Greenlight Adds Three Longs, Questions Whether Value Investing Is 'Viable Strategy'

Oct 24 2017 | 7:16pm ET

David Einhorn’s Greenlight Capital went long three new investment positions last quarter, a new investor letter reveals, but the famed stockpicker is questioning whether the value investing principles that have made him rich are effective in the current market environment. 

Greenlight re-entered chip maker Micron Technology and added mattress company Tempu Sealy and technology firm Hewlett Packard to its portfolio, according to a Reuters article citing the letter. 

"The market remains very challenging for value investing strategies,” Einhorn reportedly wrote, as growth stocks have continued to outperform value stocks. “The persistence of this dynamic leads to questions regarding whether value investing is a viable strategy," he added.

One of the world’s best judges of overvalued and undervalued equity prices, Einhorn questioned whether the stock market is now ascribing more value to such characteristics as disruption, social change, and technological advancement than traditional metrics of current and future profits. 

"Our view is that just because Amazon can disrupt somebody else's profit stream, it doesn't mean that Amazon earns that profit stream. For the moment, the market doesn't agree," he wrote. “After years of running into the wind, we are left with no sense stronger than ‘it will turn when it turns’."

Einhorn is also a long-time bear on Elon Musk’s Tesla, commenting that the electronic carmaker posted a horrendous quarter yet its stock dropped only 6%. This mismatch further illustrates Einhorn’s point about whether the market has adopted an “alternative paradigm” of equity valuation. 

Despite the pessimism, Greenlight is doing pretty well. It is up + 3.3% in the first nine months of the year, and +6.2% in the third quarter. In comparison, the S&P 500 is up +14.3% through September. 

Einhorn founded Greenlight in 1996 with $1 million in initial capital sourced from family and friends. It has booked annualized returns of nearly 9% since inception. 

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