Einhorn Isn’t Mystified Nor Befuddled By Greenlight Capital’s Large Losses

Einhorn’s problem isn’t only the value vs. growth struggle. He seems to be betting against the growth stocks that are actually competing against the value stocks in his portfolio. As a result, even though his “net exposure” is only about 35%, he isn’t really diversified or hedged. If Amazon continues to steal business from traditional retailers, Einhorn will lose not only on the long side of his portfolio, but also on the short side of his portfolio. That’s one of the main reasons why his fund lost 13.6% during the first quarter.

I am actually bearish about the future returns of growth stocks like Amazon or Tesla, but I am not shorting them and buying the stocks of value stocks which might be labeled as “value traps” by some other investors (I believe our best performing hedge funds strategy is superior to Einhorn’s value investing approach). Einhorn doesn’t have the flexibility of a permanent portfolio that Warren Buffett has. Einhorn is fully aware of what he is doing and why his returns are lagging right now. It’s just that nobody knows when growth stocks will crash and Greenlight investors might suffer even bigger losses until that time and abandon the ship before that happens. This is Einhorn’s real problem.