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Bloomberg LP, the parent company of Bloomberg Television, is working with the Robinhood Foundation for a stock picking competition for ten thousand dollars that will go to charity in order to fight poverty in New York. You pick a long and a short investment and you can register through Monday, October twenty eighth. You can sign up at Robinhood dot org. The competition is for charitable purposes only and does not
constitute financial or investment advice. For more about the competition and his own investment choices, we are joined now by David Einhorn of green Light Capital, and perhaps first talk about this program for a minute. Pick a ticker. You have a sensorially gamified charity. Why did you guys do it this way? You're closely involved with the Robinhood Foundation. And what do you expect out of the program.
Yeah, we just thought it would be a little bit of a fun thing to do in conjunction with the annual investor conference that's been going on for eleven or twelve years. The idea is is anybody who wants to participate and donate ten thousand dollars. Pick along, pick a short, see how it does over the next six months, and whoever wins can gets to choose which Robinhood supported organization get gets a chunk of the money.
Now, did you participate? Are you picking it on a long and a short for this game?
One hundred percent? Of course?
What are they?
Well, I'm not the shorts.
People are allowed to keep confidential, and I'm going to keep mind confidential. But I'm going to pick Peloton, which is the stock that I pitched yesterday at the Robin Good conference.
Now, talk a little more about that, because from what I understand, you came dressed in full gear to make this a pitch to the audience there. What is it about Peloton that you like right now? I understand that you said that it's undervalued, but what's the catalyst?
Is it M and A or something else that you're looking at?
Well, I think there's a lot to like with Peloton.
They have a large customer base that hays forty four dollars a.
Month and is extremely engaged.
Ride's an average to thirteen times a month and has very very low attrition. So most subscription type models like this trade a really high valuations. Peloton has suffered over the last number of years because they thought they were going to be a much bigger company than they've turned
out to be. Maturity has hit them a little bit sooner than they expected, and they had a cost base which was entirely based on Hey, the only thing that matters to us is revenues, because you know, Wall Street values us on price to sales and stuff like that, and so, as I said at the conference yesterday, there's
a lot of cost cutting for Peloton to do. Peloton probably needs to spend more time on the Peloton and if they do that, the margins will improve a lot, and the stock is relatively inexpensive relative to other types of subscription model type of companies decides they're going to get a new CEO who should be announced, you know, sometime relatively soon, and in the worst case, if they're
not really able to turn around. This is certainly the type of company that there's a number of larger companies I think that would be very interested in owning this if it came.
Down to that. David, I also want you to weigh in over here.
It's interesting as we speak right now, Tesla had come out with earnings over the last twenty four hours, the stock is up more than nineteen percent at the moment. It's been a stock that you have been short before. Wondering what you think about this stock at this valuation here and whether you would ever go short again.
Yeah, we don't really comment on our short positions anymore. We stopped doing that a few years ago, and so whether Tesla is a shorter potential short, it's not something that I'm going to discuss.
Can you speak to the valuation as it stands now and how it fits into the broader story around stock market valuations right.
Now now, I'm really not going to go anywhere near that.
So let's talk about valuations more generally. Because of course, the AI trade in general has been a very hot one. I'm wondering if you think that if some of these stocks have gone too far, and how you're playing the AI trade.
Well, you know, the thing is is we don't have to, you know, bet against things that seem like they're expensive when there's so much excitement around them. So these stocks are very high. There's a lot of enthusiasm. There's been
enthusiasm for a long time. I think the market as a whole is really, you know, quite expensive considering we're a strong part of the economic cycle and we're about twenty three times earnings, so it's it's hard to wind up for me as somebody who actually paid a lot of attention to what I.
Pay for things to want to chase those things.
We do have a couple of companies that you know, maybe have options on AI coming our direction. So for example, we own HP which makes PCs, and PCs are due for a regular replacement cycle because a lot we're bought after COVID in twenty twenty, twenty twenty one, and we could have a better than normal cycle if if AIPCS turn out to be a thing. I have only traces about ten times earnings, pase a three and something percent dividend.
They're spending one hundred percent of recash.
Flow returning it to shareholders, so you get about seven percent buyback. So we can see you know, mid teens high teams growth for the next couple of years, just as you go through a cycle share account reduction, and so this you're paying just ten times journeys, which is very reasonable from our perspective.
You know, I totally understand that you don't want to talk about individual short wagers. However, will you kind of explain the thinking around short investing right now? There are a lot of people who feel very burned in the way that markets have really melted up in a large way. What does the environment for shorting look like to you and what are the kind of parameters that you think around.
