Meet David Einhorn: The cutthroat, charitable and possible New York Mets savior

In a vault somewhere on the island of Manhattan, the prospective partner of the New York Mets has a secret stash of gold. He is not saying where - hedge-fund heavyweights may be even better at keeping secrets than they are at turning profits - but his hunch is that gold is a good investment, so he has made his buys and piled up the bars, a glistening, gilded stack that he hopes will keep appreciating in blessed anonymity.

David Einhorn, founder of a firm called Greenlight Capital, doesn't win big with every investment he makes, but in the high-risk, huge-reward realm he operates in, he has done it often enough to become a very wealthy whiz kid in the $2 trillion hedge-fund world - and now a potentially big player in New York sports, a place that seems entirely fitting for a guy who has spent most of his 42 years wowing people with his precociousness. A government major at Cornell, Einhorn interned as a junior at the SEC's Office of Economic Analysis, and wrote a thesis on the cyclical regulation of the airline industry.

It won the highest academic honor in his department.

Fifteen years ago, Einhorn and then-partner Jeffrey Keswin founded Greenlight with just $900,000 in seed money - $500,000 from Einhorn's parents. Today the firm manages close to $8 billion.

Five years ago, Einhorn jumped in on the World Series of Poker and wound up finishing 18th - and winning $660,000, which he donated to the Michael J. Fox Foundation. Clearly, this is a man whose mind moves quickly, and whose nerves are sturdier than Gibraltar.

"He's an outside-the-box thinker," says Whitney Tilson, who runs the T2 Partners hedge fund, as well as the annual Value Investing Congress, a conference where Einhorn is a regular speaker. "His portfolio doesn't look remotely like anybody else's. He does extraordinarily detailed work."

David Einhorn lives in the Westchester town of Rye with his wife and three children, takes the train to his office, a check swing away from Grand Central Station, and is said to be a big believer in the power of the afternoon nap. Just over six weeks ago, Einhorn emerged as the surprise winner of the sweepstakes to own a piece of the New York Mets, whose well-chronicled financial problems include $70 million in annual losses; an outstanding $25 million debt to Major League Baseball; and the ongoing specter of the $1 billion lawsuit filed against Fred Wilpon and Saul Katz by the Madoff Trustee, Irving Picard.

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Greenlight Capital Q2 2011 Letter

Greenlight Capital Q2 2011 Letter

WealthTrack Interview: David Einhorn

David Einhorn's Speech at Value Investing Congress (VIC)

One of the nice aspects of trying to solve investment puzzles is recognizing that even
though I am not always going to be right, I don’t have to be. Decent portfolio management
allows for some bad luck and some bad decisions. When something does go wrong, I like to
think about the bad decisions and learn from them so that hopefully I don’t repeat the same
mistakes. This leaves me plenty of room to make fresh mistakes going forward. I’d like to
start today by reviewing a bad decision I made and share with you what I’ve learned from that
error and how I am attempting to apply the lessons to improve our funds’ prospects.

At the May 2005 Ira Sohn Investment Research Conference in New York, I
recommended MDC Holdings, a homebuilder, at $67 per share. Two months later MDC
reached $89 a share, a nice quick return if you timed your sale perfectly. Then the stock
collapsed with the rest of the sector. Some of my MDC analysis was correct: it was less risky
than its peers and would hold-up better in a down cycle because it had less leverage and held
less land. But this just meant that almost half a decade later, anyone who listened to me
would have lost about forty percent of his investment, instead of the seventy percent that the
homebuilding sector lost.

I want to revisit this because the loss was not bad luck; it was bad analysis. I down
played the importance of what was then an ongoing housing bubble. On the very same day, at
the very same conference, a more experienced and wiser investor, Stanley Druckenmiller,
explained in gory detail the big picture problem the country faced from a growing housing
bubble fueled by a growing debt bubble. At the time, I wondered whether even if he were
correct, would it be possible to convert such big picture macro-thinking into successful
portfolio management? I thought this was particularly tricky since getting both the timing of
big macro changes as well as the market’s recognition of them correct has proven at best a
difficult proposition. Smart investors had been complaining about the housing bubble since at
least 2001. I ignored Stan, rationalizing that even if he were right, there was no way to know
when he would be right. This was an expensive error.

