David Einhorn, the founder of Greenlight Capital (a $9 billion hedge fund) has generated an annualized 16.5 percent return for his investors (1996 – 2016). Although Greenlight Capital barely received a “D” rating on performance this past year (due to failing short bets on Amazon and Tesla), Einhorn is regarded as one of the top performing investors over the past decade – he accurately predicted the downfall of Lehman Brothers’ ahead of the 2008 crisis.
Widely known as a value-oriented investor, Einhorn is viewed as one of the most transparent hedge fund managers in the business. Einhorn’s investment strategy is one that emphasizes the idea that “intrinsic value will achieve consistent absolute investment returns and safeguard capital regardless of market conditions.” According to Einhorn, his investment process is as follows:
“We take the traditional value investor’s process and just flip it around a little bit. We start by identifying situations in which there is a reason why something might be misunderstood, where it’s more likely investors will not have correctly figured out what’s going on. Then we do the more traditional work to confirm whether, in fact, there’s an attractive investment to make. That’s as opposed to starting with something that’s just cheap and then trying to figure out why. We think our way is more efficient.”
Einhorn is also widely known for having a concentrated portfolio, as a single stock can make up a 20 percent weighting. With this portfolio concentration in mind, let’s take a look at Greenlight Capital’s top portfolio holding.
Top Holding: General Motors Co (NYSE:GM)
Einhorn has been very vocal about his bullish outlook on General Motors. In Einhorn’s view, General Motors’ management has done a good job at implementing cost cutting initiatives whilst channeling its focus. According to Einhorn, “General Motors is now focused on four brands: Chevy, Cadillac, GMC and Buick, and is financially healthy and thriving.”
Additionally, Einhorn believes that the rise of on-demand driving apps is overstated and will not effect the demand of auto sales in the long-term, if at all. This a contrarian view, as many analysts believe that long-term automobile sales will decline in response to autonomous driving and on-demand apps (i.e. Uber). Regardless of whether or not this is true, General Motors maintains the leadership position in autonomous driving technology amongst the “legacy automakers.” In 2016, GM acquired Cruise Automation (a tier-1 autonomous driving startup) for $1 billion and launched Maven, the company’s wholly-owned car-sharing service.
Consistent with Einhorn’s value-oriented strategy, General Motors is trading at a low multiple relative to its peers. At the time of writing, General Motors is trading at 8.86 times earnings with a forward price-to-earnings ratio of 6.97. Between General Motors’ low valuation, high dividend payouts, and growth prospects, it’s easy to understand why Einhorn is bullish on the company.