Greenlight Capital Q3 Letter

Hedge fund manager David Einhorn, the founder of $8 billion Greenlight Capital, said he's going to have to swing "a little less hard."

Greenlight Capital fell 14.3% during the third quarter, bringing the fund's returns for the year through September 30 to -17.1%. The S&P 500 fell 8.2% during the quarter. The index is down 5.3% year to date.

Einhorn wrote in a third quarter letter to investors that the fund cut its gross exposure in the third quarter, and looked again at the entire portfolio and altered its positions depending on the strength of the firm's views.

"As both the environment and our performance have been challenging, we decided to try to swing a little less hard, so we reduced our gross exposure by about 30 points during the quarter," Einhorn wrote.

"At the same time, we decided not to give up on promising investments. We looked at the entire portfolio and added, held, trimmed or exited depending on the strength of our thesis in conjunction with changing market prices. With the market and our long book cheaper, we decided to modestly increase our net long exposure with most of the change coming from short covering."

Einhorn is considered a value investor, meaning he buys in to companies he believes have low valuations and are misunderstood by the rest of the market. He also runs a concentrated portfolio, meaning he makes a small number of big bets.

"When we are very wrong, however, we are going to lose money," he wrote. "And although large losses don't occur often, in a punitive environment we can have more than one in a short period of time."

He noted that the fund ran into "significant problems" with three of its largest positions—Consol Energy (-55%), SunEdison (-75%) and Micron Technology (-46%).

Einhorn included a table (see below) of some of his fund's positions with an explanation of what happened during the third quarter.

Einhorn added two medium-sized long ideas—retailer Michael Kors and utility company UIL Holdings - during the quarter.

Greenlight exited its positions in Citizens Financial Group (purchased at $22.36, sold at $26.28), LAM Research (purchased at $54.07, sold at $75.30), Spirit Aerosystems (purchased at $20.28, sold at $50.55), Intel (shorted at $34.23, covered at $29.28), Robert Half (shorted at $28.96, covered at $41.61), St. Joe (shorted at $36.90, covered at $17.17), and US Steel (shorted at $27.07, covered at $23.21).

Einhorn launched Greenlight Capital in May 1996 with $900,000 from friends and family. Einhorn became known for a call he made in spring 2008 to short Lehman Brothers.

He's currently on track for his second-losing year ever. His only previous down year was in 2008, when his fund lost 23%.

He ended the letter with a quote from Marty McFly from Back to the Future.

"If you put your mind to it, you can accomplish anything."

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