David Einhorn. How He Made His Billions and Key Lessons

David Einhorn is one of the best-known and controversial hedge fund managers in Wall Street. He runs Greenlight Capital, a hedge fund with more than $3 billion. According to Forbes, he has a net worth of more than $3 billion. This article will explain how David Einhorn made his billions, his portfolio, his biggest losses, and lessons you can learn from him.

How David Einhorn Made His Billions

David Einhorn was born in 1968. At 27 years, he started his hedge fund, which he called Greenlight Capital. His initial investment was slightly under $1 million. The first $500K was invested by his parents, in a vote of confidence of their son. He invested $10,000 from his savings to start the fund.

In his book, Fooling some people some of the time, David writes that his fund generated a return of 13.1% in the first quarter. This was above what the overall market returned. In the first year, he returned 57%, after a series of long and short trades.

He continued to perform well and attract more money from outside investors. However, he was still a young and infamous investor in Wall Street. This changed when he delivered a speech that defined his career in 2002 at the Ira Sohn Conference. The speech was of a company known as Allied Capital that he was short.

After the speech, his fund continued to grow. In May 2008, he came to the limelight again after he delivered a speech which predicted that Lehman Brothers would go bankrupt. His thesis was proven right after the financial crisis.

After this success, his fund’s assets continued to grow. At its peak in 2014, the fund had more than $11 billion. However, as with most popular hedge fund managers, his success started to wane as he became more popular. Since 2014, the total assets have dropped by more than 50%. This happened after some of the companies in his bubble basket continued to do well. Some of these companies were Netflix, Nvidia, and Tesla.

In addition to the flagship Greenlight Capital, David Einhorn also runs Greenlight Reinsurance. This is a company that provides casualty and property reinsurance.

David Einhorn Portfolio

David Einhorn operates Greenlight Capital using a long-short strategy. In this, he buys stocks he believes will go up and shorts those he believes will drop.

The biggest holding in David Einhorn’s portfolio is General Motors, which is one of the biggest automobile company in the US. The company represents 15% of his entire portfolio. It is followed by Green Brick Partners, Brighthouse Financial, Consol Coal Resources, Altice USA, and CNX Resources. Other companies in his holdings are Tempur Sealy International, Voya Financial, Hilton Grand Vacations, Exela Technologies, The Medicines Company, EchoStar Corporation, and Consol Energy. This year, the fund has risen by 20% after declining by 34% in 2018. David Einhorn is also short a number of companies that are in his so-called bubble basket. This is a portfolio of companies he believe are being overvalued by the market. This bubble basket has companies like Amazon, Netflix, and Tesla.

David Einhorn Biggest Investment Mistake

Obviously, like all investors, David Einhorn has made a number of mistakes in his career. For example, shorting companies like Netflix and Amazon, which have been the best-performing stocks in the US.

However, the biggest mistake David Einhorn has made in his career is his investment in SunEdison, which was then the biggest solar-energy manufacturing company in the world. At its peak, the company was worth more than $10 billion. David became one of the biggest investor in the company. In a presentation, he called it “a well‐run, financially savvy company, benefiting from an open-ended growth opportunity trading at a bargain price”. A few years later, the company declared bankruptcy.

How David Einhorn Spends his Millions

Unlike other Wall Street ballers like Bill Ackman, David Einhorn is a very private investor. He is so private that not many people know about his million-dollar apartments and mansions in New York. What people know is that he spends a good amount of money on philanthropy. He runs the Einhorn Family Charitable Trust that gives millions of dollars to non-profits from around the world.

Top Lessons From David Einhorn

Always start small.

As mentioned above, David started his fund with less than a million dollars. This was much smaller than the $10 million he had planned to start it with. Unlike so many people, he did not give up but instead, he worked with what he had.

Be ready to be contrarian

It is easy to be an investor this year. You just need to buy what everyone is buying. However, as with David Einhorn, it pays to take contrarian choices. Two of the examples of these are his short positions in Allied Capital and Lehman Brothers.

We all make mistakes

No one is immune to making mistakes. David has made a number of mistakes in his career such as his short investments in Netflix and Tesla. Therefore, when you make mistakes, always take it as a lesson.

Give back

Part of the reason why David has had so much success is that he has spent millions of dollars in philanthropy. This is a trait that other successful investors like Warren Buffet and Paul Tudor Jones have used over the years.

Final Thoughts

David Einhorn’s star is fading in Wall Street based on his recent performance. However, he should not be ruled out. He is still one of the best investors in the world and there is a likelihood that his star will shine again.

Crispus (BSc and MBA) is a finance professional with more than a decade experience as a financial analyst, writer, researcher, and trader. Crispus has written in-depth articles on leading platforms like CCN, Marketwatch, Investing Cube and Seeking Alpha. He also runs a forex education firm. Follow him on Twitter: @crispusnyaga and read more about us.