David Einhorn Investment Strategy – PM of Greenlight Capital
-Looks for situations where mis-pricing is large and risk is small
-He wants to understand why it is cheap and misunderstood
-Buy it cheap and don’t worry about price targets
-If he decides he is wrong on something in terms of why he bought it, he exits. Period
-Never invent reasons to hold a position if original reasons are no longer valid
-Write-up outline: what’s it worth to a value buyer, market position, profitability/cash flow. Is it a great business? What’s the FCF with normalized margins 2 years out? Why is it misunderstood? What is the opportunity? Do a valuation and business analysis of each segment of the business, comparison to other companies in the sector, financial engineering potential?
-Einhorn is known to be very disciplined at sticking to what he is good at. He is excellent at figuring out the 3 key drivers to analyze, has the courage of his convictions, and is active on the short side
-“There are lots of smart people out there. I don’t think all of them have the ability to read the rest of the players as well as David. He can actually see how stocks move on different pieces of news and judge what facts the market seems to be acting on. Then he assesses what analytical edge he has over the other players”
Sources: articles on David Einhorn and interviews with people that know him