In this article, we discuss long-term returns of David Einhorn's 10 activist targets. You can skip our detailed analysis of Einhorn's activist targets and their historical performance and go directly to read Long-Term Returns of David Einhorn's 5 Activist Targets.
David Einhorn is one of the most successful hedge fund managers. As the co-founder and president of Greenlight Capital, he has made a name for himself by deploying various strategies to squeeze value from the equity markets. The long short value-oriented hedge fund manager was named among the top ten most influential people in the world in 2013.
Einhorn has also made a name for himself as one of the most successful activist investors, always ready to go to the extreme ends in the race to unlock shareholder value. Whether calling for board or management changes or pushing for the sale of units or a company, the activist investor is always ready to use his influence and power to optimize shareholders' returns.
His aggressive investment strategy was one of the catalysts behind Greenlight Capital's impressive 36.6% return in 2022, outperforming the S&P 500, which plunged 18%. Greenlight Capital has returned over 2,300% for an annualized return of 12.8% net since its inception in 1996, affirming Einhorn's impressive record on Wall Street. Over the same period, the S&P 500 has gained 864% for an annualized return of 8.9%.
The activist investor attributes the impressive returns in 2022 to his unwillingness to take risks that most investors jump into as one of the reasons behind the outperformance. In addition, the hedge fund benefited from going short, with short positions returning 30% with an alpha of 15% compared to long positions returning 2.4% with 30.2% alpha.
David Einhorn uses the long-short equity strategy, taking long positions in undervalued stocks he believes will explode and short positions in stocks he expects to implode. Some big winners that drove Greenlight Capital to impressive 2022 results include Atlas Air Worldwide, CONSOL Energy, Twitter, and the privately held Siltstone Capital on long positions.
Einhorn is also best remembered for betting correctly with a short position before the collapse of the Lehman Brothers. Prior to its collapse, Einhorn had embarked on one fierce proxy battle urging the financial institution to explain what he saw as improper markings of collateralized debt obligation.
Long-Term Returns of David Einhorn's 10 Activist Targets
David Einhorn of Greenlight Capital
Einhorn also made a name for himself thanks to a crusade against Allied Capital in which he opened a short position before it was acquired by Ares Capital Corporation in 2010. The activist investor also lodged a massive campaign against Apple management, insisting that the company needed to do more to return its huge cash haul to investors through dividends or buybacks. The push came after the stock had come under pressure in 2012. You can read our interview with David Einhorn where we talked about his investment approach.
The famed short-seller has also faced his fare of challenges and losses on Wall Street. He is believed to have lost a significant amount of money owing to his aggressive campaigns against Amazon.com, Inc. (NASDAQ:AMZN), Tesla, Inc. (NASDAQ:TSLA), and Netflix, Inc. (NASDAQ:NFLX) as part of a bubble basket of internet stocks between 2017 and 2019.
Our Methodology
Einhorn's prolific record on Wall Street speaks for itself, going by the impressive results generated by Greenlight Management over the years. The activist investor has made a good fortune from shorting stocks and pursuing activist campaigns to unlock value in undervalued plays. We have compiled a list of notable companies he invested in and pushed for drastic changes to unlock shareholder value as listed on SEC filings. The stocks are ranked chronologically from when the activist investor engaged the companies.
10. Allied Capital
Activist Investment: 2002Long Term Returns: 73%S&P 500 Gain: -4%
Allied Capital was a company that provided buyout expansion and other forms of debt-equity financing. The company invested in illiquid securities through privately negotiated transactions and financed thousands of companies.
Einhorn activist campaign against Allied Capital started in 2002 when he questioned the company's accounting irregularities and corporate governance issues. He believed the stock was overvalued at the time, even as the company was too slow to mark down depressed assets.
He went on to term the company a pyramid scheme whereby new investors were used to cover investments consequently. The activist investor took a short position on the stock, believing it would implode due to underlying issues.
As part of his proxy battle with the company, he submitted red flags to the Securities and Exchange Commission, expecting the agency to act. What followed was a long public spat between the activist investor and the company, with the latter denying any wrongdoing.