Yeah, we're actually having a pretty decent year in our short book, particularly consider how the market has gone up. We made a change a couple of years ago in response to sort of the meme stuff, and what we basically figured out is that the right tail for your best short ideas has changed. So it used to be I'd want to put the most money in whatever I thought my best idea is, But your best idea is probably something that you think is going to go to zero,
and that's where the crazy stuff goes on. So we kind of flipped the short portfolio in the sense that our bigger shorts tend to be more boring and our smaller shorts are tend to be a little bit more exciting, and it's enabled us to maybe manage the volatility relating to the occasional craziness that hits a one stock or another, particularly in the more volatile and probably going to zero part of the short pastard.
While we're talking about volatility as well, I know you this year had written two investors basically saying that it doesn't really matter who would win the election when it comes down to the markets more directly. But I am still really curious about how you're thinking about the election less than two weeks away.
Uncertainty around how long it will take to know what the votes.
Really come out to be at the end of the day. How do you think about that uncertainty and investing around it.
Yeah, look, I don't know how to handicap, but the only real protect projection I'm going to make about the election is it's going to be held on November fifth, and beyond that, it's really hard to know. The election seems to be very close, and you know, I don't know whether we'll have a winner anytime soon. I don't know whether either candidate is preparing to concede if it's a close election, So we'll just have to kind of see how that plays. I'm taking a relatively conservative posture
into the election. I view this as a potentially uncertain event.
Is there anything that could take off after the election. We hear over and over that investors are taking a risk off tone before that time.
So what starts to take off after Well, I.
Think if you have a clear winner and it's you know, in the country, it's clear what direction the country is going to go, I'm confident that investors will chase whatever is perceived to be a beneficiary of whichever candidate that happens to be.
I want to get your macro view on this as well, because a lot of people are worried about the direction of inflation. You saw the ten year really a trail higher in recent days. Some people think it's a Trump trade. What do you think about the direction of travel for bonds the macro markets more largely on the heels of the selection.
Yeah, Look, I think that I think we're in We moved from a secular deflation for many many years into secular inflation, and we've had a you know, a reduction in inflation from the peak from a couple of years ago. But I think a lot of that is kind of run its course, and so there's a decent chance we should have inflation re accelerate, probably as soon as the next inflation reading as far as I can tell, there's
still rents that have to flow through. Commodity prices are getting stronger, and I think there's some other indications, you know, labor prices still going up. You see what's going on for example with the Boeing strike. These these wage increases
are relatively substantial still. So I actually think that the inflationary period is kind of the disinflationary period is kind of coming to an end, and I think that you can see it in the inflation derivatives market and you can see it in the bond market.
Additionally, regular growth is pretty good.
We're running about three percent. So for that three percent growth, and we've got you know, at least two and a half and maybe rising inflation from there, and that's nominal GDP of five and a half plus. It's hard to see why treasury bonds at you know, four percent are a little bit better than that our mispriced or why rates should come down from that.
Another that I know that you have had on David, it's fair to call you a gold bug.
We've seen gold hit record highs this year, and I'm wondering how much further you think it'll go and why.
Well, I think that I think that gold looked.
We've been long gold for about, you know, fifteen years, so there's nothing new about me saying something interesting about gold.
But I think just to the point I.
Was just making right, if we if we have the FED, it seems to on trying to reduce interest rates even as inflation you know, maybe bottoming and about to re accelerate. That should be pretty good for goals, and I think you're beginning to see that in the price of bold and gold has had a really strong year. It's been a big.
Help to us.
Last question for you before I let you go.
There's been a lot of conversation about how you've been thinking about value investing, whether the industry has died or not.
But a lot of.
People are looking to get back into that value trade, particularly that Russell two thousand value trade.
What advice would you give them?
Well, I think with so many professional value investors no longer practicing their trade or having assets to manage, there's just a lot less competition, and so you can find some pretty exciting values in companies that are less talked about or less exciting than the ones that everyone wants to you know, you know, comment on every day that traded, you know, fancy mostly multiples. You have a realfurcated market, and we can find companies that are paying large dividends and bind.
Back lots of stock.
We're going to make a good return just from the company giving us the money, and we don't really care whether what other investors do.
David, we got to leave it there.
Of course, that is David Einhorn of green Light Capital talking about his favorite long pick right now.
We thank you very much for your time.