Hedge-fund manager David Einhorn, who runs the $10.3 billion hedge-fund firm Greenlight Capital, says he is shorting a group of tech stocks as evidence grows of a bubble.
“[T]here is a clear consensus that we are witnessing our second tech bubble in 15 years. What is uncertain is how much further the bubble can expand, and what might pop it”, Einhorn wrote in a quarterly letter to clients today.
He continued: “In our view the current bubble is an echo of the previous tech bubble, but with fewer large capitalization stocks and much less public enthusiasm. Some indications that we are pretty far along include:
- “The rejection of conventional valuation methods” [and]”Short-sellers forced to cover due to intolerable mark-to-market losses.”
Einhorn also pointed to IPOs of tech companies that have “done little more than use the right buzzwords and attract the right venture capital” as evidence of over-exuberance and how far along the current bubble is.
Einhorn, best known for shorting Lehman before the bank collapsed in 2008, said that “high-flying momentum stocks” he is shorting, which weren’t identified in the letter, may nosedive by at least 90% “if and when the market reapplies traditional valuations.”
Greenlight’s main fund fell 1.5% in Q1’14, according to the letter. The largest winner was a long position on Micron Technology, Inc. (MU) and Green Mountain Coffee Roasters (GMCR), a short, Chipotle Mexican Grill, Inc. (CMG), was the most significant loser.
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