Billionaire David Einhorn and his fund, Greenlight Capital, are among the most watched on Wall Street, mainly due to their stellar returns, which amounted to 19.5% on an annualized basis between the fund’s inception in 1996 and 2013. However, Greenlight has been lagging so far this year, as it returned 3.8% in the first nine months of 2016, according to the fund’s third-quarter letter to investors, versus the S&P 500’s gain of 7.8%.
Among the reasons for Greenlight’s weak performance were the losses registered by Apple Inc (NASDAQ:AAPL) in the first half of the year and its short bets against some of the year’s top-performing stocks, such as Amazon.com, Inc. (NASDAQ:AMZN). Further below, we’ll discuss in more detail some of Greenlight’s short-bets and will see what Einhorn said about some of these stocks in his recent letter.
Greenlight is one of some 750 funds that we track at Insider Monkey whose equity portfolios we analyze every quarter in order to identify stocks that they are collectively bullish on. Since these investors can take advantage of more resources and employ better skill at picking stocks, we believe that following them into their most popular long picks, particularly in the small-cap space, allows smaller investors to beat the market. Our theory is also supported by extensive backtests that represent the basis of our small-cap strategy (see more details).
Let’s start with discussing some of Einhorn’s short bets, one of which is likely Tesla Motors Inc (NASDAQ:TSLA). Even though Einhorn has not said that he is short the stock, the tone of his commentary suggests so. In the latest letter, Einhorn mentioned that CEO Elon Musk manages to keep investors’ attention away from the company’s problems through his “ability to spin a yarn and keep a story going”. Einhorn also quoted Dave Pell, editor of NextDraft, who said:
“It’s pretty amazing that we live in an age when a CEO of two public companies can give a talk about colonizing Mars and shareholders don’t see that as a warning signal.”
It’s not the first time that Einhorn has hinted at a position in Tesla Motors Inc (NASDAQ:TSLA) without directly saying whether or not he is actually short the stock. In his second-quarter letter, the investor choose to end with a quote from Adam Jonas, which said: “We believe Tesla’s most valuable asset may be the trust it has built with its providers of capital.”
Tesla Motors Inc (NASDAQ:TSLA)’s stock is down by over 17% so far this year, but it doesn’t keep Elon Musk from continuing to promote his idea of a world dominated by renewable energy. Tesla announced earlier this year that it wants to acquire SolarCity Corp (NASDAQ:SCTY), a move that many investors voiced concerns about. Moreover, just last week, Tesla made headlines after Elon Musk presented the company’s latest product, a solar roof, which consists of roof tiles made of textured glass containing solar cells. The idea is that the tiles will manage to preserve the aesthetics of a house compared to the traditional “after-market” solar panels and will cost less than the cost of a traditional roof and electricity acquired from the grid. Tesla Motors Inc (NASDAQ:TSLA) plans to begin installation of the solar tiles next summer, but its likely that the project also counts on the successful acquisition of SolarCity Corp (NASDAQ:SCTY).
On the following page, we will continue our discussion with two other tech stocks as well as one oil company that Einhorn has been betting against for a while.