Greenlight's David Einhorn hit home runs short selling and buying companies making big buybacks

Published Sun, Jul 30 20238:15 AM EDT

Greenlight Capital's David Einhorn, a value-oriented hedge fund manager, found success pivoting to short selling and buying companies with big buyback programs. The Cornell grad founded Greenlight Capital in 1996 and went on to produce a whopping 26% annualized return for the next decade, far outpacing the broader market and many peers. His stellar track record propelled him to be one of the most followed hedge fund managers on Wall Street. Things took a turn, however, in the recovery from the financial crisis in 2008, when growth stocks took over market leadership and enjoyed uninterrupted expansion in the decade-long bull run that followed. Einhorn found himself in a tough spot as value shares suffered massive underperformance. At the end of that bull market, Einhorn said the majority of surviving value investors ceased to consider valuation as a determining factor in their investment process. Coupled with the great transition into passive investing using index funds and ETFs, Einhorn said most of his clients bailed, and "understandably so." Last year marked a comeback for Einhorn, who posted one of his best years ever. His fund rallied 36.6% in 2022, compared to a 19.4% loss for the S & P 500. He did so by shorting a host of purportedly innovative technology stocks, such as those touted by growth investor Cathie Wood. That "was an exceptionally good year," Einhorn said in his 2022 investor letter. "In many ways it was our best ever and is most comparable to 2001, the year after the last technology bubble popped." Greenlight identified its newest "bubble basket" of 31 stocks in 2022, and those companies "tend to be profitless, tech-type companies that trade at values based on future hopes," Einhorn said. As of early March 2023, Einhorn said he was still betting against some of those stocks. The 54-year-old Einhorn also pivoted to buying companies with sizable buyback programs in place, instead of purchasing cheap stocks that have been struggling to close the valuation gap. "We aren't relying on other active investors to buy the stocks that we own, so we instead are choosing to emphasize investing in companies that appreciate this dynamic and are creating value both through their operations and through buying back their own stock at very low prices," Einhorn said in an investor letter in 2022. Atlas Air Worldwide and Green Brick Partners were some of the stocks Einhorn held whose boards had authorized big repurchases. The former was sold to a private equity consortium led by Apollo Global after a big gain in 2022. Green Brick has rallied more than 130% this year.