Editor’s note: This article was first published in November 2015. The share prices are as of then: SunEdison at 3.25 dollars (from about 18 in October 2014), Alpha Bank at 0.061 euros and Piraeus Bank at 0.029 euros so far this year. The 9,000 million dollar valuation against 11,000 million of debt is also a 2015 figure.
Following the advice of the great fund managers is a good investment strategy. They clearly act with a degree of judgement and devote considerable resources to studying and analysing stocks they think could be profitable. And, of course, they sometimes take risks. And, naturally, they also get things wrong.
I like to take note of the investment ideas of the great fund managers, and I consider David Einhorn, of Greenlight Capital, an excellent investor. Yet of the investment ideas he gave in 2014, not a single one has worked out; in fact, anyone who followed those particular tips will have seen their capital shrink by more than 80%.
In October 2014, Einhorn advised buying shares in SunEdison, a solar energy company then trading at around 18 dollars a share. Einhorn said the company could only get better in the medium and long term, since in his view it was undervalued. He said the stock was worth more than 32 dollars a share.
SunEdison shares are currently trading at 3.25 dollars, a drop of more than 80%, and on top of that the company could be in serious trouble, as its losses and its debt are both growing. To put it in perspective, the company was valued at 9,000 million dollars while carrying debts of 11,000 million.
Even so, if solar energy is the future, SunEdison is still the best-positioned company for it. It just has to redefine its strategy to stay afloat.
That said, perhaps now could be a good time to buy shares in the company, although always bearing in mind the danger of highly indebted companies.
Einhorn also recommended buying shares in Greek banks, believing that the worst was over for Greece. Specifically, he recommended buying shares in Alpha Bank and Piraeus Bank, and both stocks have suffered truly dizzying falls so far this year.
Alpha Bank has gone from 0.65 euros a share to 0.061 euros, while Piraeus Bank has fallen from 1.60 euros to 0.029 euros.
These things tend to happen in the world of investing, and you can’t really blame a manager like Einhorn for how his “forecasts” turned out. What’s true is that today you can buy the same recommended shares more than 80% cheaper. And maybe that isn’t such a bad idea right now.
See also: David Einhorn: 5 lessons from poker applied to stock market investing
Featured image: Boubloub, CC0 1.0, via Wikimedia Commons.
