David Einhorn, the CEO of Greenlight capital, has become one of the most well-known and respected hedge fund managers today. He is a household name in the investment world, and after nearly becoming a partial owner of the New York Mets, Einhorn became a household name
David Einhorn is famous for his announcing short position in Allied Capital at the Ira Sohn Conference in 2002, and wrote a fantastic book on the topic, Fooling Some of the People All of the Time, A Long Short (and Now Complete) Story, Updated with New Epilogue, Lehman Brothers at the Value Investing Congress in 2008, and St. Joe at the Value Investing Congress in 2010. Allied Capital was tinkering on the verge of bankruptcy, was acquired; Lehman Brothers declared the largest bankruptcy in history in September 2008, and St. Joe is the only company still standing. St. Joe’s largest shareholder is another famous value investor, Bruce Berkowitz.
Bruce Berkowitz has made some very public moves and statements about St. Joe, however, Einhorn has remained nearly silent on the issues since he exposed his short position. A source very close to David Einhorn told me that “David is trying to avoid a public pissing contest with Berkowitz.”
David Einhorn currently manages over $10b, however he started with only $900,000 in 1997. Due to fantastic returns (not good marketing) of 22% per annum, he is now one of the largest hedge fund managers in the country.
Much is known about David Einhorn’s current portfolio and positions, but much less has been written about his earlier years. This article describes briefly some of Einhorn’s early life and one of his first investment mistakes. The sources mostly consist of information from Einhorn’s book, Fooling Some of the People All of the Time, A Long Short (and Now Complete) Story, Updated with New Epilogue, which I read, and highly recommend; and a bit from my source who knows Einhorn very well.
Einhorn grew up as the son of an “i-banker”. His grandparents owned a chemicals business, when the business started to decline David Einhorn’s father helped sell it. Einhorn’s father became so fascinating in the transaction aspect of selling the business, that David’s father started to work in mergers and acquisitions. He could not get a job on Wall Street, but through persistence and a long term approach, succeeded on his own.
Einhorn was originally interested in politics until her interned one summer at the SEC, in the Office of Economic Analysis. Einhorn focused on the airline industry, where he quickly realized the struggle that policy makers had between ensuring profits and preventing monopolies.
After graduation, Einhorn looked into job offers including one for the CIA. He decided to work at a small investment bank, DLJ, where he spent the next two unhappy years of his life working 100+ hour weeks (any reader who works/worked or even knows anyone in investment banking can tell you this is not an exaggeration or abnormal).
Einhorn got a job offer with a value hedge fund, Siegler, Collery & Co (SC). Einhorn really learnt how to evaluated stocks when he was at SC. The portfolio manager combed through fillings for ambiguities, corporate governance, and accounting methods used. Einhorn left with another analyst at SC, Jeff Keswin in 1996 to start their own hedge fund. Greenlight Capital.
Einhorn thought he could initially raise assets of $10m; however the process was much more difficult. Einhorn started with $900,000, half of it coming from his parents.
One of Einhorn’s early “mistakes”
In 1998, David Einhorn initiated a large short position in Computer Learning Centers (CLCX). CLCX was a large for profit Education Company (sound familiar?), which taught people useless skills, admitted anyone, and charged $20k a year in tuition. A short-seller sent a student to take a test where the admissions officer gave the students the correct answers for the test!
The company reported strong Q1 results, the CEO was very cocky. However the Department of Education announced a probe and Illinois AG filled a complaint. Co. settled for $500k, and promised better corporate practices. The stock shot up and Einhorn decided to cover his position.
However it turned out this was a mistake. Two years later the Department of Education demanded that CLCX return all student loans ever issued, and the company went out of business. Einhorn helped win the war by exposing the companie’s fraudulent practices, but lost the battle since he covered his short too early.
Einhorn noted that part of the problem is that company stock prices subject to stringent Government regulations do not act at the same speed as regular stocks do. The Government might take a long time to finish a Government investigation, while the stock keeps rising. This saga gave Einhorn much more of a stomach to withstand short term pain: Einhorn proved this with his short position in Allied Capital, which he held for six years, before the company collapsed.
David Einhorn’s presentations about St. Joe and Lehman Brothers were the highlights of the Value Investing Congress in 2010, and 2008 respectively. I guarantee that he will give the best presentation this year. I found out early last week that David Einhorn would speek at the upcoming Value Investing Congress, however I saw sworn to secrecy. Now I can officially announce that Einhorn will be speaking, and likely rock the financial world with his presentation. St. Joe dropped ~10% last year by the time Einhorn finished his speech.
The Value Investing Conference will take place October 17th and 18th at the Marriott Marquis Hotel. I attended the last conference, and it was not only great for investment ideas, but one of the best networking venues for analysts, HNWIs, people in business development, financial media etc. The audience is limited to allow for more interaction with the speakers.
I am going to be attending this year and covering the conference again, and would be glad to meet with any ValueWalk readers.
David Einhorn’s speech will be the highlight of the next Value Investing Congress
There is a special deal; Value Walk readers will receive a discount of $1,000 off the regular price, however it expires on September 27th! So act quickly, this will be the largest discount offered for the conference. As the conference gets closer the discounts decrease significantly and seats might sell out.
Discount Code: N11VW10. Just follow the link below and use the discount. Buy a holiday gift (or rather an investment that will likely yield rewards) for a loved one, friend neighbor or even yourself. But act soon before the huge discount expires: Value Investing Congress–Discount Code: N11VW10
The full line-up of speakers includes:
David Einhorn Greenlight Capital
Bill Ackman, Pershing Square
Leon Cooperman, Omega Advisors
Jim Chanos, Kynikos Associates LP
Joel Greenblatt, Gotham Capital
Adam Weiss and James Crichton, Scout Capital Management
Alexander Roepers, Atlantic Investment Management
Boykin Curry, Eagle Capital Management
Ricky Sandler, Eminence Capital
Guy Gottfried, Rational Investment Group
Bernard Horn, Polaris Capital Management
Timothy E. Hartch, Brown Brothers Harriman
Vladimir Jelisavcic, Longacre Fund Management, LLC
Whitney Tilson & Glenn Tongue, T2 Partners