After reading Michelle Celarier’s article on David Einhorn, the founder, and president of Greenlight Capital (long–short hedge fund), and his appearance on the 23rd annual Sohn Investment Conference, one cannot help but wonder why he stubbornly keeps his head in clouds, and will he ever come down to earth when it comes to his value-investing paradigm?
Over the period between 2014 and 2017 Greenlight’s assets had shrunk for $5.4 billion, leaving him with $6.4 billion at the end of the year. This was the greatest loss for this hedge manager and his fund, since the foundation of Greenlight in 1996 and more importantly since his Sohn debut 16 years ago. Of course, besides an $11 million penalty for insider trading of Punch Taverns stock in January 2012. Moreover, through April the hedge fund lost 14.9 percent, “while the S&P 500 was down 0.4 percent.” The loss of investors confidence was evident as the third of fund’s redeemable capital came out. However, despite recent (bad) results, and one of the worst quarters ever, David believes the fund’s portfolio will “perform well over time.”
But, let’s summarize what we learned about David while reading Michelle’s latest article for Institutional Investor. He has reached the stars and earned billions by shorting companies like Allied Capital and Lehman Brothers in 2000s. By the age of 40, he became a short-selling legend managing one of the world’s most-watched hedge funds, although he is mainly a “long-short equity manager who makes most of his money on the long side.” However, sticking to shorts on a number of companies like Green Mountain Coffee Roasters, Chipotle Mexican Grill, Athenahealth, etc., and in the first row Netflix, Amazon.com, and Tesla (which are potential growth machines) on last decade’s bull market was a bit reckless. In addition, he never laid out details. Since Einhorn first mentioned Amazon and Netflix stocks as shorts three years ago, they have tripled – in this year alone they are up 38% and 64%. Not to mention the decline of value investing and the rise of ETFs, quants and index funds, what does not go in his favor either. While presenting his latest case for a short sale of Assured Guaranty, he almost acted like a drowning man trying to catch at a straw, especially after the company’s shares started to rise a morning after.
And while some are keeping his back, like Mark Spiegel, the Stanphyl Capital Management’s managing member who was on board with David when it comes to Tesla shorts, the others like Sahm Adrangi, “who is one of the new breed of activist short sellers” are shaking their heads saying there is no “excuse for shorting Amazon”. Sadly, those thinking David hasn’t been a good investor during the last decade outnumber those still supporting him.
Nevertheless, one is for sure – David learned how to cope with loss while regaining self-confidence. After all, thinking you’re the smartest out there is hard when everyone else is telling you’re wrong. He is successful in avoiding criticism and public censure, by “staying low” and relying on his stellar past. After all, starting a hedge fund in your 20s and boosting annualized returns of 26% over a decade, is a quite a success, right? Moreover, Einhorn still has billions at his disposal and as Kerrisdale’s Adrangi says, “the Greenlight brand is as strong a brand as is out there,” what gives him a chance to regain his old fame.