Hedge fund founder David Einhorn warned in January 2024 that the hype surrounding some stocks had reached dangerous levels in the fourth quarter of 2023. The valuations of these speculative stocks have increased significantly without justification, so that bubble-like conditions would now prevail here.
• David Einhorn’s hedge fund made losses in the fourth quarter of 2023
• Short bets developed differently than hoped – warning of bubbles
• Buyers’ strike ended
In a letter to investors, which is available to “Hedge Fund Alpha,” Greenlight Capital founder David Einhorn expressed frustration at the end of January. His hedge fund was headed for a great year in 2023, “until the market took off in the last few months and most of our short positions performed poorly,” Einhorn said. This year-end rally resulted in the Greenlight Capital funds losing 4.3 percent – net of fees and expenses – in the fourth quarter of 2024, as the hedge fund was “conservatively positioned” in the face of the unexpected development and some of the “more speculative and am “highest valued short positions” went against him. In short, losses from short positions exceeded gains from long positions in the fourth quarter. However, according to Einhorn, the unexpected, strong performance of the stocks he sold short was not covered by any fundamental metrics, which is why he spoke of “bubble-like conditions” for these stocks.
Einhorn: Overvaluations have increased to obscene levels in 2023
Four short positions in particular apparently cost Greenlight Capital dearly in 2023, as the prices of the shares sold short rose significantly instead of falling. “One short doubled, two more than quadrupled, and the last rose more than 10-fold. These four stocks contributed substantially all of the negative alpha in our short portfolio in 2023,” wrote David Einhorn. His hedge fund still made profits with three of the four short sales in 2022 – “but 2023 was a different story,” said the investor. Now the four short bets would have cost the fund between 2 percent and 3 percent gross and net each.
“Although we obviously felt that these four shorts started the year overvalued, they appeared to become even more overvalued as the year progressed. Nevertheless, in each case we avoided further losses through risk management […]. This was particularly difficult because, in our view, the fundamentals of all four companies continued to deteriorate over the course of the year,” said Einhorn. Only one of the companies is even profitable, but has significantly lowered its profit estimate. The other three companies are “not profitable and have no reasonable expectations of making profits in the foreseeable future.” “Nobody cares about that at the moment, but the valuations for these [Unternehmen] seem obscene to us,” criticized the hedge fund manager, who obviously wants to continue holding on to the short positions. “If the world starts to see these companies the way we do, we will be positioned to take part of ours in 2024 “We can offset losses from these short positions,” said the Greenlight Capital founder.
Einhorn did not reveal exactly which companies the hedge fund bet against in the four cases mentioned. According to “Barron’s”, Greenlight Capital generally does not make its short positions public. However, it is known that the star investor doesn’t think much of the electric car manufacturer Tesla and has already seen price losses for the company in the past Elon Musk Had set. If he had sold short shares of the electric car pioneer last year, he would have made a big mistake, because Tesla shares rose by around 100 percent in 2023. It is therefore possible that this is the short position mentioned by Einhorn, whose price has doubled and was one of the hedge fund’s four most losing bets.
The hoped-for monetary policy turnaround would trigger a rally – Greenlight Capital also took action on the stock market again
Einhorn cited a new consensus that appeared to be prevailing in the market “that inflation could be brought under control without a recession” as the catalyst for the rally in the final weeks of 2023 and the return of bubble-like conditions in the “most speculative stocks.” “to trigger”. This assumption was also confirmed in mid-December by statements from Fed Chairman Jerome Powell, but the market may be too optimistic. “The Fed’s Own ‘Dot Plots.’ [grafische Darstellung der individuellen Zinsprognosen der FOMC-Mitglieder; Anm. d. Red.] resulted in three rate cuts in 2024, and this news was immediately processed by the market by pricing in a total of six rate cuts for 2024,” said the hedge fund founder.
The broad market upswing supported by this at the end of 2023 not only caused Greenlight Capital losses on short bets, but also led to the hedge fund becoming active again as a buyer after it had previously stopped building up any new stock positions. “We have ended our buyer’s strike and found several promising new investments that we believe will help us in 2024,” the investor letter said. However, David Einhorn did not want to reveal any more details about Greenlight Capital’s largest new position, as it is currently still being developed. According to the investor, she will rise directly to the ranks of the hedge fund’s five largest positions.
Editorial team finanzen.net
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