It’s always a good idea for individual investors to look at what institutional investors, also called smart money, are picking. You should never base your decisions solely on others without doing research, but institutional investors are professionally trained, and often have decades of experience and returns to back this up.
Following these successful investors is also a good way to find new ideas and validate your thesis. However, more often than not, I feel that people only look at two or three of the best investors instead of widening their investment net.
Warren Buffett Bill Ackman certainly comes to mind. I have nothing against Buffett or Ackman, who are certainly two of the best of all time, but this is the billionaire I think people should follow.
Strong record despite fundamental shifts
David Einhorn runs the Greenlight Capital hedge fund, which he launched when he was 27 after raising about $900,000 from family and friends. Einhorn rose to prominence by betting against Allied Capital — or short selling — in 2002 when he questioned the company’s accounting practices.
Years after he announced his short position, the Securities and Exchange Commission validated Einhorn’s thesis, finding that Allied had indeed violated the securities laws because of its accounting practices.
Einhorn also played a key role during the Great Recession when he shorted Lehman Brothers in 2007 due to the company’s holdings of underwater securities.
But like many greats, Einhorn is also known for his approach to value investing, where he looks for stocks to trade below their intrinsic value. Earlier this year, he said he believes the practice of value investing may be dead due to the broken market structure and the rise of passive investing:
Value is just not a consideration for most investment funds out there. There’s all the automated money and algorithmic money, which doesn’t have an opinion about value, it has an opinion about price: “What’s the price going to be in 15 minutes, and I want to be ahead of that.”
This shift in market structure changed his investment philosophy for his company’s larger holdings. He now focuses on companies that appear to be cheap and return capital to shareholders through buybacks or dividends. It’s always a good sign to see even the best investors adjusting, though Einhorn may be frustrated by this shift in market structure.
Despite changing his strategy, he has achieved strong returns over the long term. Greenlight has averaged 13.1% annual returns since its launch in 1996, compared to 9.5% for the broader benchmark. Standard & Poor’s 500. This equates to a total return of over 2,900% compared to the S&P 500’s return of 1,117%.
Einhorn’s big winner
The largest position in Greenlight’s portfolio is a home builder called Green Brick Partners (NYSE: GRBK). Founded Green brick in 2006 with experienced real estate investor and home builder Jim Brickman.
In 2008, amid the housing market collapse, Einhorn and Brickman created a real estate equity fund, where they initially began buying land and lending to distressed construction companies. By 2013, the housing market had rebounded, and their fund had accumulated a lot of land. Needing capital to grow, the two took the fund public, and it became Green Brick Partners. Brickman became CEO and Einhorn became chairman of the board.
Greenlight Capital began purchasing Green Brick shares in the fourth quarter of 2014 at an average price of $7.20. Its first purchases amounted to approximately $112 million. While Greenlight has been in and out of the stock over the years, the position is currently worth about $950 million.
Einhorn and Greenlight still own more than 25% of its shares, according to Green Brick’s most recent proxy. The stock has nearly doubled in the past year and is up more than 670% over the past five years.
All of these land purchases since 2006 have served as a differentiator for Green Brick in the homebuilding space. At the end of the second quarter of 2024, it owned more than 28,500 parcels of land, most of them in the growing Texas market. As inventory and land become more limited and competitive to obtain, especially in strong and desirable housing markets, this strategy has paid off well.
A value investor with a lot of runway
When I look at Einhorn’s current holdings, I see that he still owns a lot of value stocks, which I always find to be the most interesting to evaluate because they trade at attractive valuations and their futures depend on their ability to repay debt and generate cash. Stream and redirect their profits.
However, Einhorn recognizes changing market dynamics and is willing to adapt, an important trait for any investor. I believe he is only 55 years old, has a lot of runway to go in his investment career, and is an intelligent person with a unique perspective that individual investors should watch and consider.
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Bram Berkowitz He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Green Brick Partners. The Motley Fool has Disclosure policy.
This is the billionaire investor you should be following — and he’s not Warren Buffett or Bill Ackman Originally published by The Motley Fool