David Einhorn’s Greenlight Returns 9.7% in Q4 and 8.5% net of fees.
Short of First Solar (FLSR) was biggest winner.
Did well with CDSs in several European countries
Full letter:
Dear Partner:
Greenlight Capital, L.P., Greenlight Capital Qualified, L.P. and Greenlight Capital Offshore
(collectively, the “Partnerships”) returned 9.7%, 8.8% and 8.5%1 net of fees and expenses,
respectively, in the fourth quarter of 2011, bringing the respective full year returns to 2.9%,
2.7% and 1.9%.1 Since inception in May 1996, Greenlight Capital, L.P. has returned 1,685%
cumulatively or 20% annualized, both net of fees and expenses.
To summarize the year: Never has so much work gone into making 2%. For all its ups and
downs, dramatic headlines, and extremely high daily volatility, the market ended the year just
about where it started. The S&P 500 index closed within a tenth of a point of its opening
price. Other developed equity markets did worse. Most European markets were down double
digits, the Japanese Nikkei index fell about 17%, and many emerging markets declined more
than 20%. While outperforming the S&P 500 has never been our goal, this is the 13th
consecutive year that we have done so, though this time by a trivial margin.
Throughout the year we found very few places to make money, but we likewise kept our
mistakes to a minimum. Our largest winner by far was our short of First Solar (FSLR), which
fell from $130.14 to $33.76 per share and was the worst performing stock in the S&P 500.
We also did well investing in various credit default swaps on European sovereign debt. For
the second year in a row, our biggest loss came from positions designed to capitalize on an
eventual weakening of the Yen. These positions cost us only slightly more than our position
in Sprint (S), which declined from $4.23 to $2.34 per share in 2011.
For the most part, our long portfolio went sideways. A raft of large holdings including
Arkema, Aspen Insurance, CareFusion, Delphi, Delta Lloyd, Ensco, Marvell Technology,
Microsoft, NCR, Pfizer (exited) and Travelers (exited) generally met or exceeded our
operating expectations, but combined to generate an insignificant return. Even Apple, with
sales and earnings growth of about 70%, saw its stock appreciate by just 25%. Perhaps the
old saw about “cheap stocks getting cheaper” applies. However, these are all good businesses
with good prospects. We believe that at some point the Partnerships will be better rewarded
for these holdings.
The global environment is very complicated. On the one hand, the Federal Reserve has taken
a much-needed break from quantitative easing (at least for the moment). Accordingly,
inflation in oil and food has abated, providing relief to the U.S. economy. Bearish forecasts
that the U.S. was headed back into recession proved wrong for the third time since the end of
the last recession.
On the other hand, Asia appears to be in much worse shape than it was at this time last year
and could be a drag on the world economy going forward. Very few people trust any of the
economic data coming out of China, making it difficult to gauge the situation there. Some of
the smartest people we know have very dim views. The Chinese have been a leading growth
engine for the last two decades and are largely credited with leading the world out of the
recession in 2009. A change in their economic circumstances could really upend things.
Finally, the European currency crisis has continued to worsen. The last year and a half has
been an endless repetition of the dynamic depicted below:
Full pdf here
