Fundamental Approach Taken by David Einhorn

David Einhorn has been embroiled in languid performance in the last five years, reaching a climax recently by shorting Tesla. However, his good days might be coming soon.

Different than some infamous investors such as SAC Capital founder Steven Cohen, David Einhorn constructs his positions, especially substantial shorting positions,  purely based on his thorough due diligence work sourced from public information only. The question I ask myself then is,  what is his approach that I can learn from to back up such valiant endeavor to short market-favored giants like Tesla?

To our happiness, there is a book published by him – Fooling Some Of The People All The Time, in which he detailed the logic of shorting Allied Capital. According to the wikipedia,  “the company’s accounting practices and his encounters with the company over those years.[12] In his book, Einhorn explains how he uncovers the fact that Allied Capital is basically run as a ponzi scheme and in order to keep the appearances of a valid investment proposition, Allied Capital is forced to cook the books by constantly overpricing its loans and the value of its subsidiaries.[13]”

“In 2008, Allied came under wider criticism for aggressive accounting policies. On September 30, 2008, Allied Capital shares fell by more than half their value as Ciena Capital, one of its portfolio companies, filed for bankruptcy.[15][16]

In late 2009, Allied agreed to be purchased by Ares Capital. Prospect Capital submitted a competing bid in early 2010, but was rejected by Allied management. The sale to Ares was approved by shareholders on March 26, 2010, and was finalized on April 1 with Allied closing for the last time at $5 a share”

Checking the Greenlight Capital website, David generously posted two other presentations detailing his opinion of some companies in late years.

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