David Einhorn's Investment Strategy

Who is he?

Who is David Einhorn?

David Einhorn has made a name for himself as the founder of the successful investing firm Greenlight Capital. Various sources have pegged his net worth between $1.5 billion and $2.2 billion in 2023.

Given the meaning of his last name (it's German for "unicorn"), you might expect Einhorn to chase investments with tremendous top-line growth but limited or even negative profits. But the suggestive name is a red herring, and his actual approach is essentially the exact opposite.

Known for his traditional value investing approach, Einhorn is more interested in the steady, reliable workhorses of the market. So how did this financial heavyweight get his start, and what's his secret to success? Let's dive in.

How did he get rich?

How did David Einhorn get rich?

After graduating with a degree in government from Cornell University, Einhorn started his career at the investment bank Donaldson, Lufkin & Jenrette. By 1993, he had moved on to the hedge fund Siegler, Collery & Company, where fund manager Peter Collery took the young analyst under his wing.

In 1996, he established his own hedge fund, Greenlight Capital, with only $900,000 in initial capital but a robust investing philosophy passed down from Collery. Even then, Einhorn certainly didn't strike gold overnight. He faced numerous challenges but stayed true to his value-oriented investment approach. That strict discipline paid off over the years.

The name Greenlight came from Einhorn's wife, Cheryl Strauss Einhorn, a notable figure in her own right. Cheryl Strauss is a media consultant and an adjunct professor at Columbia University and Cornell University.

She also created the AREA Method, a decision-making system used by businesses and individuals alike. The idea behind this system is that a good process combined with good information leads to good decisions -- an approach that also suits David Einhorn's investment style.

Strauss gave Einhorn the green light to strike out on his own. As Einhorn noted in his autobiographical book of investing philosophy, Fooling Some of the People All of the Time, A Long Short Story: "When you leave a good job to go off on your own and don't expect to make money for a while, you name the firm whatever your wife says you should."

They were married for 24 years, raising three kids along the way, but divorced in 2017.

David Einhorn's personal stats

Age: 55 (born Nov. 20, 1968)

Source of wealth: Founding and managing Greenlight Capital

Marital status: Married Cheryl Strauss 1993, divorced 2017

Residence: Westchester County, New York

Children: Rachel (1997), Naomi (2000), Mitchell (2002)

Education: Cornell University

Important wins

David Einhorn's important wins

One of the first notable victories that contributed significantly to Einhorn's wealth was his short-selling bet against Allied Capital in 2002. Einhorn was convinced that this private equity firm was overvalued due to dubious accounting practices.

Despite facing substantial criticism and pushback from the industry, Einhorn held his position. When the firm's stock price eventually collapsed in 2007, his firm made a considerable profit, demonstrating the potential of his long-short value strategy and boosting his reputation as a savvy investor.

However, the move that truly catapulted Einhorn into the financial limelight was his prescient short-selling call on Lehman Brothers. In 2007, at a time when Lehman Brothers was a formidable giant in the financial world, Einhorn made a public declaration about the bank's problematic accounting practices and predicted its downfall. When Lehman Brothers declared bankruptcy in 2008, Einhorn's prediction came true, and his decision to short the stock led to massive profits for Greenlight Capital.

These victories were a result of Einhorn's diligent and meticulous approach to investment, which involved deep financial analysis, patience bordering on stubbornness, and a willingness to go against the tide when necessary. His fantastic track record of successful picks, both on the long and the short side of his portfolio, has made Greenlight Capital a lucrative venture, growing his personal wealth along with it.

Today, Einhorn's wealth is a product of his successful career in managing Greenlight Capital and his shrewd investment choices. Despite his wealth, Einhorn remains committed to his value-oriented investment approach, adhering to the virtues of diligent research, long-term patience, and independent thinking in the competitive world of high-stakes finance.

Greenlight Capital's top holdings as of first-quarter 2023

More from David Einhorn

• Einhorn on X
• Autobiographical book of investing philosophy: Fooling Some of the People All of the Time, A Long Short Story

Investing style

David Einhorn's investing style

David Einhorn's investment style is deeply rooted in the principles of value investing, a strategy famously championed by the likes of Benjamin Graham and Warren Buffett. But what sets Einhorn apart is his unique application of these principles coupled with his adaptability, which makes his investment style truly distinctive.

At the heart of Einhorn's investment style is the relentless pursuit of value. He seeks out businesses that he believes are undervalued by the market. This could be due to a variety of reasons, such as market overreaction, lack of investor awareness, or temporary business complications.

Einhorn doesn't just scratch the surface but dives deep into a company's financials, analyzing its balance sheet, income statement, and cash flow statement. He evaluates key financial ratios and metrics to understand the company's profitability, financial health, and growth prospects. For his normal investments, deeply discounted value stocks, Einhorn looks for companies with a strong competitive advantage and good management. Those shares should also trade at a robust discount to their intrinsic value, which he determines through intense financial analysis.

However, unlike many traditional value investors, who might hold on to these stocks indefinitely, Einhorn often has a clear exit strategy. Once the market recognizes the true value of the businesses and their stock prices adjust accordingly, he is ready to sell his positions. Many value investors insist on holding their stocks for many years, but Einhorn doesn't mind pocketing a quick profit when a stock rises to its full intrinsic value.

Another key aspect of Einhorn's investment style is his readiness to short-sell stocks. While short-selling involves significant risk (since total gains are limited but losses are potentially infinite), Einhorn has effectively used it as a tool not only to hedge his long positions but also to profit from overvalued stocks or sectors. Successful shorts, such as that of Lehman Brothers, have demonstrated his skill in identifying cracks in companies' financial facades that other investors often miss.

Philanthropy and controversy

David Einhorn's philanthropy and controversy

Through the Einhorn Collaborative Foundation and the Einhorn Family Charitable Trust, David Einhorn has poured hundreds of millions of dollars into various charitable projects. His philanthropy is chiefly focused on medical services, family support, and better education, with most grants going to charities in New York City. The motto of his charitable approach is "bonding, bridging, and building."

That said, Einhorn's investing exploits have raised some controversy over the years. For example:

• Einhorn and Greenlight Capital were fined 7.2 million pounds in 2012 when the Financial Services Authority ruled the fund had exited a British investment based on insider information. Einhorn disagreed with the judgment but paid the fines rather than drag out "an arduous fight."
• He lost patience with streaming titan Netflix (NFLX -0.63%) in 2015 and electric vehicle giant Tesla (TSLA -1.11%) in 2019. Greenlight Capital sold their stocks short due to questionable earnings adjustments, arguing that both Tesla and Netflix were less stable than they appeared. In both cases, Einhorn recorded substantial losses as the stock prices continued to soar.

Investment legacy

David Einhorn's investment legacy

David Einhorn's traditional value-investing approach and willingness to challenge corporate management have made him a highly respected figure in the industry. His success serves as a reminder that there's more than one way to achieve success in the stock market. As Einhorn has shown, sometimes the steady, reliable workhorses of the market can outperform the flashiest unicorns.