When David Einhorn Talks, Markets Listen... Usually
New York’s Lincoln Center, to a packed audience of money managers eager to hear which stocks were in his cross hairs. Thin, mild, diligent, and looking, at 44, like he could still get carded for beer, Einhorn is renowned for his fearlessness. Not simply for the boldness of his calls, but his embrace of the dull and unglamorous work that others simply won’t do. Since launching his fund in 1996, he has been right so often and, occasionally, against such high odds, that his public positions are the closest thing in finance to self-fulfilling prophecies. When he names a target out loud, in his nasal, Wisconsin-tinged voice, it’s like jolting the company with a cattle prod.
All speech long, Einhorn was getting the electric response he’s accustomed to. He criticized Martin Marietta Materials (MLM), a construction company: The stock lost 14 percent in eight minutes. He identified a threat to Dick’s Sporting Goods (DKS): The retailer shed 6 percent in three. The professional investors in the audience and the financial journalists live-blogging and tweeting Einhorn’s every remark even paid attention to what he didn’t say. By neglecting to mention Herbalife (HLF)—a marketer of nutritional supplements whose stock he had single-handedly caused to plummet two weeks prior—Einhorn caused its shares to soar. The fund manager jokingly pulled a wand from his pocket and chanted a spell. The Einhorn magic was in full effect.
Then he began to speak about Apple (AAPL). The day before, Greenlight had disclosed in a regulatory filing that its stake in Apple was valued at $877 million, almost 10 percent of the fund’s assets. Einhorn had been buying shares in the company since 2010, initially paying an average of $248. Now they cost $553, a 123 percent gain, and Einhorn told his audience that Apple still had plenty of room to grow, with a price-earnings multiple that was below average. “I have a hard time seeing how anyone ranks Apple as below average,” Einhorn said, arguing that the company could hit a market capitalization of $1 trillion.
Unlike the other stocks he had mentioned, shares of Apple barely budged—King Midas had touched a table, and it stubbornly remained wood. Partly this was a function of Apple being one of the largest and most actively traded companies in the world. And partly it was because markets obey David Einhorn more when he is bashing a stock than when he is boosting one.
His reputation as a “short”—an investor who bets that a stock will lose value—has eaten at him for years. “The press began referring to me as a ‘noted short-seller,’ a label I didn’t care for,” he wrote in Fooling Some of the People All of the Time, his book about his experience shorting a publicly traded lender called Allied Capital in 2002. In the investing hierarchy, long-term investors such as Warren Buffett who find undervalued companies to buy and hold have long garnered the most admiration and respect, while scrappy short sellers are often derided. Einhorn declined to be interviewed for this story, but as his friends are quick to note, Greenlight Capital has always been “net long,” with more money wagered on stocks going up than down. Even so, his takedowns of companies have proved more dramatic than his growth bets, and Einhorn on stage can seem to relish his shorts just a bit more than his longs. It was at the Sohn conference exactly 10 years earlier that he caused a sensation, methodically making the case that Allied was cooking its books. In 2008, he returned to take a wrecking ball to Lehman Brothers.
In 2012, Einhorn concluded his Sohn presentation by telling the audience that he’d invented something. It was a novel kind of preferred stock, he said, the characteristics of which could help certain companies unlock billions of dollars in value. He called his creation Greenlight Opportunistic Use of Preferreds, or—in case anyone missed his intent—GO-UPs.
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