David Einhorn Investment Strategies
David Einhorn is a well-known US investor. Who is he? How does David Einhorn invest? Does he have any particular investment strategy or philosophy? These are some of the answers we answer in this article. At the end of the article, we have collected many quotes taken from his books and writings (quarterly letters). Einhorn has a great investment track record and is full of investment wisdom. Read and learn!
Who is David Einhorn?
David M. Einhorn is a well-known American “activist investor” and an eminent short-selling speculator. He’s among one of the most successful hedge fund managers of all time and makes his trading bets in his hedge fund Greenlight Capital, where he is the co-founder and president. Greenlight Capital is a long-short value-oriented hedge fund.
Einhorn was also named among the Time 100 most influential people in the world for the year 2013. Einhorn published the book Fooling Some of the People All of the Time about his shorting a mid-cap financial company called Allied Capital which he accused of distorting the real value of its stocks.
David Einhorn’s childhood and education
Born in Demarest, New Jersey, in 1968, David Einhorn did his graduation from Cornell University’s College of Arts and Sciences in 1991. His father, Stephen Einhorn, is the founder and president of a consulting firm Einhorn & Associates, and venture capital fund Capital Midwest Fund.
David Einhorn married Cheryl Strauss Einhorn, a financial report and media consultant, in 1993 and the pair has two daughters and one son.
David Einhorn’s career
Einhorn started his career as an analyst with boutique investment bank Donaldson, Lufkin & Jenrette (DLJ). After two years, in 1993, he switched to the hedge fund Siegler, Colliery & Co., where he sharpened his stock valuation skills and understanding of the financial world.
At the age of 27, in 1996, he started the hedge fund Greenlight Capital with his co-worker at Siegler, Collery & Co., Jeff Keswin, in New York with less than $1million in assets under management, most money raised from family and friends. Greenlight Capital was more or less an instant success from the get-go.
Besides running his hedge fund, David Einhorn has served as an investment advisor for DME Advisors and as a director of BioFuel Energy Corp. He has also been a major contributor and board member of The Michael J. Fox Foundation, in addition to being on the board of directors of New Century Financial Corp. from March 2006 to March 2007.
David Einhorn’s philanthropy and social works
Most of Einhorn’s philanthropy has come via The Michael J. Fox Foundation and Robin Hood Foundation. We don’t have the numbers for all his charity donations, but we know he has donated most (if not all) of his poker winning (he’s an avid poker player). For example, in 2006 he donated the whole amount ($650,000) of his winning from the World Series of Poker in which he got 18th position.
One other example of his donations, happened in 2007 when his firm Greenlight Capital donated all the profits ($7 million ) that they earned from the shorting of Allied Capital Stock to three organizations including Tomorrows Children’s Fund, The Project on Government Oversight, and the Center for Public Integrity for social and charity purpose.
David Einhorn’s rise to prominence
David Einhorn first caught the headlines for betting correctly with a short position in Lehman Brothers stocks before it collapsed during the 2007-2008 global financial crisis. Prior to this, in July 2007 at a public conference, he accused Lehman Brothers of using dubious accounting practices in their financial filing, and in April 2008 Einhorn announced his Lehman short position, which turned out to be a gigantic win for Greenlight Capital.
Since the Lehman Brothers debacle, David Einhorn is frequently mentioned in the news, and many investors follow the holdings and positions of Greenlight Capital. Einhorn frequently uses any contrarian trading strategy, and this is something the media loves.
David Einhorn’s Greenlight Capital
As mentioned, David Einhorn’s hedge fund is called Greenlight Capital. When he set up the fund in 1996, together with Jeffrey Keswin, they had a very modest 900,000 USD under management. Today it has a massive 7 billion.
However, in recent years Greenlight Capital has had significantly lower returns than during the early years. We are not sure of the reasons, but this could be due to both fewer opportunities, increased money supply (hiding the zombie companies), and a roaring bull market. Greenlight’s main focus is on the short side, something which is very difficult to master. Besides, you have the odds stacked against you due to inflation and productivity gains.
What assets does Greenlight invest in?
Greenlight Capital primarily invests in publicly-traded equities and corporate bonds. It invests in both long and short-term equities but it is mostly recognized for short-selling. Greenlight became widely known after Einhorn’s short-bet on Lehman Brothers in 2008. Worth noting is that the firm also manages funds of funds and private equity funds through its affiliates, Greenlight Masters and Greenlight Private Equity Partners.
David Einhorn’s investment strategies?
Since its inception in 1996, David Einhorn’s Greenlight Capital has been a success story: 12.3% annual returns net of fees and expenses. The investors have in aggregate made over 5 billion dollars in profits on this journey from David Einhorn’s investment strategies.
What kind of investment strategies does David Einhorn use to manage such great returns?
David Einhorn’s investment strategies (investment style)
David Einhorn is famous for his bold market calls and for being a “whistleblower” when he is certain he spots accounting irregularities. He has on numerous occasions spotted irregularities close to fraud. Because of this, he is one of Wall Street’s most closely watched investors.
Einhorn is best known for his short-selling strategies, something that is extremely difficult to be successful at. However, he frequently uses short positions as hedges, a long-short equity strategy, more like pairs trading, when he takes a long position on the companies he believes are undervalued and shorting shar