Here’s the billionaire investor you should be watching — and he’s not Warren Buffett or Bill Ackman

It’s always a good idea for individual investors to look at what institutional investors, also called the smart money, are doing. You should never base your decisions solely on others without doing your research, but institutional investors have been professionally trained and often have decades of experience and profits to back it up.

Following these successful investors is also a good way to find new ideas and test your thesis. Too often though, I feel like people only look at two or three of the best investors, instead of casting a wider net.

Warren Buffett and Bill Ackman certainly come to mind. I have nothing against Buffett or Ackman, who are definitely two of the best ever, but here is the billionaire I think people should be watching.

A strong record despite fundamental changes

David Einhorn runs hedge fund Greenlight Capital, which he launched at age 27 after raising about $900,000 from family and friends. Einhorn rose to prominence betting against — or short selling — Allied Capital in 2002 when she questioned the company’s accounting practices.

Years after announcing its short position, the Securities and Exchange Commission validated Einhorn’s thesis, finding that Allied had indeed violated securities laws because of its accounting practices.

Einhorn also played a key role during the Great Recession when he shorted Lehman Brothers in 2007 because of the company’s underwater holdings of securities.

But like many of the bigwigs, Einhorn is also known for his value investing approach, where he looks for stocks that are trading below their intrinsic value. Earlier this year, he said he believed the practice of value investing could be dead because of the deteriorating market structure and the rise of passive investing:

Value is not a consideration for most investment money out there. It’s all machine money and algorithmic money, which doesn’t have a value opinion, it has a price opinion: “What’s the price going to be in 15 minutes, and I want to be ahead of that.”

This change in market structure led him to change his investment philosophy for his larger company holdings. Now, he focuses on companies that look cheap in value and return capital to shareholders through buybacks or dividends. It’s always a good sign to see even the best investors adapt, even if Einhorn is likely frustrated by this change in market structure.

Despite changing his strategy, he generated strong long-term returns. Greenlight has average annual returns of 13.1% since its launch in 1996, compared with 9.5% for the broader benchmark. S&P 500. That equates to a total return of more than 2,900%, compared to the S&P 500’s 1,117%.

Einhorn’s big winner

The largest position in the Greenlight portfolio is a housing construction company called Green Brick Partners (GRBK -2.27%). He founded Green Brick in 2006 with seasoned real estate investor and homebuilder Jim Brickman.

In 2008, amid the collapse of the housing market, Einhorn and Brickman started a real estate equity fund, where they initially began buying land and lending to struggling developers. By 2013, the real estate market had rebounded and their fund had amassed a lot of land. Needing capital to grow, the two took public funding and it became Green Brick Partners. Brickman became chief executive and Einhorn became chairman of the board.

Greenlight Capital started buying shares of Green Brick in the fourth quarter of 2014 at an average price of $7.20. His first acquisitions amounted to about $112 million. While Greenlight has moved in and out of the stock over the years, the position is currently valued at about $950 million.

Einhorn and Greenlight still owned more than 25 percent of its stock, 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 acquisitions since 2006 have been a differentiator for Green Brick in the home building business. At the end of the second quarter of 2024, it held more than 28,500 lots, most of which were in the growing Texas market. As inventory and land have become more scarce and competitive to purchase, especially in strong and desirable housing markets, this strategy has paid off handsomely.

A value investor with lots of leads

When I look at Einhorn’s current holdings, I see that he still owns a lot of value stocks, which I always find the most interesting to value because they trade at attractive valuations and their future depends on their ability to pay down debt , to generate cash. flow and transform the trajectory of their earnings.

However, Einhorn is aware of changing market dynamics and is willing to adapt, an important characteristic for any investor. At only 55 years old, he has a lot of tracks left in his investing career, I think, and he is a smart person with a unique point of view that individual investors should follow and study.