market folly

David Einhorn recently sent out hedge fund Greenlight Capital's first quarter investor letter. In it, we learn that the fund has exited their position in Boston Scientific (BSX). Readers will remember that Einhorn had just started this position and mentioned it in his fourth quarter investor letter. They purchased shares of BSX for $8.42 and sold them for $7.57. So, Greenlight has cut their losses quickly on this one and moved on to the next investment.

The Greenlight team writes, "We had bought BSX based on the view that new management had been brought in to execute a significant turnaround plan, which after careful study, it would detail contemporaneously with fourth quarter results. Instead, management decided not to provide any meaningful targets, raised new operating issues, and seemed to say that turning the company around would be harder than they thought and would take a long time. We re-assessed our thesis and forecasts, and limited our loss by selling the position."

Overall, Greenlight notes that they didn't have much portfolio turnover to report. Greenlight's Offshore fund was down 1.3% for the year as of the end of March as noted in our hedge fund performances post. However, keep in mind that Greenlight has also returned 22% annualized since inception.

Einhorn's five largest positions as of the first quarter were:

1. CIT Group (CIT)
2. Gold
3. Lanxess (LXSG)
4. Pfizer (PFE)
5. Vodafone Group (VOD)

Remember that if you want a peak inside Greenlight's investment research process, we recommend reading David Einhorn's book: Fooling Some of the People All of the Time. In regards to his recent VOD position, we recently examined Einhorn's Vodafone thesis for those of you seeking their investment rationale. Keep in mind also that their gold position is in physical gold, as they were one of the first major hedge funds to use this rather than proxies for gold like exchange traded funds.

Possibly the most notable thing to take away from Greenlight's investor letter are their exposure levels. Excluding credit derivatives, gold and foreign currencies, Greenlight Capital had an average exposure to equities and fixed income of 100% long and 70% short. This 30% net long level coincides with what we've seen lately from various hedge fund research outlets that have indicated hedgies currently have below average net long exposure. Hedge funds have definitely become more cautious as of late.

Embedded below is Greenlight Capital's first quarter investor letter:



You can directly download a .pdf here.

In the letter we also learned that Greenlight closed out various longs in BJ Services (BJS), McDermott (MDR), LiveNation (LYV), MEMC Electronics (WFR), and Mercer (MERC). Additionally, we saw that they covered shorts in Abercrombie & Fitch (ANF), Federal Realty Investment Trust (FDR), and HSBC (HBC). While Einhorn and company exited Live Nation, we've made note recently that Jay Petschek's hedge fund Corsair Capital started a new position in LYV and Stephen Mandel's Lone Pine Capital started a stake as well, so it's intriguing to see the divergence of opinion here.

That about wraps things up on Greenlight's end. To learn how to invest like Einhorn, we highly recommend reading his book: Fooling Some of the People All of the Time. And for more insight, you can also read David Einhorn's previous investor letter here.