David Einhorn, Chairman of Greenlight Capital, discusses broken market structures and the death of value investing. He shares his successful shorting of Lehman Brothers and explores the psychology behind wealthy investors. Einhorn also discusses Greenlight Capital's decision-making process, investment strategy, and the SEC's handling of accounting fraud allegations against Tesla. He delves into the process of writing quarterly letters and post-mortems, a day at Greenlight, and the Fed's handling of inflation. Einhorn Collaborative's effort to bridge people together and advice for recent college grads are also discussed.
Passive investing has distorted price discovery and hindered value investing strategies.
Adapting to changing market dynamics is crucial for success in value investing.
Shorting has become increasingly challenging due to the absence of value considerations and diminished regulatory oversight.
Deep dives
The importance of understanding risk for business resilience
Understanding risk is crucial for making businesses resilient to future challenges. By identifying and assessing risks, businesses can prepare and adapt to ensure their sustainability. EY helps CFOs, boards, and audit committees gain critical insights that go beyond numbers, enabling resilience and identifying opportunities.
David Einhorn's investment journey and adaptability
David Einhorn, the founder of Greenlight Capital, has had a fascinating investment career. Notable for shorting Lehman Brothers before its bankruptcy, Einhorn has adapted his investing approach over the years. By recognizing the need for change and making adjustments, he has achieved success in value investing and consistently outperformed the market.
Challenges and insights in value investing and the changing market landscape
The market landscape and the rise of passive investing have impacted traditional value investing. Einhorn highlights the market's broken nature and how passive investing has distorted price discovery and hindered value investing strategies. To navigate this environment, Einhorn emphasizes the significance of finding undervalued stocks with clear variant perception and being disciplined on pricing.
Shifting Investment Strategies in Response to Market Conditions
The speaker discusses how changing market dynamics led to a shift in their investment approach. They realized that actively managing a portfolio was becoming increasingly challenging due to the rise of index funds and passive investing. This realization prompted them to make significant changes in their investment strategy, focusing on finding undervalued stocks with low leverage and strong potential for stock buybacks. They explain that this approach allows them to take advantage of apathy in certain market segments and find opportunities at lower earnings multiples. Overall, these changes have led to improved fund performance and outperforming benchmarks.
Challenges and Evolution of Shorting in Today's Market
The speaker acknowledges the increasing difficulty of shorting in today's market, citing the absence of value considerations and the lack of attention to financial statements by many investors. They highlight how the perception of fraud has changed, with the market often responding positively to fraud revelations instead of negatively. Additionally, they express concerns about the diminished role of regulatory bodies in policing corporate behavior, leading to a decreased ability to identify and punish fraud. Despite these challenges, the speaker remains committed to shorting as part of their investment strategy, emphasizing the importance of identifying companies engaging in fraudulent activities.
Market structures are broken and value investing is dead. That's the view from David Einhorn. On this episode, the president of Greenlight Capital sits down for a wide-ranging discussion with Bloomberg Radio host Barry Ritholtz. Einhorn is also chairman of the boards of Greenlight Capital Re Ltd. and Green Brick Partners Inc. He started the Einhorn Collaborative, which seeks to help Americans build stronger relationships, embrace their differences, and rediscover shared values and humanity.
