Portfolio of David Einhorn’s Greenlight Capital Comes Crashing Down

The investment portfolio of hedge fund Greenlight Capital dropped 5.5 percent last month, according to the hedge fund’s manager, David Einhorn.

The investment portfolio of hedge fund Greenlight Capital dropped 5.5 percent last month, according to the hedge fund’s manager, David Einhorn.

“While we’ve never underperformed like this, our prior worst underperformance compared to the S&P came in March of 2000, which was a similar environment,” Einhorn said in a conference call with analysts last week, according to a CNBC report.

“As the market shifted from ‘grind-up’ to ‘straight-up’ in January, our long portfolio only rose about half of S&P 500, while our short portfolio more than doubled the index,” Greenhorn added. The S&P 500, an American stock market index based on the market capitalizations of 500 large companies with common stock listed on the NASDAQ or NYSE, rose 5.6 percent in January.

“While the environment has remained difficult with growth stocks accelerating their outperformance against value stocks this year, including February, we think a reversion may finally be coming soon,” Einhorn was quoted as saying by CNBC. “Corporate tax cuts are a benefit to companies with profits, which are a hallmark of our long portfolio. Higher interest rates are beginning to offer investors an alternative they haven’t had in many years.”

Greenlight Capital is not the only hedge fund to have hit a rough spot in 2017, with Pershing Square suffering a 4 percent loss. Einhorn added that, while Greenlight Capital did not “underperform materially” in February, it did not outperform either.

Despite the setback, Einhorn remained optimistic, according to a NY Post report last week.

“While 2017 was a disappointing year overall, I’m excited about the company’s prospects,” the hedge fund manager said.

“The biggest losers for the year were our short positions on the ‘bubble basket’ and Caterpillar,” Einhorn wrote on January 16 in an annual letter to clients, according to a CNBC report this month. “It’s tough to look at full year losses on Amazon (+56%), athenahealth (+26%), Netflix (+55%) and Tesla (+46%) when we believe all those stocks appeared priced with little margin for error entering the year, and none executed well or met fundamental expectations in 2017.”

A Cornell graduate who founded Greenlight Capital in 1996, Einhorn is known for “short betting,” in which investors buy stock, sell it, then buy it back it back to return it to the lender, betting that the stock will drop in price. At an Oxford Union event in November, Einhorn attributed his investing success to critical thinking, according to CNBC.

“If I had to pick one, I think it is critical thinking skill. It’s the ability to look at a situation and see it for what it is, which isn’t necessarily what is presented to you,” Einhorn said. “And when something makes sense to figure out what makes sense. And when something doesn’t make sense to question it, to challenge it, to look at it from a different way, to often come to the opposite conclusion.”

By: Mark Crayson

 

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