David Einhorn has a dazzling investment track record and he is a hedge fund billionaire as a result. David Einhorn invests in the U.S stock market. The U.S stock market made a new high in 2018. What is so difficult about 2018 that caused the brilliant Einhorn to down-perform so badly this year despite markets making new highs? What can the professionals learn from Mr Einhorn's experience? I'm certainly not gloating over his poor performance. He is definitely smarter than most of us, including me of course. I would like to learn from his bad experience. https://www.investopedia.com/news/einhorns-greenlight-capital-has-fallen-25-year/
His problems started in 2014 as his fund topped at 12B and as of July the fund is at 5.5B, he seems to sell short as his best trades. In 2017 he got divorced, and it anyone has had to do this, it messes you up especially when they had children. In the past his research team must get incredible information, though one year he had to pay SEC 12 million in fines for inside information. Good people have cycles as well, he will be back strong soon and I would not be surprised next year he does 100% return. Overall hedge funds are down half a percent for the year.
What exactly is this dazzling track record of his? How many years has he been around for, his average return, his previous largest drawdown etc
The article from July 16 (when he was down just 15% YTD) says: ----------------------------------------------------------------------------------------- Since 2014, Greenlight Capital has made a loss of 25 percent, and 15 percent was lost during 2018-YTD. Bloomberg reports that he has lost about nearly every one of the top 40 positions in his $5.5 billion portfolio this year, though he continues to maintain that “Our investment theses remain intact,” and “Despite recent results, our portfolio should perform well over time.” He is now being accused of clinging on to his old ways - buying the beaten-down companies he expects to spring back and selling those that he perceives as overvalued - while the industry has moved on. He is currently long on the cheap General Motors Co. (GM) stock, and short on a basket of stocks including Netflix Inc. (NFLX) and Amazon.com Inc. (AMZN) that he considers as bubbles though they have had big upward runs. Market appears to be apprehensive about his approach that has worked in the past but may not be worth now. A few are wary that his focus has shifted from his earlier money-making small and mid-cap stocks to large-cap ones where there is little room to grow. ----------------------------------------------------------------------------------------- This would suggest he is shorting bubble stocks and using large cap dogs as a hedge. And not just this year, he been doing poorly since 2014 according to that link. His does not sound like a good strategy for the market we had over the last few years. "Over the past three years, our results have been far worse than we could have imagined, and it's been a bull market to boot," wrote Einhorn. "Right now the market is telling us we are wrong, wrong, wrong about nearly everything." Much of Greenlight's losses were attributable to wrong-way bets on Tesla Inc. (TSLA) and General Motors Co. (GM).
Its super difficult to run a long-short fund with AUM in the billions. There is just not that many great short opportunities to accomodate that size. As a result he is short a lot of momentum names and he just keeps losing money on them
Michael Covel in his book, Trend Following published the results of hedge funds using trend following and most years, they have a positive return. Occasionally, they would have a losing year. If something works, why try and reinvent the wheel? This guy is trading against the trend, a losing proposition always! And if top hedge fund traders like Paul Tudor Jones, Steve Cohen and others use trend following to generate huge returns and collect 25% of the profits as their share. They know trend following works and have become filthy rich billionaires doing so!
Trend following did very well in the decades upto 2010. But since then has been quite poor. David Harding/Winton one of biggest trend followers does not feel justified to charge clients 20% fees anymore and is only charging 1% management fees on his trend following fund going forward. Seems there are too many large funds doing trend following and the space has become over crowded and this has weakened the edge. (btw, PTJ and Cohen were never managing trend following CTA type funds, but i know what you mean, many other managers did get rich from running trend following funds in the past.)
That's a pretty mediocre excuse for a LONG-short fund. There are a million trading ideas on the long side. I do not know of a single hedge fund that went against major market trends over time and survived for more than 10 years. Even Einhorn did not run against momentum that long. But shorting into Netflix and other major drivers of this bull market is crazy. Does Niederhoffer ring any bells? My hunch is that ego got the better of Einhorn.