Profiting from Hedge Funds: Winning Strategies for the Little Guy

Chapter 6

David Einhorn

The goal of the portfolio construction is to try to create alpha on both sides of the portfolio.

—David Einhorn

David Einhorn is founder and president of hedge fund Greenlight Capital, established in 1996. Einhorn, a 1991 graduate of Cornell University with a B.A. in government, entered the workforce as an analyst at Donaldson, Lufkin & Jenrette. Two years later, he tested the waters in the hedge fund industry with a position at SC Fundamental Value Fund. Peter Collery, one of its proprietors, was a diligent researcher, and greatly influenced Einhorn’s investment research outlook. Peter scrutinized SEC filings to vet businesses he was considering investing in: He analyzed corporate behavioral issues, inconsistencies in the business description compared to the results, aggressive accounting practices, and so on. The experience dovetailed nicely when he launched his own fund a few years later; after all, the devil is in the details.

Einhorn shot into prominence with his shorting of Lehman Brothers’ stock, and profiting immensely from its eventual bankruptcy. The stock was shorted initially in 2007, and the position was announced during a speech at the Grant’s Spring Investment Conference in April 2008.1 The presentation raised concerns about Lehman’s balance sheet not being materially different from Bear Stearns, a business the government bailed out in March 2008. It also questioned Lehman’s accounting practices, observing many more billions in write-downs ...