by Travis Johnson, Stock Gumshoe | January 4, 2013 6:15 pm
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I noticed that you nowhere mentioned GLRE, whose main attraction is that David Einhorn(e?) runs its investment portfolio. I’ve owned the stock for almost 18 months now and all it’s done is lose 10% from where I bought it at $25.
Is it possible that we’ve all been suckered in by the story. Is it possible that Einhorn has been working, not for us but instead for himself via the hedge fund fees that he is charging GLRE.
I know about his fee arrangement with the company but cannot find his fees in the 10K income statement. Is anyone better informed than me?
I did mention Greenlight Re at the top, it is one of my favorite ideas for the year — the poor performance has been because of bad underwriting losses on a couple of truck insurance contracts, for the most part, they’ve had very good investment performance that has almost, but not quite, made up for the bad underwriting of recent quarters. They seem to have the underwriting problem under control with management changes and changes in the business (they got out of that line), but we won’t know for sure for a while.
Thanks, Travis. I don’t know how I missed your comments on GLRE the first time around. Still, they do not address my misgiving over having in charge of investments, instead of a value investor, a hedge fund guy who is compensated like a hedge fund manager. The question is how badly Einhorn’s compensation impacts investors’ returns.
Their net investment returns are laid out here: http://www.greenlightre.ky/?q=node/153 — it’s the solid investing that has gotten them through some underwriting problems this year. I would argue that Einhorn is a value investor, he is certainly a research-focused fundamental investor, and the hedged strategy is less volatile than straight equities and has far more potential than the fixed income portfolios run by almost all insurance companies. Doesn’t mean there is t room for being concerned about hedge fund fees (I think they’re 1.5/20 in this case), but do note that all insurance companies pay for either external or internal investment managers.
Thanks Travis. Great list of stocks for 2013 and beyond. At present I own GLRE, MKL, AAPL, LONR, SAND from that list and I am seriously looking at Berkshire Hathaway.B shares, Altius,and Roic for next year.
In big part thanks to you,I am up about 10% this year. The last week helped to bring back some of my losses since late September.
Your work Travis and that of your team is definitely very much appreciated.
Have a great day!
Looking over the insider transactions for GLRE made me realize the difficulties in interpreting such data. I’m not sure what direct and indirect actions are, what automatic sale means, what open and non-open means, why in this case for example non-open transactions can be $0 or $24, does exercising an option at $0 reduce the value of the stock and just in general how to read such data and what importance to give them. It seems that insiders in GLRE buy on option and sell. It doesn’t seem they are buying because they believe in the future of the company. At some point, could you address some of these issues so that one might better interpret the meaning of insider transactions? I am a newcomer, so perhaps you already have. If that is the case, I would welcome relevant references to the archives, or indeed other sources, so that I might better understand these data.
Direct versus Nondirect refers to the ownership — so it would be direct if an individual owns the shares, indirect if that individual’s family trust or something owned the shares. I don’t consider that to be particularly meaningful.
Automatic sale means that an insider has set up an automatic selling program, so that they have it locked in based on certain price or date parameters or something along those lines, and therefore those sales can be done in an orderly fashion over time without having to worry about whether the insider has special insider knowledge before each portion of the sale goes through. If an insider knew, for example, that they wanted to liquidate a quarter of their holding over a few months so they could build up enough cash to finally buy that private island, they might instruct the broker to make those sales on particular dates or at particular prices as they come.
Acquisition (non open market) basically means the insider got the shares from the company, either from a direct sale program (if they paid the market price) or as a stock grant and part of their compensation (if they paid $0).
And yes, option exercises are often followed by sale of that stock for most companies, GLRE included.
I’ve written from time to time about insider buying/selling and what it means — the general accepted wisdom (and proven through academic studies) is that insider selling gives no guidance as to future share prices, insiders sell for lots of reasons … but insider buying does lead to market beating returns on average, because insider buying, at market prices and preferably distributed among several “real” insiders (like executives and some board members, not just large investors), is done “for just one reason”, they think the stock is going up. That’s less true now than it was before these studies were published and everyone started watching insider buying for “pattern buying” of three or four C-suite executives buying shares, probably leading to some of those executives making small patterned buys just to impress investors, but it’s still reasonable. Insiders sell because they want or need the money or they need to diversify, they buy because they think the price is good and the future bright.
