As we've discussed at length, the hedge fund quarterly letter to investors is an art form. In down months and in up, it's become increasingly difficult to come up with an original way to say you got your 'nads ripped off and shoved down your throat "but it's okay! because this had nothing to do with our analysis and everything to do with the market’s ridiculous mispricing of equity" or write that you've been doing chest bumps with IR all morning on account of "making the market our bitch" without sounding like you're getting too cocky. Regardless of performance, managers tasking themselves with the responsibility of dazzling clients are faced with the challenge of how to do so in a fresh way that sets them apart from the pack. And few if any get the job done like Glenview chief Larry Robbins.
If Lar were teaching a Learning Annex class on the subject, he'd write one word on the chalkboard and underline it twice: analogies. In his Q2 2010 letter to investors, for example, Robbins likened being a steward of capital to being a bus driver, which included a story about driving his kids to school and debting the merits of taking the GWB versus the Harlem River. Impressive, yes, but the Maestro was just getting started. For for his latest piece, the Q3 note, Lawrence pulled out all the stops. They involved:
* Football fields and sprinklers:
In other words, if you look at the total investing landscape and assume that it is a football field of 100 yards, we think that many different asset classes – Treasuries, investment grade bonds, non-investment grade bonds, CMBS, actual real assets, real estate, gold, etc. – have gone from potentially and then wildly undervalued to now being at least fairly valued, or, in some cases, overvalued. Certainly on the debt side, if you are an absolute return investor, things are quite sparse there. So where’s the only place for the liquidity to go? The only place left for the liquidity to go, which can absorb that liquidity, is high quality US equities. That is where the undervaluation is. If you think of the market as a giant football field, then if 80% of the field is saturated but the liquidity sprinklers are still on all around the field, then that means that 5x as much water is going to find the remaining 20% which is still dry.
* Ornery tubes of toothpaste:
We have a different analogy to say the same thing – we are folding the bottom of the toothpaste tube. If you take a toothpaste tube that is half empty and you smack the bottom of it, nothing really happens, right? It moves a little bit to the right or left. But, if you fold that tube of toothpaste 8x, you’ve built pressure. Now, if you hit the bottom of that tube, all of a sudden things go far.
* TOMMY BOY:
What types of companies are we investing in? We think the economic forecast is too unpredictable to have a cyclical sailboat and so we think you need a motorboat. Again, I use an analogy, in this case, in the movie “Tommy Boy”, Chris Farley in his comedic wisdom is sitting in a sailboat waiting for the wind to blow and, of course, the wind never comes and his sailboat never moves. If you invested in cyclical companies and consumer related companies in the 1990s, you looked like a genius. Why did you look like a genius? Well, because you had a 4% GDP growth tailwind in the US. Most anybody can move forward in a sailboat if there is wind. The problem is when the wind dies down. So we’re trying to find companies which have cyclical growth drivers that don’t necessarily need an economic tailwind in order to move
the boat forward. We’re not saying that there is definitely going to be no wind in the next five to ten years. What we’re saying is that it’s highly uncertain, and therefore we do not want to be dependent on economic wind power in order to power your capital forward.
* And bowling, which no quarterly investor letter worth its salt should be without:
Glenview Q3 2010 Letter [PDF]