When the hedge fund investor David Einhorn appeared on a recent conference call of Herbalife
At the Ira Sohn Investor Conference soon after that call, Einhorn began his presentation with some remarks about Martin Marietta Materials
No. 2 tries harder
Clearly, David Einhorn has tremendous influence in our markets today. In fact, I think it's fair to say he's the second most influential investor in America right now, after Warren Buffett. What makes him so influential? Here are five possible reasons:
1. Nothing works like success. David Einhorn has had some very high profile successes, and that's obviously a huge reason he's so influential. First, he waged a lonely battle against Allied Capital, after announcing his short position in that company. Later, he laid out his short case on Lehman Brothers in April 2008. In both cases he was attacked by the companies and the press. And in both instances he was proven right in the end.
The Lehman call was certainly enough to solidify his reputation, yet he had another remarkable call just last year. At the Value Investor Conference in 2011, he announced his short position in Green Mountain Coffee Roasters
2. He works extremely hard. Despite all of his popularity, Einhorn approaches his work more like a scholar of medieval manuscripts than the investing rock star that he has become. His firm Greenlight Capital has been described as a library, and Einhorn is famous for his incredibly detailed investing presentations on both his short and long positions.
In his book on the Allied Capital saga, Einhorn said that his research starts with the question of why a security is likely to be misvalued by the market. His team then begins its rigorous analysis. If Greenlight decides to go forward with an investment, Einhorn needs to believe that they have "a sizable analytical edge over the person on the other side of the trade." And in order to come up with that edge, Greenlight digs in as deeply as it can.
3. He's transparent with his research. In order for you to be influential, investors actually need to know what you are thinking. Unlike a lot of other hedge fund investors, Einhorn sees no reason to be secretive, and is very willing to share his ideas with the public. When I interviewed him last year for Fool.com, he was extremely passionate about this issue. When asked about Whitney Tilson's famous short call on Netflix
4. He's courageous. When you read about his experience with Allied Capital in Fooling Some of the People All of the Time, you see that it took a lot of guts for him to take the stand that he did. He was attacked by the company, skewered in the press, and even investigated by the Securities and Exchange Commission. One of the most gripping scenes in the book is when the SEC questions him in a Stalin-esque interview room. And taking on Lehman Brothers probably wasn't any easier.
There isn't a lot of courage on Wall Street or in the financial press nowadays, so I think investors really appreciate that quality of Einhorn's.
5. He's fiercely independent. Einhorn is refreshingly unpredictable in his outlook on investing. Recently, he's been long on gold and Apple
A great American success story
One similarity between Buffett and Einhorn is that they both deserve their status as highly influential investors. Buffett made his reputation by investing in great businesses and holding on to them for the long term. Einhorn commands the attention of the investing world as a result of his willingness to learn more about his investments than the folks on the other side of those trades. To paraphrase that old Smith Barney ad, Einhorn gained his influence the old-fashioned way. He earned it.
Einhorn remains long on Apple, and has joked that he "can't find any prohibition on trillion dollar market capitalizations." Our analysts have put together an Apple research report that details the opportunity and spells out three reasons to buy Apple (and three reasons to sell Apple). Grab a copy of this new premium research report, and you'll automatically get free updates.