Hedge fund manager David Einhorn of Greenlight Capital shot to fame in 2008 after profiting from a short position on Lehman Brothers. At a high-profile conference just weeks before the bomb exploded, he had publicly warned about the 158-year-old investment bank’s imminent collapse. Einhorn made billions during the chaotic period, now referred to as the Great Financial Crisis.
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In recent years, those like Einhorn who follow the common-sense Value Investing approach have been on the wrong side of the US stock market’s fashion stakes. Growth stocks have massively outperformed their Value alternative. Each $100 invested into the MSCI World Value index 15 years ago is worth $271 today – less than half the $575 yielded by the Growth index.
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Einhorn makes two telling points in his latest quarterly letter to Greenlight investors distributed over the weekend. First, inflation is starting to take off, which favours Value bets over Growth. And second, he reckons US market regulators are sleeping at the wheel. He accuses them of not protecting retail investors from themselves, especially in easily manipulated microstocks.
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The hedge fund veteran offered the example of Hometown International, whose sole asset is a delicatessen in rural New Jersey. Its largest shareholder is the next-door high school’s wrestling coach. In the past two years punters have pushed Hometown’s share price from $1.25 to $13. That values the company at over $100m – ridiculous for a deli whose sales average under $2 000 a month. Einhorn quips: “The pastrami must be amazing”. Be warned.
PS: The mind map of my notes on Einhorn’s letter is republished below. Also, here’s the link to this week’s BizNews Digest: https://bit.ly/3tlnX7o
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