David Einhorn is as sure as he ever was that a reckoning approaches for some of the world's hottest stocks.
The famous hedge-fund manager, known for such prodigious short calls as betting against Lehman Brothers in 2007, has been getting knocked around lately by what he calls his "bubble basket."
A collection of stocks he views as disconnected from underlying value, Mr. Einhorn's biggest short positions include Tesla Inc., Netflix Inc. and Amazon.com Inc. Year to date, those three names are up by 64 per cent, 56 per cent, and 32 per cent, respectively.
As Tesla chief executive Elon Musk tweeted earlier this year: "Stormy weather in Shortville."
Mr. Einhorn, head of New York-based Greenlight Capital, recently admitted "frustration" with how those stocks have performed this year.
However, he said he remains committed to a bearish view on some of the market's darlings. He was speaking to an audience in Toronto on Wednesday at the Capitalize for Kids investing conference, which raises money for children's brain and mental health.
Mr. Einhorn's public profile has been largely fuelled by successful short bets against Allied Capital, Lehman Brothers, and Green Mountain Coffee Roasters.
But not only have his most recent shorts been working against him, so too has the market in general.
For several years, the billionaire targeted annual investment returns of 20 per cent. Like the hedge-fund industry at large, Greenlight has come under pressure in recent years. And as value investors, performance has struggled to keep pace with the bull market.
The fund had the worst year in its history in 2015, suffering double-digit losses. And the runaway share prices of Tesla, Netflix and Amazon fuelled a 4-per-cent loss in the second quarter of this year. By midyear, the fund had reportedly been hit with nearly half-a-billion dollars in investor redemptions.
"Over the long term, value investing has outperformed momentum investing or growth investing, but over the last eight years, it hasn't. Eight years is a long time, and you start to wonder if it ever will again. But these things are cyclical," Mr. Einhorn said on Wednesday.
At some point, value strategies will cycle back into favour, he said. In the meantime, money will continue to chase performance and flow into growth strategies and index products.
The last eight-plus years have been good to passive investors. Since the S&P 500 index bottomed out in March, 2009, the index has gained, on average, 17 per cent annually. That is a difficult mark for value investors to beat, the vast majority of whom have failed to do so. "I think we've reached a point where people are wondering if active management even has a place," Mr. Einhorn said. "So we must be getting toward the end of this dynamic."