Monday, January 10, 2011

Investing With David Einhorn and Greenlight Capital

David Einhorn on Lehman & Moral Hazard

David Einhorn Book: Fooling Some of the People All of the Time

My stock pick this week on a buy long position on Greenlight Reinsurance Ltd. Greenlight Reinsurance invests all of its money with David Einhorn or Greenlight Capital. Einhorn is Chairman of the Board of Greenlight Reinsurance Ltd, which provides property and casualty insurance. David Einhorn is famous for shorting Lehman Brothers in 2007 before anyone publicly knew there was a problem with the investment banks, and making statements on Bloomberg and CNBC to such during the 2008 financial market crisis to the dismay of the investment banks.

David Einhorn is president and co-founder of Greenlight Capital, a long-short value-oriented hedge fund founded in 1996. Greenlight Capital has generated greater than a twenty-one percent annualized net return for its partners over the years.

Einhorn Short Selling Lehman Brothers 2007

In July 2007, Einhorn started short selling Lehman Brothers. His analysis showed that Lehman was under capitalized, and had huge exposure to CDO’s that caused the melt down in 2008 of the investment banks, and the credit debt stock markets. Einhorn claimed that Lehman was using devious accounting practices in their financial report filings.

Bear Stearns Bailout 2008

When Bear Stearns was bailed out by the Fed in March of 2008, Lehman was known by the street to be in an unstable state also. Einhorn made a conference speech April of 2008 talking about his Lehman short positions. Lehman called Greenlight Capital to ask for, and received a copy of his speech.

Greenlight Capital Lehman Brothers Conference Call 2008

In May 2008, Lehman Brothers CFO Erin Callan had a private call with Einhorn and the Greenlight Capital analysts. The conversation with Callan was to give her a chance to explain discrepancies Einhorn had uncovered between the firm's latest financial filing and what had been discussed during its conference call about that filing.

Ms. Callan is quoted to have stumbled with her responses to questions from Greenlight on Lehman's asset valuations. When Einhorn later went public with the conversation, the declining Lehman share price took a further drop. Callan was fired a few weeks later when Lehman reported a worse than expected $2.8bn second-quarter loss. Then in September of 2008 Lehman Brothers went bankrupt.

David Einhorn Greenlight Capital Return on Investment

David Einhorn and Greenlight Capital generated strong gains for its clients in December 2010. While most reinsurers invest premiums into bonds and other credit type securities, Greenlight Reinsurance invests almost all its premiums with David Einhorn of Greenlight Capital, who specializes in long and short equity investing trading.

Einhorn’s Greenlight Capital provided a 4% return in December 2010, with Greenlight Reinsurance Ltd portfolio up 11% for 2010. Greenlight Reinsurance Ltd said that its biggest disclosed long positions at the end of 2010 were Arkema, Ensco PLC, Gold, Pfizer, and Vodafone Group. Einhorn also likes Apple and Verizon.

Invest with a Winning Fund Manager and His Stock Holdings

If you’re unsure about which way the stock market is headed these days, you can invest some of your hard earned money in David Einhorn by buying some GLRE shares, as he’s not afraid to short the market as well as go long. My buy long position on Greenlight Reinsurance Ltd has about a 5 to 1 reward risk ratio if it turns out. I’m betting it will, and if it doesn’t the stop-loss is minimal compared to the probability of the potential upside.

Buy Long Greenlight Reinsurance Ltd – Ticker GLRE

Buy Entry: 25.89 to 26.99

Stop-Loss: 25.59

Take Profit Areas: 29.91 to 30.67, 31.46 to 32.30, 34.74 to 35.64,

Greenlight Reinsurance Ltd Company Profile

Greenlight Reinsurance Ltd. is an AM Best "A-" (Excellent) rated specialist property and casualty reinsurance company based in the Cayman Islands. The Company provides a variety of custom-tailored reinsurance solutions to the insurance, risk retention group, captive and financial marketplaces. Established in 2004, Greenlight Re selectively offers customized reinsurance solutions in markets where capacity and alternatives are limited. With a focus on deriving superior returns from both sides of the balance sheet, Greenlight Re's assets are managed according to a value-oriented equity-focused strategy that complements the Company's business goal of long-term growth in book value per share.

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Greenlight Reinsurance