David Einhorn Discusses His Q3 Performance And New Long Positions In UIL Holdings, Michael Kors

David Einhorn's Greenlight Capital hedge fund lost 14.3 percent (net of fees and expenses) during the third quarter, bringing its total year-to-date net return to a loss of 17.1 percent. The fund's losses underperformed the S&P 500's year-to-date loss of 5.3 percent.

In a letter to investors on Wednesday, Einhorn stated he is a "value investor" and buys companies which he believes are "misunderstood" and trading at low valuations relative to their assets and future cash flows. His fund also allocates "the most capital in ideas where we have the most conviction."

"Unfortunately, a good process does not prevent mistakes, nor does it guarantee good outcomes, especially on a short-term basis," Einhorn wrote. "Because we look for investments that have a healthy margin for error, a misjudgment of analysis is rarely a disaster. We don't need much to go right in order to make money, and in many cases we can get a lot wrong and still break even.

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

Actions And Justifications

Einhorn continued that in the current environment, he "decided to try to swing a little less hard" and reduced his top gross exposure by about 30 points in the quarter.

At the same time, a decision was made not to give up on "promising" investments.

New Long Position In Kors, UIL Holdings

Einhorn stated he entered two new long positions in the quarter: Michael Kors and UIL Holdings.

Commenting on his position in Kors, Einhorn argued that the investment community harshly reacted to a shutdown at a distribution center, which led to a temporary halt in e-commerce sales and ongoing concerns that the company is a "fad." According to the investment pro, both issues "are now resolved."

Meanwhile, UIL Holdings announced in February it will combine with Iberdrola USA, a business that is made up of regulated utility assets in the Northeast. When the deal closes, UIL shareholders will receive $10.50 per share in cash and one share in a new publicly traded entity, which will comprise of "stable" utility assets and a "growing" renewables business. In addition, the new entity will be less levered than its peers with a large tax asset and "attractive" renewables cash flows that are "not fully reflected in the stock price today."