David Einhorn's 5 Most Controversial Short Sales

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Hedge fund legend David Einhorn is known for making aggressive short calls. Here are five of his most significant trades.

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David Einhorn's 5 Most Controversial Short Sales

  1. 1. David Einhorn’s 5 Most Controversial Short Sales
  2. 2. David Einhorn bets against Allied Capital In 2002, at the Ira Sohn Conference, Einhorn laid out his short case against Allied Capital. At the time, Einhorn wasn’t as well-known as he is today, but the presentation was so compelling that shares lost almost one-fifth of their value the next day. Source: By Andrés Nieto Porras, via Wikimedia Commons
  3. 3. David Einhorn bets against Allied Capital Einhorn was investigated by the SEC and then-New York Attorney General Elliot Spitzer over possible market manipulation. Ultimately, however, Einhorn was vindicated when, in 2007, the SEC found Allied Capital to be in violation of securities fraud. The company was later acquired and no longer exists as a publicly-traded company. Source: Wikimedia Commons
  4. 4. Einhorn targeted Lehman Brothers right before it collapsed In 2008, Einhorn again targeted another firm at the Ira Sohn Conference, this time investment bank Lehman Brothers. Following the collapse of Bear Stearns, Einhorn pointed to Lehman as the next weakest link, noting its vast exposure to the real estate market and its aggressive accounting practices. Lehman had been booking revenue on the declining value of its debts, but remaining vague on the amount it gained from the practice. Source: David Shankbone, via Wikimedia Commons
  5. 5. Einhorn targeted Lehman Brothers right before it collapsed Lehman Brothers then-CFO Erin Callan attempted to counter Einhorn’s claims, but Einhorn publicly criticized her response, saying that she had been unable to provide credible answers to explain discrepancies in the bank’s filings with the SEC. Shares of Lehman plunged, and by June, Callan was out. Just a few months later, Lehman Brothers filed for bankruptcy. Einhorn hasn’t disclosed his profit on the trade, but it reaffirmed his status as a legendary short seller. Source: Wikimedia Commons
  6. 6. Einhorn goes after Green Mountain In 2011, Einhorn targeted Green Mountain Coffee. In a presentation containing more than 100 slides, Einhorn criticized the company, arguing that its growth had peaked and that it would run into major issues when its K-Cup patents eventually expired. Source: Wikimedia Commons
  7. 7. Einhorn goes after Green Mountain Unlike his case against Allied Capital and Lehman Brothers, shorting Green Mountain has not worked well for Einhorn. As of October 2013, his fund was still short the stock. He might have covered the bet in the interim, but if trade is still open, it’s likely underwater – as of April 2014, Green Mountain Shares are up more than 15% from the time of Einhorn’s initial presentation. Source: Wikimedia Commons
  8. 8. Shorting Chipotle Mexican Grill At the Value Investing Congress in October 2012, Einhorn went after another high-flying growth stock. This time, Einhorn targeted Chipotle Mexican Grill, arguing that shares were overvalued, and that the firm would face tough competition from – among other competitors – Taco Bell. Source: Wikimedia Commons
  9. 9. Shorting Chipotle Mexican Grill As with his Green Mountain short, his bet against Chipotle hasn’t worked out particularly well. Chipotle shares tumbled in the weeks following Einhorn’s presentation, but have more than rebounded. Unlike Green Mountain, which Einhorn has continued to discuss in his investor letters, he hasn’t disparaged Chipotle (at least publicly) at any time in recent months. Still, if someone had shorted Chipotle on the day of Einhorn’s presentation, and kept the position open, they’d be down nearly 80%. Source: Wikimedia Commons
  10. 10. Einhorn targets Herbalife Another hedge fund legend, Bill Ackman, is now seen as Herbalife’s primary short- seller, but it was Einhorn who first sent shares tumbling. Source: Wikimedia Commons
  11. 11. Einhorn targets Herbalife During an earnings call, Einhorn asked Herbalife’s management a few probing questions, leading investors to speculate that Einhorn had bet against the multi-level marketer. Einhorn later admitted to having short sold shares of Herbalife, but he held the position only temporarily. He has never publicly attacked the firm. Source: Sandstein via Wikimedia Commons
  12. 12. Now learn about Warren Buffett

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