Full Speech

David Einhorn on the Rating Agencies

David Einhorn: The Confidence Man

Six years ago, hedge-fund manager David Einhorn made a speech at an annual investment conference about a stock he didn't like—a mid-cap financial company called Allied Capital—and the world came crashing down on top of him. He was investigated by the Securities and Exchange Commission for conspiring with other investors to sink the stock. Allied stole his personal phone records in an attempt to prove the conspiracy. An article in The Wall Street Journal compared his treatment of Allied to "a mugging." New York's then–Attorney General, Eliot Spitzer, vowed to do his own investigation. And Einhorn's wife, an editor at the financial weekly Barron's, mysteriously lost her job.

The repercussions of that one speech dragged on for years, an experience that would have embittered most people, or at least have made them back off. But Einhorn kept digging at the company, ultimately finding evidence of fraud that made his initial report seem tame. Then Einhorn took a very unusual step for a hedge-fund manager, most of whom would rather you didn't know their names, much less how they run their businesses. He wrote a very candid and illuminating book about his firm, Greenlight Capital, and the complete Allied ordeal. The purpose, he says, was not to become famous or to settle scores; it was to tell people that he had been right all along. He wanted them to see the Allied story as having a "bigger meaning"—that the political, financial, and media Establishments can, and do, conspire to quash truth-telling.

Fooling Some of the People All of the Time was published just in time for this year's iteration of the same conference. His plan was to go there and give a talk about the book.

In the hedge-fund world, this event, known as the Ira W. Sohn Investment Research Conference, is a big deal. People pay up to $3,250 a seat to hear a dozen or so highly regarded investors pitch an idea. It's a charitable event, benefiting pediatric-cancer programs, but it's also a heavyweight Wall Street ritual, with serious profit opportunities at stake.

A few days before this year's conference in May, Einhorn and his analysts at Greenlight had a private call with Erin Callan, the then–chief financial officer of Lehman Brothers. In two previous speeches at other investing conferences, Einhorn had raised doubts about Lehman; in April, he had explicitly stated that his firm was shorting Lehman, meaning that it had borrowed stock and sold it, with the idea that the firm would replace it at a later date when the stock declined in value (in essence, a bet that the stock would go down, not up). Very few people publicize their shorts, and when Einhorn did, it got Lehman's attention. The conversation with Callan was to give her a chance to explain discrepancies he had uncovered between the firm's latest financial filing and what had been discussed during its conference call about that filing.

That very week, a glowing profile of Callan had appeared in The Wall Street Journal, describing her in the headline as "Lehman's Straight Shooter." But she'd only been on the job six months and her background was as a tax lawyer, not in finance. She was evidently not prepared for the complexity of Einhorn's questions and tried to bluff her way through. "The conversation was reminiscent of the ones I had with Allied," says Einhorn. "We had our questions, we were organized, but she was evasive, dishonest. Their explanations didn't make any sense."

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David Einhorn on WealthTrack

Video Link

David Einhorn: Lehman's a Short

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Tomorrow's Children’s Fund Ira W. Sohn Investment Research Conference, May 23, 2006

David Einhorn's Analysis on Microsoft (MSFT).

Thanks Lincoln Minor for this link:

Link

David Einhorn: Greenlight Capital Shorted St. Joes Corp

The per acre analyses used by most St. Joe bulls exclude selling expenses and taxes. I believe that the equivalent gross value to the $9,000 an acre used in your analysis is the equivalent of $18,000 an acre, when taking expenses and taxes into account.




As it was, I did not quantify any amount of swampland at the Ira Sohn conference. I simply noted that some of the land is swampland. The weather is much worse than South Florida (just as hot in the summer and cooler in the winter), there are a lot of mosquitoes, there is not a lot to do, and the demographics are poor. I noted that I thought St. Joe overplayed the value of land within ten miles of the ocean and noted that I thought that vacationers would prefer to be "on the ocean." More than a mile is too far for many families to walk to the beach. Finally, I thought the airport development is the type of story often seen in promotional stocks designed to buy years of time to encourage the market to ignore current financial results. The current airport does not operate near capacity. Airports in Jacksonville an Ft. Myers did not spur a lot of development next to their airports and it is odd the St. Joe seems to believe that a lot of people will want to live near the airport, as if that is a residential attraction.

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