On a personal note, David is happy that his Model S lease ended (there were growing problems with the touchscreen and the power windows) and is excited to get the Jaguar I-PACE, which has gotten excellent reviews.
That’s from David Einhorn’s Q2 letter, making the rounds on Tuesday afternoon, and it suggests that through it all, he hasn’t lost his sense of humor.
It has been a truly miserable year for Einhorn and his trials and tribulations in a world characterized by near historic outperformance of growth versus value are well documented.
In late February, on an earnings call for Greenlight Re, David admitted he’s “never underperformed like this†after saying he was in the midst of his worst stretch since March of 2000. That came after an abysmal January. Greenlight fell another 2% in March and a further 1% in April. It thus came as no surprise that Einhorn had another bad month in June, but what was perhaps a bit surprising was just how bad. Greenlight Capital fell 7.7% last month, bringing losses for the first half of 2018 to nearly 19%, according to a client update seen by Bloomberg a couple of weeks ago.
The bottom line – as David has admitted and decried on any number of occasions – is that things just don’t seem to make sense anymore.
Amid the abysmal performance, investors have hit the exits. Greenlight hemorrhaged some $400 million in client withdrawals through midyear according to the Wall Street Journal. Einhorn’s AUM has been cut in half since 2014.
The Q2 letter, dated Tuesday, reads like a man writing his own obituary, although the anecdote excerpted here at the outset suggests David isn’t ready to jump off any bridges yet and is pretty pleased with his brand new Jaguar. Here’s the bottom line (figuratively and literally):
We had another difficult quarter and lost an additional (5.4)%, bringing the Greenlight Capital funds’ 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
Yes, there is indeed a “reasonable possibility” of that occurring and the fact that David still doesn’t “get it”, isn’t likely to comfort whatever investors he has left – in fact, it’s likely to make them even more nervous than they already were.
Einhorn of course decries what he continues to insist is irrationality on the part not only of Tesla investors, but also of Elon Musk. Here’s David, documenting Musk’s various shenanigans:
The most striking feature of the quarter is that Elon Musk appears erratic and desperate. During the quarter Mr. Musk:
- Attacked an analyst for asking “boring bonehead questions†on the quarterly conference call;
- Hung up on the head of the National Transportation Safety Board;
- Assailed the media for the audacity to report that Tesla’s customers crash while using “autopilotâ€;
- Accused an internal whistleblower of “sabotageâ€;
- Appeared to paint the tape with trivial insider purchases; and
- Went on a tweetstorm calling for “the short burn of the century.â€
With all due respect to Einhorn (and to be absolutely clear, I’d root for David any day over Elon Musk), it’s not entirely clear who the “desperate” one is in this equation. Einhorn is underperforming the broad market to a degree that would be difficult to replicate even if you were trying to underperform. Musk, meanwhile, is still shooting rockets into space. Sure, there are a lot of reasons to believe that hubris will catch up to Elon, but to adapt the old adage, “Elon can remain irrational longer than David Einhorn can stay solvent” – allegedly.
“The market preferred [Musk’s] bravado much more than say, GM’s actual accomplishments”, Einhorn laments, adding that “TSLA soared 29% during the quarter and was [Greenlight’s] second biggest loser.” And that right there says a lot. When something you’re short rises 29% and that’s only your second biggest loser, you know you’ve got a problem on your hands that is a lot bigger than Elon Musk.
In any event, you can read the letter for yourself below.
