Slow Lane

GM Crash Shows David Einhorn Isn't a Hot Rod

Investors can count on reliable performance but few thrills.
Photographer: Christopher Goodney/Bloomberg
At Closing, April 23th
37.69 USD

On Tuesday, David Einhorn's General Motors Co. plan got pretty banged up. It's not the first time his hedge fund, Greenlight Capital, has been to the body shop in the past few years.

Einhorn raised his stake in the car company significantly in the first quarter, betting GM's investors would agree to split ownership into two classes of stock -- one that paid a dividend and one that got the company's growth. They didn't. At GM's annual meeting,  just 4 percent of fellow shareholders hitched a ride with Einhorn.

Bumpy Ride

GM's shares rose significantly after he first pitched the stock back in 2012, but David Einhorn's recent purchases have not led to investment gains

Source: Bloomberg

But Einhorn's GM investment hasn't exactly been a lemon, either. Greenlight got into GM in early 2011. He talked up the stock in October 2012 at a New York investment conference when it was at $23. It has risen 66 percent since then. Of course, adding $1.5 billion in shares at an average price of $36 earlier this year didn't help Einhorn or his investors. But still, GM remains slightly in the black for Einhorn. Greenlight, overall, is down 3.3 percent this year.

Einhorn made a name for himself confidently forecasting Lehman Brothers' bust. More recently, many of his public pronouncements haven't been as spectacular. In mid-2014, he said Athenahealth Inc.'s shares were in a bubble and would fall 80 percent. They rose 26 percent in the next year and a half. In late 2014, Einhorn presented 37 slides at the Robin Hood investment conference on why SunEdison was a buy. It wasn't. It  went bankrupt in April 2016. On coffee maker Keurig, which Einhorn called out for questionable accounting, the hedge fund manager was wrong twice. Last year, at the Sohn Investment Conference, Einhorn said sell Caterpillar. It's up 40 percent. He has repeatedly warned about Tesla's still soaring stock price.

And his broader market calls have been just as wrong-headed. In May 2012, Einhorn wrote a blog post for Huffington Post arguing that the Fed was stuffing investors full of jelly donuts. The upchuck was coming. Five years later, interest rates are still low, and the stock market is higher than ever.

Not all of Einhorn's calls have been off base. He owns Apple stock. In 2015, at the Sohn Conference, he warned about fracking companies, which did run into trouble just a few months later. Still, the shares of the company he focused on, Pioneer Natural Resources Co. -- the "mother fracker" in Einhorn's words -- never plunged to the $78 he predicted and now trade for just less than $170.

Greenlight Hits Some Reds

David Einhorn's hedge fund has lagged the S&P 500 by a wide margin in the past few years

Source: Bloomberg

Note: What $100 invested in both Greenlight's fund and the S&P 500 on Decmeber 31, 2008, would be worth today.

And yet, despite those bad calls, Einhorn's hedge fund is up 93 percent since the beginning of 2009 through May. That's far better than the average hedge fund, though it's not keeping up with the broader market, which is up 152 percent in the same period.

Einhorn has been compared to Bill Ackman. They both bet against stocks and blast those companies publicly. But the similarities end there. Einhorn is not a true activist investor. GM was one of his few proxy fights. Einhorn is far more diversified than Ackman, who has just seven disclosed investments, including his notorious Herbalife short. Einhorn holds 38 stocks in his hedge fund portfolio and more than a handful of undisclosed short bets. Ackman's fund dives and soars with every bad and good investment. It's down 30 percent since the beginning of 2015. Einhorn's fund motors along.

The net result, for Einhorn and his investors, except for a big miss in 2015, is a fund that tracks the S&P 500, clocking in a performance that is often just a bit worse and sometimes a little better. And that staid performance shouldn't be much of a surprise even to those who have rushed into his fund or have followed his every short since the financial crisis. Even in 2008, with that great call on Lehman's fall, Einhorn's fund was still down 23 percent.

What's more, Einhorn is typical of what the hedge fund industry is selling these days, reliable performance with the implied promise of protection when the stock market, as it does every now and then, plunges. That's not a great product, particularly when Einhorn, like other hedge funds managers, charge about 100 times what it would cost to just put money in an S&P 500 index fund. An argument can be made that what the hedge fund industry needs is more Ackmans and fewer Einhorns. But then you would be down 30 percent, and no one is going to argue for that.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Stephen Gandel in New York at

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    Daniel Niemi at

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