Greenlight Capital is a very interesting and successful hedge fund ran by value investing superstar David Einhorn. The fund has annualized returns at 27% per year for the last 10 years. Einhorn's investment style is especially interesting because he is not afraid to make large, focused bets and because he specializes in special situations, specifically spinoffs.

Focus investing is a concept which has recently seen a resurgence due to the success of Mohnish Pabrai and many other focused hedge funds such as Greenlight. As I recently covered here, spinoff investing is a compelling method of investing which I consider to allow for "structural undervaluation."

Interestingly, Einhorn isn't a one horse pony when it comes to investing. He's also a very talented poker player. In fact, he came in 18th (of 8,773) in the 2006 World Series of Poker for which he took home almost $660,000. This is pertinent because many people believe there is a correlation between excelling in trading/investing and doing well in poker.Einhorn's portfolio has several particularly interesting positions but many of them have performed very well in recent history. In this piece I'd like to focus on three stocks which I believe can teach investors a variety of things in investing.

While many consider Microsoft Corp. (NASDAQ: MSFT) too big to dabble in, Einhorn seems to respectfully disagree considering he has almost 13% of his portfolio in the stock, according to StockPickr. Although the stock is up since Einhorn's original purchase, I tend to believe the stock is still cheap. In this PDF Einhorn explains his rationale for purchasing the stock. I highly recommend readers read and study Einhorn's speech. Essentially, he believed Microsoft to be a remarkably high quality company trading for (at the time of his speech) 10x EBIT and 15x earnings

Furthermore, after backing out the company's unprofitable lines of business the stock just trades for 9x EBIT. Therefore, Einhorn believed that Microsoft was being over-penalized for its losing business segments although they weren't really losing that much. In fact, Microsoft's losing businesses are still very powerful franchises such as Xbox and MSN.

Lastly, Einhorn spoke about the company's capital structure. At the time of his speech, Einhorn believed that a recapitilization made sense for Microsoft. During this process, the company would use existing cash as well as debt to buy back shares or pay out a dividend. This move would help shareholders because it would increase their share in the business (decreasing shares outstanding) or reward them for being owners of the company (via dividend.)

Microsoft is a little too big for my liking but I can certainly see the value proposition in the stock. The problem is, I highly doubt the company would ever actually do a recapitilization because I've found mature companies like Microsoft are usually hesitant to hurt their squeaky clean balance sheets.

MDC Holdings (NYSE: MDC) is a homebuilder based in the United States which makes up 12.3% of Einhorn's portfolio. Greenlight is not the only value investor in the stock -- it is also owned by Mohnish Pabrai and Basswood Partners. The value thesis behind MDC is pretty understandable on two fronts: historical earnings ability and book value multiple. As investors can see on the right, the stock has had a very "bubble-like" trading history over the last five years, moving both up and down rather quickly. But this isn't really management's fault, it is much more attributable to sector demographics.

During the heat of the homebuilding cycle, MDC made significant amounts of money. In 2003 the company made $4.30 per share, in 2004 it made $8.79 per share and in 2005 it made $10.99 per share. By looking at these figures, and then seeing the recent share price of $50, any value investor would almost fall out of his seat.

However, considering the fact that the company is expected to lose $1.91 per share this year, the situation quickly begins looking less promising. Considering analysts only expect a rebound to $1.40 per share in earnings per share next year, the situation becomes even more doubtful. That being said, if the real estate market rebounds, I'd expect the company's earnings per share to be in the $4.50-$5 range to start, working back up to the pre-crash levels of $8-$10 per share. So one could argue that "normalized" earnings for this company are in the $4 per share range, therefore the company is trading for about 12x 'normalized earnings.' But that's too wishy-washy for my liking.

At current levels, the stock is trading right around book. However, as I've covered before book value might not be as reliable as it once was, especially for homebuilders because they are forced to "write down" their book value when the homebuilding cycle shifts. Therefore, unless the company's book value is accurately stated, the fact that MDC is trading right at book value probably doesn't mean too much.

As I said in a recent post, I believe it's too early to be jumping back into homebuilders although patient investors who purchase now and are willing to wait 3-5 years will probably be rewarded appropriately. However, I see more sense in waiting for some positive news flow before biting the bullet and getting long already.

Genworth Financial (NYSE: GNW) is an insurance, investment and mortgage insurance company which constitutes 4.3% of Greenlight's portfolio. Like MDC, Einhorn is not the only well-known investor in the stock. The stock's other holders include the University of Chicago Endowment, Fortress, and the Homestead Value Fund (NASDAQ: HOVLX). Einhorn is in Genworth because it was a spin-off from General Electric Co. (NYSE: GE) in mid-2004. Since that time, the stock has appreciated significantly more than its parent company, GE (right).

Genworth boasts 10% ROE and 20% operating margin. The company trades just above book value (1.13x book) and less than 10x next year's earnings. In addition, any positive news event will probably move shares significantly higher because the company has a "short ratio" of 8.6.

I believe that Greenlight's portfolio offers investors several things. First off, by studying Einhorn's analysis of Microsoft, investors can see the thinking of a brilliant value investor in action. In researching MDC, investors witness the constant dilemma of valuation vs. headlines as well as the difficulty of patience in contrarian thinking. In studying Genworth, investors can see a successful spin-off in action.