In its latest letter to investors, David Einhorn‘s Greenlight Capital said that its funds lost 3.8% in the fourth quarter of 2015 – net of fees and expenses. In general, 2015, was a terrible year for Greenlight performance-wise and the firm lost 20.2%, while the S&P 500 inched down by 2.15%. Nevertheless, over the long-run, Greenlight has returned 16.5% per year on average since its inception in May 1996. In this article, we will take a closer look at some of the stocks that Greenlight highlighted in its fourth-quarter letter and see how they affected the fund’s performance during the fourth quarter, as well as assess the investor’s opinion regarding the future performance.
As stated in the letter, the fund lost money in every quarter of the last year, mainly affected by the strong performance of its short bets on Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN) and the declines registered by CONSOL Energy Inc. (NYSE:CNX) and Micron Technology, Inc. (NASDAQ:MU). Among other reasons behind the decline was that Greenlight did not hold shares of any of the 50 best-performing companies in the S&P 500, had short positions in four acquired companies and it failed to take advantage of its profits in Micron Technology and Sunedison at the right time.
“When we add up all of the losing positions in the portfolio, the percentage detraction to out total return for 2015 was only moderately worse than a normal year. In contrast, all of our profitable positions in 2015 added up to only 19%. Our 20-year average contribution from winners is 51% and the previous worst year was 31%,” Greenlight said.
Let’s start with Greenlight’s worst performing investments, which were also among its biggest positions: CONSOL Energy Inc. (NYSE:CNX), Micron Technology, Inc. (NASDAQ:MU) and Sunedison Inc (NYSE:SUNE).
“Nothing distinguishes these from our other large losers in prior years. What’s unusual is that they all happened at around the same time. Having three in a single year is both unfortunate and too many for us to be able to succeed,” Greenlight said.
The investor considers that the last seven months of 2015 represented a “difficult environment for value stocks”. However, they remain confident in value investing and continue to believe that this approach is more successful over time in comparison with strategies that “ignore value”.
“On balance, we benefit from tailwinds more often than not. However, there have been and will be periods where that isn’t the case. We know that in each prior period when the environment was challenging for our style, things eventually turned and we did well. We don’t know when the winds will change, but we know that they will.”