David M. Einhorn is a noted American billionaire investor, hedge fund manager and philanthropist. He is the founder and president of Greenlight Capital, a hedge fund that invests primarily in North American equities and corporate debt offerings. He is one of Wall Street's most closely followed investors due to his bold trading positions.
Einhorn holds the 1650 rank in the Forbes list of global billionaires, and stands at number 494 among American billionaires for the year 2018. He was ranked number 18 among the list of top hedge fund managers in the year 2015. His net worth peaked at $1.9 billion during March 2015, and now stands at $1.4 billion as of March 2018.
Einhorn was born in New Jersey, and moved to Wisconsin with his family at an early age. After graduating from Nicolet High School in Glendale, Wisconsin in 1987, he graduated from Cornell University in the year 1991.
At the age of 27, Einhorn established Greenlight Capital with initial investments of $900,000, sourced from family and friends. The fund is known for its long-short value-oriented investments, and has found tremendous success by taking short sale positions.
Successful Run with Investments
Einhorn shot to fame in the year 2002, when he successfully questioned the accounting practices of a mid-cap financial company called Allied Capital and revealed having a short position during the Sohn Investment Conference. The stock took a big tumble leading to a fierce exchange of allegations between Allied and Einhorn. A five year long investigation by the U.S. Securities and Exchange Commission (SEC) vindicated Einhorn’s stand, and revealed that Allied indeed violated accounting standards linked to securities laws and valuation of illiquid instruments. Following the incident, Einhorn wrote a book titled “Fooling Some of the People All of the Time” in 2010, revealing every minute detail about the Allied case.
He soon became the most significant speaker and the biggest draw at the Sohn Investment Conference, a gathering of the world's influential investors sharing money-making ideas. His wealth exploded exponentially and his popularity rose with few even started considering him the next Warren Buffett for his value investment style. (See also, Einhorn Effect.)
Another high profile case that bolstered Einhorn’s reputation was his shorting of Lehman Brothers stock in July 2007 based on the company’s large exposures to highly illiquid holdings in real estate investments. Along with questioning Lehman’s accounting practices, Einhorn also claimed irregularities in their financial filings. He revealed his short position in April 2008, and Lehman declared bankruptcy couple of months later.
In October 2011, Einhorn announced shorting Green Mountain Coffee Roasters (GMCR) stock, a specialty coffee and coffeemaker company. He justified his position with claims that the market for the company’s new Keurig single-cup coffee brewer was saturated, its K-Cup coffee pods had a potential patent violation issue, and there was a possibility of “a lot of surprise with recent accounting.” His announcement tanked company’s stock price by 10 percent, followed by a plunge of another 50 percent in November as the company missed analyst expectations in the quarterly results.
In the year 2012, Einhorn was fined £7.2 million by the UK securities watchdog FSA, for engaging in market manipulation. Einhorn was involved in a telephone call where a corporate broker acting on behalf of Punch Taverns PLC informed about the company going for a significant equity fundraising. Einhorn acted on this “insider information” to his benefit. He issued instructions to sell all of Punch holdings within minutes of the call, which FSA believed was a case of market abuse and amounts to insider trading.
Recent Troubles with Declining Performance
However, in recent times Einhorn appears to be losing the sheen with having one of the worst performances in his peer group. Since 2014, Greenlight Capital has made a loss of 25 percent, and 15 percent was lost during 2018-YTD. Bloomberg reports that he has lost about nearly every one of the top 40 positions in his $5.5 billion portfolio this year, though he continues to maintain that “Our investment theses remain intact,” and “Despite recent results, our portfolio should perform well over time.”
He is now being accused of clinging on to his old ways - buying the beaten-down companies he expects to spring back and selling those that he perceives as overvalued - while the industry has moved on.
He is currently long on the cheap General Motors Co. (GM) stock, and short on a basket of stocks including Netflix Inc. (NFLX) and Amazon.com Inc. (AMZN) that he considers as bubbles though they have had big upward runs. Market appears to be apprehensive about his approach that has worked in the past but may not be worth now. A few are wary that his focus has shifted from his earlier money-making small and mid-cap stocks to large-cap ones where there is little room to grow.
“He’s chosen to stick with his approach in a massively shifting landscape, and I can’t help but admire his conviction,” said Balter Capital Management’s Brad Balter, a long-time hedge fund investor.
In recent updates, dozens of former investors are threatening to exit the Einhorn fund if its performance does not improve. (For more, see Greenlight Capital Losing Money, Investors: WSJ.)