Greenlight Capital Shorts Basket of High-Flying Tech Stocks
David Einhorn of Greenlight Capital is one of the most respected hedge fund managers in the world. Einhorn's opinion is so respected, in fact, that stocks have moved by as much as 20% in a single trading session based entirely on Einhorn's comments about the company.
Earlier today, Greenlight Capital's Q1 letter to its investors was circulated throughout the media. Greenlight Capital revealed new positions in companies such as SunEdison and Conn's, but the real story was in Einhorn's comments about a "second tech bubble".
Here is a quote from the letter:
"..there is a clear consensus that we are witnessing our second tech bubble in 15 years".
In the letter, Einhorn revealed that Greenlight Capital has shorted a "basket of bubble stocks". According to Einhorn, Greenlight Capital picked stocks that are likely to see a 90% decline if the market applies "traditional valuations" to the companies. Einhorn points out that this happened after the implosion of the dot-com tech bubble of the late '90s/early '00s, with companies such as Cisco and Amazon falling approximately 90%.
Despite the fact that stock market trading isn't a national sport as it was in the late '90s, Einhorn says that there are many indications that a bubble is present, including:
-"rejection of conventional valuation methods"
-short sellers being subjected to heavy losses
-huge first-day pops for companies that "have done little more than use the right buzzwords and attract the right venture capital"
One can assume that Einhorn's basket of "bubble stocks" would include the likes of Twitter, Facebook and Netflix. All of these companies are vastly overvalued if you apply "traditional valuations".
What do you think - is Einhorn right?
Source: Greenlight Capital Letter to Investors - Q1 (*.pdf)
Filed under: General Market News