Einhorn Effect

So I guess the Einhorn effect hasn’t yet taken London by storm? There’s this:

David Einhorn’s $7.7 billion hedge fund Greenlight Capital Inc. disclosed a short position of 4.4 percent in the shares of Daily Mail and General Trust Plc, which publishes the U.K.’s second-biggest selling daily newspaper.

Greenlight’s bearish bet on London-based Daily Mail and General Trust, disclosed today on the website of the U.K.’s Financial Services Authority, was the biggest short position revealed by any hedge fund against a U.K. company under rules that took effect last week.

And yet there’s also this:

What are you doing, England? Don’t you know that when David Einhorn is short a stock, that stock goes down? There are rules here you know; today’s mild drop is not enough to comply. Read more »

  • 18 Sep 2012 at 1:30 PM

The Mystery Of Einhorn

The Journal has a nice article about David Einhorn today, making the point that he can move stocks with the sheer power of his disapproval. Not even disapproval, really; a raised eyebrow will suffice, as it did for HerbaLife. Imagine his parenting skills.

Here is a chart from the Journal and I guess you win a cookie if you can tell me how it’s calculated:

But you get the gist: on average (er, median), an Einhorn seal of disapproval lops 4.9% off a company’s market cap in one day, and 13% in a month. You can argue that he is just excellent at picking stocks that are about to drop precipitously, but the repeated one-day success seems like pretty clear evidence that the market is reacting to, rather than independently fulfilling, his predictions.

So, first off: this is a great skill to have! I think that in part because I am very lazy and have always imagined a hedge fund manager’s job as being to come into the office, point at a stock, say “that one,” and go home for the year while the stock he picked makes him rich. I don’t think it works that way, though; stocks tend to move for reasons in the external world unrelated to your simple desire to make yourself rich, so you have to spend your days, like, doing research and stuff. But when your desire to get rich off a stock pick makes it so, that is metaphysically delightful.

It’s particularly delightful for a short seller. (Though also: sort of puzzling for a short seller.) We’ve talked before about a paradox of short selling where: Read more »