The Greatest Trades of All Time: Top Traders Making Big Profits from the Crash of 1929 to Today

CHAPTER 8

David Einhorn: A Company's Worst Nightmare

David Einhorn is the epitome of the activist hedge fund manager. Any company he is looking to short had better brace itself for headwinds.

The 43-year-old Einhorn is the founder of hedge fund Greenlight Capital, which he purportedly started with $1 million of his own money in 1996. Einhorn's fund has become one of the most successful and well-known hedge funds in the business with around $6 billion in assets under management at the beginning of 2011.

His success story revolves around two famous trades that are similar to others made in this book. His shorting of Allied Capital was popular and well-known in the same way that Jim Chanos shorted Enron stock.

The other trade is his short selling of doomed financial institution Lehman Brothers. During the collapse of Lehman, Einhorn actively petitioned the firm to explain what he saw as improper markings of collateralized debt obligation (CDO) values in Lehman's books. His persistence ultimately paid off, leaving him with a handsome reward for his troubles.

ALLIED IS NOT AN ALLY

David Einhorn has made multiple trades and bets throughout his career, but two stand out and were highly publicized. The first big trade involved his crusade against a company called Allied Capital, a private-equity firm and capital markets participant that traded under the ticker ALD up until its 2010 acquisition by Ares Capital Corporation in April 2010. (See Figure 8.1.)

FIGURE 8.1 Allied Capital Stock: ...