Greenlight Capital

During a presentation on Tuesday at which he was expected to reveal his latest bearish thesis, Mr. Einhorn, a hedge fund manager, introduced a discussion of General Motors with an ambiguous line. Mr. Einhorn, the president of Greenlight Capital, pivoted on the ticker symbol of Green Mountain Coffee Roasters, a target of his criticism last year. “If you take the CR away from GMCR, you get G.M.,” Mr. Einhorn said. Shares of General Motors plunged, before investors realized that the assessment of the automaker was positive. Mr. Einhorn emphasized the folly of taking his ideas on faith. “It doesn’t make sense to blindly follow me or anyone else into a stock,” he said as a preface to his presentation at the Value Investing Congress in Manhattan. “Do your own work. And when a successful investor shows you their work, check their work.” [Dealbook]

  • 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 »

Dear Greenlight Investors

August performance. Read more »

By early June the market had given back all of its first quarter gains, and the crisis yet again came to a head. The European leaders took a cue from Groundhog Day and did as they always do: they announced yet another ‘Summit to Fix Everything’…The whole thing is such a mess – who can blame them for heading for vacation? Besides, this allows the politicians to position themselves to give the appearance of personal sacrifice, should they need to interrupt their Olympics cheering to make emergency phone calls…Landon Lee, our Research Associate in Dallas, has decided to pursue an MBA at Columbia Business School. As Cheryl Einhorn is an Adjunct Professor there, one can’t help but feel that Landon is choosing Cheryl over David. And who wouldn’t? To discourage further poaching, David has taped a “Do Not Solicit Greenlight Employees” notice to the home fridge. [Greenlight 2012Q2 Letter To Investors]

Back in February, in his annual letter to investors, Berkshire Hathaway chief Warren Buffett spent a good bit of time discussing why one shouldn’t own gold. Beyond the fact that, according to WB, gold doesn’t “change in size and [is] incapable of producing anything,” and you’d be much better off buying farmland (which “a century from now will have produced staggering amounts of corn, wheat, cotton and other crops and will continue to produce that valuable bounty”) or shares of Exxon Mobil (which “will probably have delivered trillions of dollars in dividends to its owners”), the Oracle of Omaha had one incontrovertible, be all end all reason for eschewing the metal: its unfuckability. Oh sure, you can do things to a cube, you can fondle it, you can talk dirty to it, you can send nude pictures of yourself, you can even drill a hole in it and fuck it senseless, but, the thing is, the cube will not respond. No reciprocation, no gratitude, not even a sign it enjoyed itself.  For Buffett, no further argument was necessary as to the worthlessness of the commodity. (Silver, on the other hand, will make you feel like you’re 18 again.) Anyway, David Einhorn sort of feels the same way about the dollar. Read more »

Einhorn says he has a lot of stocks to talk about, starts with Martin Marietta Materials, which he says has “lots of problems.” Einhorn calls MLM CEO a “degree in megalomania”…Einhorn just pulled out a magic wand and I’m pretty sure made a Harry Potter reference. And he’s onto talking global economies. He’s talking up a stock in Norway known as GJF. [Deal Journal]

Directed at no one in particular but if a certain jelly donut-addicted Fed Chair has found even his extra-forgiving sweatpants getting too snug, he might want to take note. Read more »

Wouldn’t it be fun to be the kind of guy who could swoop into an earnings call and be all “aren’t you just a giant fraud?” and freak everybody out and cause the stock to plummet? I feel like that would be fun. I am not that kind of guy, which is just as well, because I sort of go around assuming that selling (1) weight loss drugs through (2) network marketing just automatically makes you a giant fraud,* so I would probably use my powers irresponsibly.

Anyway David Einhorn didn’t do that at all! He asked some perfectly reasonable questions of weight-loss network marketer Herbalife. Here is a comically anodyne description:

Herbalife Ltd. (HLF), the maker of nutritional supplements and weight-management products, fell the most in more than three years after hedge-fund manager David Einhorn asked executives why it has stopped providing information tracking certain groups of its distributors in its filings. …

Chief Financial Officer John DeSimone told Einhorn on the call that when he took over as finance chief in January 2010 he decided to stop breaking out information on distributor groups as it isn’t “valuable information to the business or to the investors.” Herbalife “can easily provide the exact same breakout going forward,” DeSimone told Einhorn.

“That sort of follow up” would be “helpful,” Einhorn said on the call.

How cozy. You can read the questions and, crucially, listen to the skepticism in his voice here. You can see the 20% price drop here. Read more »