For GLRE, the insider activity is fairly limited but it also hides the major holding of David Einhorn — he owns between 15-20% of the company but he does so through B shares that aren’t publicly traded.
FYI, there was one of those patterns of insider buying at Markel a couple weeks ago after the takeover announcement drove the stock down, several insiders bought shares at once. That was picked up by some in the investment press and is generally positive, though lots of non-insiders also noted that it was a buying opportunity.
I don’t consider the GLRE insider activity to be particularly meaningful as either a positive or negative, the insiders have been relatively steady sellers which I think is pretty typical. Institutions have also been sellers, which has been a stronger negative for the stock, but my thesis is based on the low valuation of the shares and the fundamental opportunity they should have because of their unique (among insurance companies) investment portfolio and the firming of insurance rates. I could be wrong, but that’s where my chips are placed.
FYI, since I mentioned my put selling in Sandstorm Gold to the irregulars earlier I wanted to let you know that I just bought back those puts — selling them for a dollar generated a nice solid profit and I was willing to wait for four months to “earn” that dollar or buy SAND for $10, … but now that they’ve fallen to ten cents buying them back makes sense, it lets me free up my cash that had backed the puts and perhaps roll out to a different expiration if one looks attractive over the coming weeks.
I do not always write about the rare options trading that I occasionally indulge in, mostly because I’m not very good at it and even small mentions of options contracts to a few of my closest friends here can move these extremely illiquid markets — but since I had written about this trade earlier I thought I should update you. (I do, to be clear, always disclose conflicts if I write about something on which I have an option position — I just don’t routinely talk about every small options transaction the way I do about each stock trade I do)
Travis what are your thoughts on African Oil for 2013?
WHAT ABOUT aFRICAN OIL
Trav is–
name or Names of good
stock Option services, if any. You can reply via e-mail.T
hanks Stephen Rimar
Since you like Golar you probably know also Keppel Corporation ( KPELY ) – SGX Code: BN4. Any opinion? Thanks
I did own Keppel for a few years, but sold several years ago and haven’t looked closely at them lately. The shipyard business did get a bit more competitive and they’re a bit hard to analyze with their utilities, land development projects, etc, but I have generally liked the business. Haven’t checked the valuation lately.
I trade with Options Xpress. I can’t find some of the companies you mention above, ie. Altius Minerals. Can you help here? Thanks, i’m looking foreward to a prosperious year with you.
Gene
I don’t know optionsxpress, but Altius is ALS on the Toronto exchange and ATUSF on the US pink sheets.
Just put my toe in the water with a small position in glre at 22.85. I’ve been watching since the new year and it looks like a bottom. Will buy more if it goes up or down. The RE Business
can be a good platform for a great investor so I’ll take a chance on this one. GLRE is my first Gumshoe pick and I found out ZACKS put a #5 sell on it today.
So we have a Zacks vs Gumshoe grudge match
Travis, a couple question on ROICW.
1. Do you think there is a risk that management could try to intentionally hold down the share price of ROIC in order to avoid the dilutive effect of the warrants? I would imagine that would only happen if the price of ROIC stays near the warrant strike price into 2014 and that they wouldn’t try that if the price was well over $12 by then. But this is just something I saw mentioned as a risk elsewhere and wondered what your thoughts were.
2. On the other side of the coin, if the share price was well above $12 in 2014, couldn’t management avoid some of the dilutive effect by increasing their leverage beyond what they normally would? Then they could reduce leverage once the warrants were exercised, In essence, they would be putting the extra capital to use and increasing earning in advance of the capital infusion.
Thanks!
Hi Travis;
Love your articles and irregulars service but sometimes question your stock picking and timing.
I sold Sandstrom with a 300% gain and will reenter when gold shows signs of bottoming. Barring world events I am looking for gold at less than $1,400/ oz.
I don’t buy stocks to watch my paper gains evaporate. That was my reasoning for dumping M.L. They always bought and never sold!
Keep up the good work.
NMCampbell (AKA coolsoupy)
Thanks soupy — yes, I hope everyone questions the timing and stock picking I do. Every investor should have their own world view and their own plan for buying and selling their positions. I certainly make plenty of mistakes in timing, in analysis and in prognostication.
FYI OptionsXpress is now owned by Charles Schwab