Key Takeaways
- • Greenlight Capital, David Einhorn's hedge fund, returned negative 2.8 percent through June 2017, underperforming the S&P 500's 8.2 percent gain in the first half of the year, with the fund down 4 percent in Q2 alone.
- • Einhorn's "bubble basket" short positions against Tesla and Amazon have inflicted significant losses as both stocks dramatically outpaced broader market returns—Tesla up 53 percent and Amazon up 34 percent year-to-date, with Tesla gaining 30 percent in Q2 alone.
- • The hedge fund manager expressed explicit frustration with his short thesis, noting that his five largest long positions met or exceeded earnings expectations while his shorts disappointed, yet the fund still lost money in the quarter due to technology stock strength.
- • Einhorn specifically challenged Amazon's $13.7 billion acquisition of Whole Foods Market, criticizing the valuation of brick-and-mortar retail space at over $800 per square foot and Amazon's lack of strategic communication about the deal's rationale to investors.
- • Despite mounting losses on his contrarian bets, Einhorn maintained conviction in his short thesis, comparing Tesla bulls' enthusiasm for Elon Musk to Steve Jobs reverence for Apple—a comparison he suggested was fundamentally flawed.
Summary
David Einhorn's Greenlight Capital has suffered material losses from its short positions against high-growth technology companies in 2017, as the hedge fund's contrarian thesis collided with a market environment favoring the very "bubble basket" stocks he wagered against. Through the first half of 2017, Greenlight returned negative 2.8 percent, a significant underperformance relative to the S&P 500's 8.2 percent gain. The second quarter proved particularly painful, with the fund declining 4 percent as Tesla and Amazon shares surged despite Einhorn's bearish positioning.
The magnitude of the underperformance underscores the challenge facing Einhorn's thesis. Tesla shares appreciated 53 percent year-to-date through mid-July and rallied 30 percent during the second quarter alone, while Amazon climbed 34 percent for the year. Both stocks substantially outpaced the S&P 500's 10 percent first-half return. In his investor letter, Einhorn disclosed his frustration with the quarter's dynamics, noting a counterintuitive market outcome: his five largest long positions met or exceeded earnings expectations while his short positions mostly disappointed, yet Greenlight still lost money. He specifically labeled his technology shorts "the bubble basket" and called their performance "particularly frustrating."
Einhorn articulated specific concerns about Amazon's strategic positioning, particularly its $13.7 billion acquisition of Whole Foods Market announced in June 2017. The hedge fund manager questioned Amazon's valuation methodology, citing the company's purchase of brick-and-mortar retail space—predominantly leased properties—at more than $800 per square foot. He criticized Amazon's silence on strategic rationale, writing that the company's lack of explanation left interpretation to market sentiment, which he characterized as skewing optimistic. Regarding Tesla, Einhorn challenged the bull thesis comparing Elon Musk to Steve Jobs and Tesla's prospects to Apple's trajectory, suggesting this narrative lacked fundamental grounding.
Despite the mounting losses, Einhorn's correspondence indicated he remained committed to his contrarian short positions. His willingness to articulate specific valuation and strategic critiques—rather than capitulating to market momentum—suggests conviction in the underlying thesis, even as near-term performance deteriorated significantly. The situation highlights the operational risk inherent in crowded short positions during periods of sustained growth-stock momentum.
The magnitude of the underperformance underscores the challenge facing Einhorn's thesis. Tesla shares appreciated 53 percent year-to-date through mid-July and rallied 30 percent during the second quarter alone, while Amazon climbed 34 percent for the year. Both stocks substantially outpaced the S&P 500's 10 percent first-half return. In his investor letter, Einhorn disclosed his frustration with the quarter's dynamics, noting a counterintuitive market outcome: his five largest long positions met or exceeded earnings expectations while his short positions mostly disappointed, yet Greenlight still lost money. He specifically labeled his technology shorts "the bubble basket" and called their performance "particularly frustrating."
Einhorn articulated specific concerns about Amazon's strategic positioning, particularly its $13.7 billion acquisition of Whole Foods Market announced in June 2017. The hedge fund manager questioned Amazon's valuation methodology, citing the company's purchase of brick-and-mortar retail space—predominantly leased properties—at more than $800 per square foot. He criticized Amazon's silence on strategic rationale, writing that the company's lack of explanation left interpretation to market sentiment, which he characterized as skewing optimistic. Regarding Tesla, Einhorn challenged the bull thesis comparing Elon Musk to Steve Jobs and Tesla's prospects to Apple's trajectory, suggesting this narrative lacked fundamental grounding.
Despite the mounting losses, Einhorn's correspondence indicated he remained committed to his contrarian short positions. His willingness to articulate specific valuation and strategic critiques—rather than capitulating to market momentum—suggests conviction in the underlying thesis, even as near-term performance deteriorated significantly. The situation highlights the operational risk inherent in crowded short positions during periods of sustained growth-stock momentum.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.