Graham And Doddsville

During the height of the recent economic crisis, David Einhorn became the public face of the “evil” short-selling hedge fund manager.  Einhorn, who was no stranger to being vilified for correctly identifying fraud in the public markets (if you don’t know what I’m talking about, click here), began raising questions about the strength of Lehman Brothers’ balance sheet in the middle of 2007.  We all know how that story ended.   If anyone wonders what it is like to be right most of the time, they should ask David Einhorn.

I have heard David Einhorn speak on several occasions.  While I have learned a great deal each time, there is one particular gem of wisdom I gleaned.  In the past, when David Einhorn has publicly stated a short position, he has always backed it up with a factual analysis.  Whether his analysis is right or wrong is not the issue.  One of the things that I admire most about Mr. Einhorn is that he has the courage to publicly disclose his analysis so that anyone with Internet access can debate its merit.  What is interesting to note is the public reaction to his analysis.  If someone were put together a presentation that successfully refuted a Greenlight short thesis, I honestly believe David Einhorn would be the first to admit he was wrong (and we’re not going to argue whether he would cover his position first).  However, in the case of Allied and Lehman, his analysis was not refuted by facts, but by public criticism of his character, and questions about the motivations of hedge fund managers and the morality of short selling.  As Mr. Einhorn has pointed out, when the first reaction to a solid analysis is defamation of character, you know you have uncovered a significant short opportunity.

David Einhorn was recently interviewed by Charlie Rose.  Given his track record, I think that investors would do well to at least ponder what he has to say.  See the entire interview here.

For more on David Einhorn, click here.