I hold back a few of my holdings from the stop-loss experiment I’ve been running over the past several months using Tradestops.com, including insurance-related names Berkshire Hathaway and Markel (both of which are in my top five individual equity holdings), but most of my positions are “exposed” to this experiment and are subject to be sold.
If you weren’t around when I started this experiment, the basic rules are that at least half of my personal position will be sold when the “smart stop” that Tradestops set hits (those smart stops are based on volatility and trailing highs), and I’m using my judgement to determine whether to hold the other half. After a year or so has passed, I will look back to see whether my judgement or the automatic stop loss sale was the better call. I also note the stop loss levels for the stocks I’ve written about as “Idea of the month” stocks for the Irregulars when I can, and try to include those on the Irregulars spreadsheets.
And this week we had another victim, which will probably come as no surprise — and like the last victim, Greenlight Capital, which was sold in a couple steps last year (a good call so far, it’s down another 20%+ since I followed the sell alert), this one’s a hedge fund-connected reinsurer… this time it’s Third Point Re (TPRE) getting the ax. I sold just about half of my personal position today, and I’m still thinking about the other half — TPRE has done far better this year than GLRE, since Dan Loeb’s portfolio hasn’t blown up miserably like David Einhorn’s, but that’s not saying much.
The price isn’t absurd right here, and Loeb is fairly negative about the market right now so he may show some good performance with his short book if this market weakness continues for a spell, but reinsurance continues to be pretty terrible as a business thanks to the glut of capital available and the lack of pricing power (partly because of a lack of bad insured losses recently). Third Point is well-managed on the insurance side, and is doing a better job underwriting than some, and it’s priced right around book value now which I think should be a good buying point given Loeb’s history — but I’ll be looking at it ...