investing philosophy; invested through a private partnership structure (i.e. a hedge fund); recruited smart investors; and were willing to return capital in order to protect returns when there were few opportunities. So, it is comforting to know that my partnership’s returns are virtually identical to Greenlight’s (Okay, we are doing better than Greenlight YTD). We, like Einhorn, do not believe it is time to go all-in, to understate the issue, but that day may come soon, to the market bulls’ chagrin. We can only hope that investors reward our caution with a flood of capital when the appropriate time arrives.
The Money quote in Einhorn’s second quarter letter:
On the losing side, the consumer cyclical short that hurt us most in the first quarter hurt us again in the second quarter. In this bifurcated market, there are a small number of stocks that seem to be going up simply because they are going up. Stock price momentum investing is not a new strategy; we saw how it worked in the extreme during the internet bubble. One difference between then and now is that during the internet bubble, the market categorized stocks into “new economy” and “old economy.” It was relatively easy to pick out the dangerous stocks. This time the distinction is less clear. A number of the momentum stocks have good stories, but many others really have very little going for them, except for a rising stock price. Earnings disappointments, dilutive acquisitions, slowing growth rates, regulatory problems, heavy insider sales, rising competition and even SEC investigations seem to have no impact on the handful of momentum stocks leading the market at this time. Despite trying to carefully pick our spots and to size the positions appropriately, we continue to have exposure on the short-side to a couple of these freight trains. Though we don’t know when the turn will come, we believe that there is substantial downside to the prices of these short positions.
H/T: Santangel’s Review (Link can be found on the right)