Last year was “very good” for Greenlight Capital investors, according to the founder of the $3.1 billion firm.
David Einhorn’s firm returned 22.1%, bringing the firm’s annual returns to 13.1% over Greenlight’s 27-year history.
But Einhorn is ruing a missed opportunity at a “great” year. In a letter to investors seen by Business Insider, he said his short bets against companies he believed were overvalued went haywire.
“Bubble-like conditions returned for the most speculative stocks, and a handful of our shorts went parabolic,” he wrote. Artificial intelligence advances caused a frenzy in many tech stocks last year, propelling massive gains for some of the largest companies in the world.
Einhorn did not name the four short positions in the letter that helped drag the entire short book down 25.6% last year but called the performance “disgusting.” The firm’s long positions, meanwhile were up 48% after fees.
The short positions were not new ones. He wrote that three of the four big losers were winners for the portfolio last year.
“2023 was a different story. One short doubled, two more than quadrupled, and the last one went up more than tenfold,” he wrote.
Short-sellers who expected a big market sell-off last year in the face of rising interest rates worldwide were shocked when the overall stock market surged more than 24%. Industry data firm S3 noted that short-sellers had paper losses of nearly $195 billion last year after earning $300 billion in 2022.
Einhorn’s frustrations with his portfolio are clear in the letter. He wrote that “only one of the four companies is profitable, and that one saw its 2023 earnings estimates cut by more than 40% over the course of the year” — but the stocks only grew more overvalued throughout the year.
The firm hasn’t given up on its theses for these stocks despite the rough year.
“Should the world come to see these companies as we do, we are positioned to recover some of our losses in these shorts in 2024,” he wrote.
Einhorn in the past has been a vocal short-seller of Elon Musk’s Tesla, sparring with the billionaire publicly, and took out put options on the automaker in early 2022, but the descriptions of the four positions in the letter do not match that of Tesla.
The firm declined to identify the four positions when asked by Business Insider or offer any additional comment on the letter. Sectors the manager expects will grow include the defense industry due to conflicts around the world.
“The ongoing wars are depleting ammunition stockpiles. We believe this sector is likely to perform well due to both possible escalation of hostilities and the need to replenish ammunition. As we disclosed in our last letter, we have established a large position in oil futures,” he wrote.