“Nothing went right for the entire year,” Einhorn said in the letter to investors. “In 2018, the losses were a mile wide and a yard deep. It’s much easier to explain results when they are driven by large moves in a few names. It’s much harder when the answer is a lot of everything. But today, it feels more like a combination of a few where we were wrong, a difficult environment for value investing, and a lot of adverse variance.”
Einhorn’s collapse came in a dismal year when stocks and other risk assets took a hit from the ongoing trade battles and slowing global growth. However, Einhorn’s hedge funds underperformed the market drastically — the S&P 500 ended 2018 down just 6 percent. His funds have been lackluster since 2015 when they lost more than 20 percent. They returned 7 percent in 2016 and 1.5 percent in 2017.
The underperformance in 2018 has inevitably led to “substantial redemptions,” which forced Einhorn to reopen the funds to gain additional capital. Einhorn had not allowed new investments in four years.
“At this point, we no longer believe there is risk of our assets growing too quickly (other than through improved performance), so for those interested in investing, the answer will now be yes,” Einhorn said.
The downturn sharply contrasted with Einhorn’s early years, when he scored some of Wall Street’s best returns including 24 percent in 2006 and 32 percent in 2009. Einhorn also made the most prescient call of the entire financial crisis — the collapse of Lehman Brothers.
In the letter, Einhorn also reviewed his current positions that are 5 percent or larger, saying “they should all do better in 2019.”
Greenlight’s current long positions include General Motors, insurer Brighthouse Financial and homebuilder Green Brick Partners, which all struggled in 2018, bleeding as much as 47 percent. Einhorn is also shorting Tesla, saying the electric-car maker is in “such a bizarre situation,” and its estimates are optimistic.
The hedge fund manager is also using gold as a hedge against “imprudent” global fiscal and monetary policies as the national debt has ballooned to more than $2 trillion under the current administration.
“When the economy eventually slows, the deficit is sure to expand rapidly, possibly catastrophically. The politicians say deficits don’t matter. History says otherwise,” Einhorn said.
His firm also has “a bit of a macro hedge in case the politicians and central bankers continue to act irresponsibly — which seems like a safe bet,” he added. Einhorn did not disclose what the hedge was.
— With reporting by CNBC’s
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