2 Grand Central Tower
140 East 45
New York NY 10017
January 17, 2012Dear 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%
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%.
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 anddowns, dramatic headlines, and extremely high daily volatility, the market ended the year justabout 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 doubledigits, the Japanese Nikkei index fell about 17%, and many emerging markets declined morethan 20%. While outperforming the S&P 500 has never been our goal, this is the 13
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), whichfell 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 aneventual weakening of the Yen. These positions cost us only slightly more than our positionin 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 includingArkema, 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, withsales and earnings growth of about 70%, saw its stock appreciate by just 25%. Perhaps theold saw about “cheap stocks getting cheaper” applies. However, these are all good businesseswith good prospects. We believe that at some point the Partnerships will be better rewardedfor these holdings.The global environment is very complicated. On the one hand, the Federal Reserve has takena 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 forecaststhat the U.S. was headed back into recession proved wrong for the third time since the end of the last recession.
Source: Greenlight Capital. Please refer to information contained in the disclosures at the end of the letter.