DEFINITION of 'David Einhorn'
One of the most successful and closely followed hedge fund managers in the financial industry. David Einhorn is the President and co-founder of Greenlight Capital Inc.
David Einhorn was born on November 20, 1968 in Demarest, New Jersey. He earned a BA from Cornell University’s College of Arts and Sciences in 1991.
INVESTOPEDIA EXPLAINS 'David Einhorn'
Einhorn’s early career with hedge fund Siegler, Collery & Co. (SC) in 1993 was where he found his calling in the field of investment research. With Jeffrey Keswin, a colleague from SC, Einhorn founded Greenlight Capital Inc. in 1996 with less than $1 million. As of 2014, the firm has approximately $10 billion of assets under management.
Greenlight Captal is a hedge fund that implements the long-short equity strategy. The firm implements long and short positions depending on whether an asset has been pinned as undervalued or overvalued. A strategy like this should ideally have the long assets increase in value, and the shorts fall in value.
Though he has made commendable earnings with his long positions, it is his short selling strategy that shakes and moves the market. The markets react majorly to Einhorn’s public comments on stocks as copycats seek to replicate his bold bets. As a matter of fact, the term “Einhorn Effect” was created after it was proven that investors are impacted by his bearish comments made on companies.
In 2002, David Einhorn accused Allied Capital, a private finance firm, of accounting fraud. Einhorn had a short position in Allied Capital at the time he publicly claimed that the firm was deceiving its shareholders by cooking its books and inflating the price of their assets. This fraudulent practice distorted the real value of its stock. The day after Einhorn released his suspicions to the public, Allied Capital’s share price fell 20%, earning Einhorn a solid win on his short position. Much of the details of the Einhorn-Allied affair is detailed in Einhorn’s book Fooling Some of The People All of The Time.
The year 2007 recorded the biggest win for David Einhorn with his short bet on Lehman Brothers. Einhorn shared his analysis on Lehman’s financial statements accusing the company of being involved in dodgy accounting practices that covered up the firm’s huge liabilities on asset backed securities. Lehman was taking up too much risk and incurring high debts with too little capital and equity, but its leverage ratio was presenting a different and more favorable picture. Lehman announced a loss of almost $3 billion after Einhorn publicly announced that he was shorting the company’s stock. The huge loss offered props to Einhorn’s allegations against the company, and with more rumors adding fuel to the fire, the company went into a free fall. Lehman Brothers filed for bankruptcy in September 2008 and was the trigger for the stock market crash of 2008.
After the market crash, Einhorn disagreed with the Fed’s zero interest rate policy as he believed it was discouraging to savers and potential bond investors in the economy. He took a decision to "short the Fed" by going bullish on gold. Low interest rates could lead to inflation in the money supply which may result in price inflation and hence, a decline in the value of the dollar.
Einhorn took a short position in Keurig Green Mountain (formerly Green Mountain Coffee Roasters) in 2011 citing that the market for its Keurig single-cup brewer was limited, patent expirations were looming, transparency and disclosure was poor, and high capex to sales ratio was uncertain. The coffee maker firm’s shares fell 10% after Einhorn stated his position against the company.
Chipotle’s share price fell more than 7% after the hedge fund manager announced that he was betting against the company due to its high valuation and tough competition from Taco Bell.
Some market participants have frequently accused David Einhorn of employing the “short and distort” sinister strategy which involves shorting a stock and then spreading rumors to discredit the company in order to drive down its value. Einhorn is also referred to as an activist investor – one who tries to effect change in a company’s operations with the intent of protecting the interest of shareholders. This can be seen in Einhorn’s 2013 lawsuit against Apple in a bid to pressure the tech company to distribute its idle cash (over $135 billion) to its shareholders.
Einhorn is an avid poker player and philanthropist. Since 2006, all of his winnings from gambling have been donated to various charitable organizations such as City Year, Robin Hood Foundation, and Michael J. Foundation.
According to Forbes 2014, Einhorn is worth over $1.5 billion and is one of the leading hedge fund managers in the country.
He is married to Cheryl Strauss and has 3 children.