Greenlight's David Einhorn scored in 2022 by shorting ‘bubble stocks’
Matteo Colombo

David Einhorn-led hedge fund Greenlight Capital benefitted in 2022 by shorting what he termed âbubble stocks," a strategy that boosted the firm's results last year and remains part of the fund's current portfolio.
In a letter to investors issued Tuesday, Einhorn detailed how Greenlight has been eyeing potential bubble stocks since the middle of last decade, with the strategy coming to full fruition in 2022, as speculative stocks, like those populating Cathie Wood's popular ARK Innovation ETF (NYSEARCA:ARKK), suffered massive declines.
"In early 2021, we also identified an actively-managed ETF of so called âinnovationâ stocks that appeared to us to have significantly similar characteristics to our bubble names," Greenlight Capital stated in its investor letter.
While the hedge fund didn't disclose any specific names, the reference seems to indicate Woodâs actively managed ARK Innovation ETF (ARKK), which served as the highest-profile fund fitting the description given by Greenlight.
âWe shorted a basket comprised of the components of that ETF in February 2021 that we ramped up to 9.0% of capital. It has declined by 76% from our first entry. The cumulative positive impact on our returns has been 6.4% of capital.â
In total ARKK plunged 67.5% in 2022, which followed a 25% decline in 2021. See below a 5-year trading chart which shows the steep run up in ARKKâs share price followed by a subsequent plunge.

Wood's other actively managed exchange traded funds have similar innovation-focused names. Woodâs other ETFs include (NYSEARCA:ARKW), (BATS:ARKQ), (ARKG), (ARKF), and (ARKX).
Wood's ARKK represents an actively managed fund, so its holdings change over time. However, in early 2023, its top-weighed positions include names like Roku (ROKU), Teladoc (TDOC), Coinbase (COIN) and Shopify (SHOP), each of which fell more than 70% in 2022. The fund also invested heavily in Tesla (TSLA), which slumped more than 60% during the year.
Detailing how the firm has used these bubble shorts through the years, Greenlight noted that the company first began producing a "bubble basket" in 2014, following "enormous gains for a number of speculative stocks" in 2013. "This proved to be very premature," the firm noted in the investor letter.
Greenlight reported that it covered the remaining shorts in its initial bubble basket in 2020 during the initial COVID crash. The firm then attempted the strategy again later that year, only to cover in January 2021 amid a post-COVID market surge.
"We are nothing if not persistent. In March of 2021, we again believed that the bubble had popped... this time correctly," Greenlight stated. "We created our third bubble basket with thirty-one names totaling 6.5% of capital. This bubble basket remains in the portfolio, though we have covered some names."
In related Ark Invest news, Wood and her team continue to make aggressive calls. Early this year, the firm said another of its largest holdings, Exact Sciences, can nearly triple by 2027.