Should Investors Avoid Einhorn's Tech Picks?
Investors trip over themselves to hear David Einhorn's stock picks, and for good reason. Yet, perhaps they would be better served to avoid some of his calls when it comes to the tech sector.
As President of Greenlight Capital, David Einhorn has amassed a large fortune in a relatively short period of time. Just over 10 years ago, Einhorn first publicly unveiled his bearish thesis on Allied Capital, a trade that capitulated him into an elite class of hedge fund managers.
He followed up that call with a short recommendation on Lehman Brothers -- just months before the firm collapsed. His 2011 call to short Green Mountain (NASDAQ: GMCR) has also been widely successful.
But Einhorn isn't just a short seller -- his fund takes many long positions.
One of those positions, a fairly significant one as of Greenlight's (Einhorn's firm) last filing, plunged on Wednesday, down over 10 percent, and continued to trade lower on Thursday.
A judge ruled Wednesday that Marvell Technology (NASDAQ: MRVL) had violated patents belonging to Carnegie Mellon University and must pay $1.17 billion in damages. What's worse, the infringement was deemed “willful” meaning that the damages could ultimately be tripled.
In Greenlight's last quarterly filing, the firm held over 32 million shares of Marvell -- a little less than five percent of the firm's portfolio. This filing is out of date, of course, but assuming that Einhorn didn't trade out of his position in the last three months would mean that he might've taken a beating on his Marvell stake.
But is it fair to project Einhorn's experience with Marvell to other tech stocks he likes?
His largest tech pick is Apple (NASDAQ: AAPL), which as of Greenlight's last filing, was a massive stake of over 1 million shares, more than 12 percent of the firm's capital.
In his most recent appearance on CNBC, Einhorn defended Apple, arguing that the company could reach one trillion in market cap. He said that many failed to understand Apple's true business model -- that of a software company, rather than a hardware company.
Einhorn has been an Apple bull for years, so the stock has likely made him significant money.
But, given Apple's tumble from its September highs, it is likely to be a losing position for Einhorn in the fourth quarter.
If Greenlight underperforms in the fourth quarter, Einhorn's two big tech picks, Apple and Marvell, could be significant contributors.
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