Back in 2014, Einhorn launched his ‘bubble basket’ as a method of betting against stocks that were overvalued, using traditional valuation metrics. Enamored by this idea, I reached out to David to find out how it was constructed. I extracted as much information as he would permit and then tried to mirror it inside Exodus, where I have my very own bubble basket. I do not have an active short portfolio, but use it to gauge risk in the markets.
Like Einhorn’s, it is an actively managed index of potential shorts. Unlike Einhorn’s, mine is limited to 25 names. From what I’ve gathered. Einhorn’s bubble basket is broadly diversified — constituting as many as 100 stocks.
So when the lugnuts from CNBC pen an article, saying Einhorn is ‘getting killed’ by his AMZN and TSLA shorts, you should know that this is bullshit.
Do the math. If Greenlight has 10% of their assets in a bubble basket, spread out over 100 stocks, how are they ‘getting killed’ by two stocks inside his basket of shorts?
Here’s CNBC spreading falsehoods about Einhorn, a fund merely down ~2% but ‘getting killed’ according to the author — making it sound like he’s getting Ackman’d.
Billionaire hedge fund manager David Einhorn, who is known for his prescient short bets against stocks like Lehman Brothers, is not happy high-flying cult stocks are crushing the market this year.
The investor told his clients he is “frustrated” with the performance of his bets against technology companies such as Tesla and Amazon, which he calls the “bubble basket.”
Einhorn’s Greenlight Capital was down 4 percent in the second quarter, bringing its performance for 2017 through June to negative 2.8 percent, according to an investor letter. In comparison the S&P 500 rose 8.2 percent in the first half of this year.
“The second quarter was a bit of a head-scratcher. Our five biggest longs reported earnings that met or exceeded expectations, while our shorts announced earnings that mostly disappointed. Nonetheless, we lost money in the quarter,” Einhorn wrote in the investor letter Friday. “The bubble basket was particularly frustrating.”
Tesla and Amazon shares are up 53 percent and 34 percent this year, respectively, compared with the S&P 500’s 10 percent return through Friday. In the second quarter, Tesla rose 30 percent, while Amazon rallied 9 percent.
The hedge fund manager is skeptical over Amazon’s $13.7 billion acquisition deal for Whole Foods Market. He cited how the internet giant is buying brick-and-mortar physical stores of “mostly leased” retail space for more than $800 per square foot.
“When companies announce large acquisitions, they typically explain the implications and strategy. AMZN has said nothing and left the interpretation to the market’s imagination, which for the time being skews optimistic,” Einhorn wrote.
The hedge fund manager also explained why a key popular bull thesis for Telsa doesn’t make any sense.
“TSLA bulls look at Elon Musk, think of the Steve Jobs, and decide TSLA is the next Apple. We have read many critiques of TSLA and we won’t repeat them here, but we will offer a few distinctions from Apple,” he wrote.
Einhorn said when Apple released the first iPhone it was “immediately profitable” unlike Tesla. In addition, he cited how the smart phone maker’s customers buy into the company’s product ecosystem. Apple’s products have a “network effect” as more users leads to more applications, according to the manager.
“TSLA is unlikely to sustain a competitive advantage by having a network of charging stations or by accumulating driver data,” he added. “Competition was very slow to develop for Apple … By contrast, every major car company in the world intends to compete with TSLA in electric vehicles.”
Tesla CEO Musk isn’t above making fun of company’s skeptics. In April he taunted short sellers on Twitter.
Stormy weather in Shortville …
— Elon Musk (@elonmusk) April 3, 2017
However, Musk did admit the Tesla’s current stock price “is higher than we have the right to deserve” at the National Governors Association meeting on Saturday.
Greenlight Capital declined to comment on this story. Tesla and Amazon did not immediately respond to requests for comment.
I’m pretty superstitious when it comes to my investments. I don’t necessarily believe in black omens, but I do not like to feel jinxed either. When I read refuse like this, even weakly sourced stuff by third rate writers at CNBC, alarms go off in my head. It’s reminiscent of the dot com crash, and the behavior I witnessed just before the collapse. My old Italian barber was buying dot coms, had six figures in B2B stocks. I was too young and stupid to know any better then. I did see the signs again before the housing collapse in 2008, and was able to profit by shorting banks. This market run isn’t saddled with a 2008esque bubble, but it’s frothy.
When the normies start to get cocky, beware.
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We won’t know for sure until we find out what Dennis Gartman has to say about this….
Fly- Please go get a haircut from your Italian barber and report back as to his portfolio.
Then we’ll know.
Sorry, I keep a buzzcut now.
Only a moron would short the hottest company in the hottest bull market in the history of mankind.
How about George Soros? He had a large short on SP500 before Trump’s time – If he’s kept it running he must be losing millions, although he normally hedges his bets. All traders who play shorts on indices must be out of pockets by large sums – My message to all traders; if you use CFD’s use it with cautious http://cfd-traders.blogspot.com/
Value investing. Great theory.
Sadly it went the way of the dodo during the 1990’s. Then it was trading bubbles. Then commodities. Then momo. Then zirp.
But now I’m coming to the view that, in a period of breathtakingly fast technological advances, wealth creation is driven more by the potential of an idea than anything else.