Einhorn was vindicated at the height of the financial crisis as Allied Capital came under pressure after one of its key components, Vienna Capital LLC, filed for Bankruptcy. Allied Capital reported more than $1 billion in losses. The stock tanked by more than 97% since Einhorn disclosed his short position, resulting in significant returns.
While Allied Capital insisted it suffered because of the financial crisis, Einhorn has always reiterated the losses were self-inflicted.
9. Lehman Brothers
Activist Investment: 2007Long Term Returns: 91%S&P 500 Average Gain: 18.4%
Founded in 1847, Lehman Brothers was an American global financial services firm with investment banking equity, fixed income, derivatives sales, and trading operations. In 2007, as the financial crisis was brewing, Einhorn shorted the stock, arguing that the investment banker had massive exposure to illiquid real estate investments that were improperly accounted for.
The activist investor also alleged dubious accounting practices in financial fillings as he shared his thesis at the Value Investing Congress. Lehman's weak financial position became apparent in 2008 after Bear Sterns sought a bailout from the Federal Reserve.
Its demise started when Lehman's CFO Erin Callan sought to calm the storm by holding a private conference to try and iron out things with Einhorn and his staff, who had opened a short position on the stock. Einhorn and his team's questions about accounting irregularities that Callan failed to address would set off a series of events that resulted in the investment bank going bankrupt in 2008.
Activist Investment: 2011Long Term Returns: 40%S&P 500 Gain: 22%
Microsoft Corporation (NASDAQ:MSFT) is a technology company that designs, develops, and supports software, service devices, and solutions worldwide. It also offers cloud services and operates a gaming division. Einhorn acquired stakes in the company in 2011 and started pushing for the ditching of the then-CEO, Steve Ballmer.
The activist investor insisted that after ten years, Ballmer had done all he could do and was not the right person to lead the company forward. He emphasized that his continued presence at the company was the most considerable overhang that prevented shareholders from unlocking optimum value.
Einhorn also cited unproductive research and development with Ballmer at the helm, who he believed was stuck in the past, thus allowing the company to lag in online search and social networking areas. The activist investor dumped all his stakes in the company in 2013 after making a single high-digit return that slightly beat the public markets.
7. Green Mountain Coffee Roasters
Activist Investment: 2011Long Term Returns: 49%S&P 500 Average Gain: 18.4%
Green Mountain Coffee Roasters was a company that provided single-origin coffee cold brews and a wide range of coffee products. The famed short-seller took a short position on the company in 2011 while questioning its capital expenditure and accounting practices.
The activist investor also reiterated that the company faced an uncertain future owing to an unfavorable competitive landscape of increased low-priced competition. Einhorn feared that increased competition in the single-serve coffee market would significantly threaten the company if it did not change its practices. Einhorn reiterated that the company faces significant downside given its high-cost structure.
While the short position did generate some returns, it would turn sour in 2015 as the stock exploded on reports that a private investment consortium planned to buy the company at a considerable premium. Before the announcement, Green Mountain Coffee Roasters shares had plunged to $52, presenting a 49% gain on Einhorn's short position.
JAB Holdings completed the acquisition for $92 a share or $13.9 billion in 2016. The acquisition price represented a 78% premium.
Activist Investment: 2013Long Term Returns: 40%S&P 500 Average Gain: 142%
Apple Inc. (NASDAQ:AAPL) is a global leader in innovation that creates and sells various devices, such as iPhones, Macs, iPads, Apple Watches, and AirPods. It also operates a cloud computing unit and offers software and services. In 2013, Einhorn was engaged in a fierce proxy battle as he felt the company was not doing enough to return value to shareholders.
Consequently, the hedge fund billionaire sued the company, forcing it to return a $137 billion cash pile to shareholders.
While owning 1.3 million shares or 0.12% of the company, Einhorn believed Apple Inc. (NASDAQ:AAPL) had cash problems and needed to solve it by paying more to investors.
The famed shorts seller urged Apple Inc. (NASDAQ:AAPL) shareholders to shoot down Apple's management proposal to eliminate the company's ability to issue preferred stock from its corporate structure. In 2013, Einhorn would drop his lawsuit against the tech giant after it published changes to its corporate charter that included allowing shareholders to vote on the issuance of preferred stock.
