Billionaire David Einhorn, is the manager of Greenlight Capital, a hedge fund with over $10 billion in Assets Under Management. In a recent interview with Bloomberg Television’s Stephanie Ruhle and Erik Schatzker, Mr. Einhorn was asked regarding his opinion on technology stocks, Federal Reserve’s policies, investment strategies, as well as other matters. The manager of Greenlight emphasized that he is fond of technology stocks, as he considers the Technology sector to be a smaller bubble, which doesn’t involve all technology companies. This is also confirmed by taking a look at Greenlight’s equity portfolio, in which the first two positions are represented by Apple Inc. (NASDAQ:AAPL) and Micron Technology, Inc. (NASDAQ:MU) (see the full list of Einhorn’s picks here).
“[…]we think that there’s a sub-segment of tech which is high momentum stocks that have gotten completely out of control in terms of their valuation, and we think that those stocks actually did reach sort of a bubble proportion,” Mr. Einhorn stated.
Einhorn also discussed his short position on athenahealth, Inc (NASDAQ:ATHN), revealed yesterday during Ira Sohn conference., saying that he considers it a good company, with a good strategy and a good management, but its stock is overpriced. The stock of athenahealth, a company that provides clinical-related services through a Web-based currently trades down 20% year-to-date, dropping by around 15% on Tuesday.
“And what happened was is a few weeks ago Morgan Stanley came out with this conventional DCF valuation where they projected out the results until 2030 and we just looked at that and said, wow, how are you going to get from a 10 percent margin before the stock comp to a 30 percent margin? And we thought about the business, and we just don’t think that the assumptions that they’re using there are plausible.”
Another company mentioned by Einhorn was King Digital Entertainment PLC (NYSE:KING), a company that went public around a month ago, whose stock declined right after the IPO, and is currently down over 1%. The manager of Greenlight Capital said among other things that with the IPOs, investors are buying shares of these companies “without thinking too much about them because they were going up 40 percent the next day or 30 percent the next day.”
“We like to get our analysis right and sometimes just wait longer than other people, and that’s one of the things that — our horizon for investments is not usually a day or a week or a month. We tend to on the long side be really one to four years, which is ancient on Wall Street these days particularly with hedge funds.”
Einhorn also expressed his ideas regarding the current chairman of the Federal Reserve, Janet Yellen. He said that he would like to “keep an open mind.” In his point of view, Yellen has been approaching problems right and that he would like to see if “she has a better reason why rates should remain at zero at this stage in the economy.”
“if you start at a zero rate and you start with a huge amount — huge balance sheet and the economy turns down, the available tools that they will have are limited and there’s a risk that they will have to choose a tradeoff between doing something exceedingly aggressive, right, versus allowing a — a crisis situation to fester. And they might choose to do something exceedingly aggressive and it may have a — that 1 percent outcome.”
The full video of Einhorn’s interview on Bloomberg Television can be watched below:
In this piece, we will take a look at ten recent IPOs in micro cap stocks.
There are a variety of benefits and drawbacks to listing a firm’s equity for trading on the stock market. The single biggest benefit of the process called an IPO, is that it allows management to raise large amounts of funds and investors to potentially profit by seeing their existing stakes multiply in value. At the same time, the IPO process also brings in a variety of constraints. Publicly listed companies are subject to corporate financial reporting requirements of the jurisdictions in which their shares trade. At the same time, share prices can be a volatile affair, and while investors stand to gain significantly if their companies are well received by the market, they also risk equally massive losses should the opposite occur.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
So, how did Warren Buffett manage to generate high returns and beat the market?
In a free sample issue of our monthly newsletter we analyzed Warren Buffett’s stock picks covering the 1999-2017 period and identified the best performing stocks in Warren Buffett’s portfolio. This is basically a recipe to generate better returns than Warren Buffett is achieving himself.
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