David Einhorn’s widening losses continue into the first 11 months of 2018. David Einhorn’s Greenlight Capital suffered another decline in what is shaping up to be the worst year on record for the billionaire hedge fund manager.
David Einhorn’s widening losses were compounded last month when Greenlight Capital, clocked a further 3.5% decline in November. The“long-short value-oriented hedge fund” is a nursing year to date loss of almost 28%. Early in the year, David Einhorn believes that these are challenging conditions for value investing, as growth stocks have continued to outperform value stocks.
“David Einhorn’s Greenlight Capital, long-short value-oriented hedge fund is a nursing year to date loss of almost 28%”
David Einhorn’s widening losses were due to a number of failed bets in 2018, short selling Amazon stocks was one of them
“Our view is that just because AMZN can disrupt somebody else’s profit stream, it doesn’t mean that AMZN earns that profit stream. For the moment, the market doesn’t agree. Perhaps, simply being disruptive is enough,” said David Einhorn.
David Einhorn’s widening losses could be due to limiting his investment horizon from growth versus value business. But what about expanding the investment horizon to another category known as exponential businesses, the black thoroughbreds.
As we have said previously Amazon is a black thoroughbred. It is completely outside the business and it continues to disrupt established players because it is an exponential business which is able to deliver price-performance which is 10x better – not 20-50% better.
There are several areas and technologies where price-performance is doubling every 12-18 months (Moore’s law from Intel days). But the Amazon model is also a double edge sword for investors. 60% of Fortune 1000 organizations will be out of business in just upcoming 10 several years.
“Our view is that just because AMZN can disrupt somebody else’s profit stream, it doesn’t mean that AMZN earns that profit stream. For the moment, the market doesn’t agree. Perhaps, simply being disruptive is enough”
This is likely to pose huge challenges for government and capitalist alike. Investors who can navigate this new landscape are likely to do well. If Karl Marx (a swear word to the global capitalist) were alive today he would understand why Amazon would triumph in a global capitalist world. With growth in reverse, the black thoroughbreds are about delivering more for less, applying technology wherever possible, driving competitors to the wall which creates underemployment and an ever-diminishing amount of consumption.
A vicious feedback loop prevails and it’s slowing eating the golden-goose, consumption, which paradoxically keeps the capitalism system alive. Perhaps the paper empire is on its last legs.
So David Einhorn’s widening losses are in step with so many of his peers. Indeed, David Einhorn, like many of his peers, has been struggling to rebound since 2015. For example, Green Brick made modest gains for the year. For hedge funds, 2018 has been one the worst years since the financial crisis.
“Dmitry Balyasny is cutting at least 125 people from his hedge fund firm, about one-fifth of the total, as losses and client withdrawals erased $4 billion in assets”
David Einhorn’s widening losses mirrors even the iconic names in the hedge fund world
Dmitry Balyasny is cutting at least 125 people from his hedge fund firm, about one-fifth of the total, as losses and client withdrawals erased $4 billion in assets. The firm eliminated 13 stock teams, accounting for about 40 investment professionals.
Chicago-based Balyasny, a multi-manager, multi-strategy firm, started 2018 with $11.3 billion in assets, and expects to begin next year with $7.3 billion, said people connected with the firm. Atlas Global fund also fell 3.9 percent in November, bringing year-to-date losses to 5.3 percent. Prior to the job cuts, the firm had roughly 80 internal teams, or about 272 investment professionals, running strategies ranging from credit and global macro to quantitative systematic and equity trading.
So David Einhorn’s widening losses are in tandem with other big hedge fund managers. Despite industry assets are at a record $3.2 trillion this year it is far from rosy.
Hedge funds, on the whole, are seeing outflows for the second time in three years.
Bill Ackman and Alan Howard are also performing under par with posting years of returns that range from being either lackluster to downright awful.
“David Einhorn is not the worst affected. John Paulson has seen his fund shrink from its peak of $38 billion to $8.7 billion in 2018”
David Einhorn’s widening losses could end up with the fund manager turning into a family operation where he manages friends and family money. Former funds managing outside money that turned into funds managing private family funds is a growing trend. The once infamous John Paulson has crashed so badly and seen assets plummet so far that he’s largely left managing his own money. So David Einhorn could follow a similar fate.
This chart illustrates how David Einhorn’s widening losses, along with other peers in the industry, adversely impacts the amount of asset under management (AUM) of their funds.
David Einhorn’s widening losses have triggered redemptions but David Einhorn is not the worst affected
John Paulson has seen his fund shrink from its peak of $38 billion to $8.7 billion in 2018. Bill Ackman fund peaked in 2015 to $18.3 billion then fell $8.3 billion in 2018. Alan Howard fund also suffered huge redemptions with the Brevan Howard peaking to 2013 $40 billion in 2014 only to deflate to $8 billion this year.
David Einhorn’s widening losses have resulted in the hedge fund manager adding two medium size positions, Altice USA and BT Group.
The fund also exited several short positions during the quarter. “We covered an 11-year-old short in Martin Marietta Materials with a medium loss”, wrote David Einhorn. “On our second go-round, we exited our long position in Micron with a 66% gain on the year”, David Einhorn.
David Einhorn fund also exited their multi-year-long position in Mylan with a small loss and Twitter with a 78% gain over 8 months.
But despite David Einhorn’s widening losses it has not dampened the hedge fund managers spirit.
David Einhorn leaves his investors with the following quote from Winston Churchhill. “If you are going through hell, keep going”.
Dan Loeb targets Sony. Dan Loeb is an activist investor and founder of Third Point, which oversees about $14.5 billion in assets.
Last year the activist investor viewed Campbell soup as a bargain when Third point reported that the soup maker could fetch a takeover value of $52 to $58 per share.
A year later and the activist investor Dan Loeb targets Sony
Dan Loeb's activist hedge fund Third Point is raising an investment vehicle to generate between $500 million and $1 billion so it can continue to buy Sony shares, according to a recent report in Reuters.