David Einhorn

David Einhorn's Greenlight Capital, a $5 billion fund, returned 9.7% in the fourth quarter of 2011, bringing the full-year return to 2.9%, he said in a letter to investors Jan. 17.

There was no mention of the $11 million fine he and the fund must pay in Britain as that nation's financial regulator, the Financial Services Authority, charged him with using inside information he obtained from a broker before selling shares in a U.K. company in 2009.

But, on a conference call, he told investors that he didn't believe he or the firm had any inside information when it traded the stock.

In the Jan. 17 investor letter, Einhorn told the fund's investors that "throughout the year we found very few places to make money, but we likewise kept our mistakes to a minimum. For the most part, our long portfolio went sideways."

Einhorn said a short position on solar energy power products maker First Solar ( FSLR ) was the hedge fund's biggest winner, as it was the worst-performing stock in the S&P 500, dropping from $130.74 to $33.76.

Einhorn's letter also said that Green Mountain Coffee Roasters ( GMCR ) was one of the "winners" in the fund's short portfolio in the fourth quarter as its shares fell after the company reported disappointing quarterly results. Einhorn had questioned the company's accounting methods at a public conference last year, making his lack of confidence in it clear, and said its management failed to respond adequately to him, "other than a blanket denial of wrongdoing."

He said the fund's current strategy is to "own cheap stocks of good businesses, largely in the United States," and the portfolio is "more net long equities than it has been in some time."

Recent buys include computer maker Dell ( DELL), which it bought at $15.53 per share. Einhorn notes it has about $7 per share in cash and equivalents on the books and currently earns about $2 per share. He said its current valuation is "usually associated with collapsing businesses."

The fund also re-established a position in office equipment maker Xerox ( XRS) at $7.61. The acquisition of the business process outsourcing firm Affiliated Computer Services early last year gives Xerox a strong position in a new business that also bodes well for its future, Einhorn wrote.

Long term, Xerox is expecting 6% annual revenue growth, and 10% to 15% adjusted earnings per share growth, while the company has a $1 billion-plus share repurchase plan in place, according to Einhorn's letter.

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