Einhorn Bets Against Tech as ‘Cool Kid’ Stocks Show Bubble

Apr 22, 2014 4:21 pm ET

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April 22 (Bloomberg) -- Greenlight Capital Inc., the $10.3 billion hedge-fund firm run by David Einhorn, said it was betting against a group of technology stocks as evidence grows of a bubble.

“There is a clear consensus that we are witnessing our second tech bubble in 15 years,” the New York-based firm said in a quarterly letter to clients today.

Greenlight said that companies it’s betting against may fall by at least 90 percent “if and when the market reapplies traditional valuations,” according to the letter, a copy of which was obtained by Bloomberg News.

The Nasdaq Composite Index has slumped 4.5 percent since March 5 when it reached the highest level in almost 14 years. Stocks with the biggest gains last year led the retreat. Greenlight cited initial public offerings of technology firms that have “done little more than use the right buzzwords and attract the right venture capital” as evidence of how far along the current bubble is.

Greenlight, best known for wagering on a decline in Lehman Brothers Holdings Inc. before the bank collapsed in 2008, said it was betting against a group of stocks because it reduces the potential of a single investment becoming too costly. The firm didn’t identify the individual companies.

‘Cool Kid’

“The current bubble is an echo of the previous tech bubble with fewer larger capitalization stocks and much less public enthusiasm,” Greenlight said in the letter.

Greenlight questioned whether technology companies would be able to keep their highly skilled employees if they stopped giving them large amounts of equity. The firm said it was hard to ignore the future dilution of shares that result from paying employees in stock.

“Once again, certain ‘cool kid’ companies and the cheerleading analysts are pretending that compensation paid in equity isn’t an expense because it is ‘non-cash’,” Greenlight wrote.

Jonathan Gasthalter, a spokesman for Greenlight at Sard Verbinnen & Co., declined to comment.

The hedge-fund firm said its funds lost 1.5 percent in the first quarter, in part because of its bets against companies. Hedge funds gained 1.4 percent in the same period, according to data compiled by Bloomberg.

SunEdison, Resona

Greenlight said it bought “large” stakes in Japanese bank Resona Holdings and solar developer SunEdison Inc. in the second quarter. The fund said it bought Resona at 547 yen ($5.33) per share and described the Tokyo-based bank as “cheap on both an absolute and relative basis,” according to the letter.

Greenlight said it bought SunEdison at an average price of $15.55 per share and said the declining cost of solar energy and rising electricity prices should position the St. Peters, Missouri-based company as a “winner.”

Greenlight also said it bought “medium-sized” holdings in Luxembourg-based Altice SA and Conn’s Inc., a Texas-based seller of electronics and appliances.