David Einhorn’s letter to investors follows below
July 31, 2018
Dear Partner:
We had another difficult quarter and lost an additional (5.4)%,1 bringing the Greenlight Capital funds’ (the “Partnerships”) year-to-date loss to (18.3)%. During the quarter, the S&P 500 index returned 3.4%, bringing its year-to-date return to 2.6%.
Over the past three years, our results have been far worse than we could have imagined, and it’s been a bull market to boot. Yes, we have made some obvious mistakes – the worst of which was not assessing that SunEdison was a fraud in 2015 – but there have been others. A number of years ago one of our investors said Amazon would surpass Apple and become the most valuable company in the world. We didn’t get it then and, truthfully, we don’t really get it now. But, there is a reasonable possibility that he will be proven right.
Some have looked for reasons other than isolated mistakes. Theories include getting older, changing lifestyles, and an unwillingness to adapt to new market environments. We have been accused of being stubborn, but one person’s stubbornness is another person’s discipline. We will continue to be disciplined. Although it might be nice to have something to blame for the poor results, the truth is that we have been making every effort and leading with our best thinking.
Even if it isn’t the whole explanation, the environment for value investing has been tough. AllianceBernstein recently reported that value investing strategies are performing in the bottom one percentile since 1990. In just the past 18 months, the Russell 1000 Pure Growth index has outperformed the Russell 1000 Pure Value index by 54%. The reality is that the market is cyclical and given the extreme anomaly, reversion to the mean should happen sooner rather than later. We just can’t say when.
Our friend Vitaliy Katsenelson once wrote an essay about value investing that articulates what the past three years have felt like better than we can. He wrote:
Investing is a nonlinear endeavor that is full of ups and downs. Every investor will have periods when his or her strategy is completely out of sync with the market. When the market is roaring on its way up and your portfolio is down, you may be sure that pain will rear its ugly face.
Value investing is almost by definition a contrarian endeavor. Growth investors ride the train of love, harmony, peace, and consensus – they buy companies that Mr. Market is infatuated with and thus prices them for love. (But just so you know, love ain’t cheap and rarely lasts forever, at least when it comes to growth stocks.)
1 Source: Greenlight Capital. Please refer to information contained in the disclosures at the end of the letter.
2 Grand Central Tower 140 East 45 th Street, 24 th Floor New York, NY 10017 Phone: 212-973-1900 Fax 212-973-9219 www.greenlightcapital. com
