Tough Time For Everybody

Well at least I'm suffering (and learning) in good company: Hedge Funds Concede Errors, Profess Optimism After Worst Losses.

David Einhorn, who runs New York-based Greenlight Capital LLC, said external forces were partly to blame for the 17 percent drop in his three funds in September.

While he and his team made mistakes, ``we believe that our portfolio management has been reasonable,'' Einhorn wrote in an Oct. 1 letter to clients.

Einhorn, 39, pointed to the U.S. Securities and Exchange Commission's Sept. 18 ban on short sales of financial stocks for some of the losses in the month. The ban, which expired Oct. 9, eventually included about 15 percent of the companies in the Standard & Poor's 500 Index.

Caught Short

In a short sale, investors sell borrowed stock in hopes of repurchasing it later at a lower price and pocketing the difference. A long position is one that an investor holds in expectation it will rise.

After the ban went into place, the shorts recovered much more than the longs, he wrote, ``especially the financial shorts abundant in our portfolio.''

Einhorn, who earlier this year was vocal in this view that shares of now-bankrupt Lehman Brothers Holdings Inc. would tumble, said he planned to hold onto the short positions in financial companies ``for a good deal of time (providing there aren't additional extraordinary legal changes) until they begin to trade in a normal market environment again.''

In the third quarter, Einhorn's three funds lost about 15 percent, one percentage point of which came from stocks he had shorted. Nine companies Einhorn held long, including French chemical-maker Arkema SA, French bank Natixis SA and Houston- based oil and gas producer Helix Energy Solutions Group Inc., each contributed more than one percentage point to the quarterly drop.

Playing Defense

Einhorn told investors his funds are more conservatively invested than ever. While almost three-quarters of assets, including leverage, are long, he has offset those holdings with short sales that bring the net to 9 percent. Einhorn declined to comment.