Avoid David Einhorn’s Large Cap Stock Picks

We analyzed the historical 13F filings of Greenlight Capital, managed by David Einhorn, and our analysis showed that his large-cap stock picks returned 0.4% per month between 2008 and 2012. This number is slightly above S&P 500 Index’s 0.29% monthly return. However, we use Carhart’s four factor model to adjust for risk and Einhorn’s stock picks have a monthly alpha of negative 6 basis points after making these adjustments. Our research in general has shown that hedge funds or any other investor group can’t generate enough outperformance to justify their high fees when it comes to large-cap stocks. There are a few exceptions but David Einhorn isn’t one of them. His large-cap stock picks performed better earlier in his career but they may be a result of survivorship bias. He was already well-known in 2008 which is why we use the 2008-2012 period to judge his stock picking ability in this space. Our research also shows that David Einhorn is a phenomenal stock picker in the smaller-cap stocks. We believe investors can generate better returns if they avoid Einhorn’s large-cap picks and focus on his smaller-cap stocks. By using a similar approach Insider Monkey’s small-cap hedge fund strategy returned 88% since the end of August 2012 and outperformed the market by nearly 50 percentage points (see the details here). In this article, we will take a closer look at Einhorn’s top 5 large cap picks.

Greenlight Capital

Apple Inc. (NASDAQ:AAPL) is the largest position in Einhorn’s portfolio. He had $1.35 billion invested in the technology giant at the end of 2013. Einhorn has been very bullish about Apple for a very long time. In 2012, when the stock was at $700, Einhorn predicted Apple reaching $1000. Apple is also the third most popular stock among 700 hedge funds tracked by Insider Monkey (see the complete list here). Carl Icahn is the most bullish billionaire hedge fund manager about Apple with a $2.7 billion position at the end of the fourth quarter.

Second on the list is Micron Technology (NASDAQ:MU), in which he owns 47.7 million shares, for a roughly 5% stake, worth $1.0 billion. This is a new position Einhorn initiated during the fourth quarter of 2013, joining 96 other hedge fund managers, including Seth Klarman of Baupost Group (who is the largest shareholder among the funds that we track), that own positions in the $25.9 billion market cap semiconductor company.

General Motors Company (NYSE:GM) is Greenlight’s third largest holding, with its 17.0 million shares, or a 1.3% stake, worth $696.7 million. Its recent recall fiasco notwithstanding, the $55.8 billion market cap auto manufacturer has been a popular stock among hedge funds, with the likes of Warren Buffett, James DinanDavid Freelove of Del Mark Asset Management and Kyle Bass of Hayman Advisors among some of the other bullish investors. General Motors is actually the most popular stocks among hedge funds.

Fourth on the list is Cigna Corp. (NYSE:CI), of which he owns 4.2 million shares valued at $368.4 million. Greenlight is the third largest shareholder of the health insurer among the hedge funds we track, after Jonathan Kolatch of Redwood Capital Management and Steven Richman of East Side Capital.

The last large cap stock in Einhorn’s top five list is Aetna (AET), another health insurance company. The stock returned more than 9% this year. John Paulson is the most bullish billionaire with a $500+ Aetna million position. One of last year’s top performing hedge fund managers Larry Robbins also initiated a brand new position in this stock during the fourth quarter.

General Motors, Cigna, and Apple had negative returns this year. The average return of these five stocks were also slightly negative since the end of 2013. The strategy may or may not work in the short-term but as a general rule we don’t think it is a good idea to imitate Einhorn’s large-cap picks.

Disclosure: none

Recommended Reading:

Hedge Fund News: T Boone Pickens, David Einhorn & William Ackman

David Einhorn, Greenlight Capital Raise Stake in BioFuel Energy Corp. (BIOF); Send Business Proposal To Board

Hedge Fund News: David Einhorn, Edward Lampert & Carl Icahn

 

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!