YouSaid · the spoken record

David Einhorn

lines on the record: 85
first: 2024-02-08
most recent: 2024-02-08
sittings or episodes: 1
sources: podcast

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“Well, no, there's just nobody who's going to pay attention to notice that the earnings were 15% better. So, if nobody notices, nobody's there, nobody's going to buy, nobody's going to care. As Peter Colliery used to say, a bargain that remains a bargain is no bargain.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“We made two significant changes. First one, I kind of explained before. We're not going to buy something at 10 times earnings thinking the earnings are going to be 15% better and then think we're going to get a 13 multiple at the end of that and have made 50% over a year and a half. Like that was our old way of doing it because that isn't going to work.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, I sat down, I think it was sometime in early 2019 with Michael Green, and he explained what was going on to me better with the index funds. And then I was able to take what he was saying along with a couple of other insights that I had relating to how the market structure was. And I kind of developed this understanding of what was going on.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“And I was always worried about co investors, but co investors usually meant like hedge funds, not like these long only mutual funds. And that's where the real redemptions were. Hedge funds Tiny piece of the market. But the, I mean, there were many, many years where all anybody cared about was Fidelity going to do, what's Capital Group going to do? What's, you know, T-Row price going to do? They were getting flows of retirement money on a continued basis. And as that money got redeemed or switched to index, Then they had to be selling the things that we were owning, and then the index were buying things that we were probably short, the overvalued things We had just a rough go until we figured this out.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“It took us a little time to figure out what the dynamic was. Really from 2010 to 2014, we were fine. But then things got a little tougher in 2015, and we ran through five years where we had two awful years and three mediocre years. And it was very tough. You come in every day, you check your work, you see your stocks are undervalued, whatever, you think your shorts are overvalued, you see the news, the news actually is positive. Your longs announce great results, your shorts announce mediocre results. You feel like you should be making money. On the day they announced the earnings, you actually do make money. And then you spend the next 90 days until the next quarterly report losing money again as they kind of go up for a day and then roll kind of back down the hill to a lower level. And it was just super frustrating. And we didn't really understand what was happening. But what was happening was, as what I just explained before, there were just massive redemptions from people of style like art.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a change in the market, and it's a structure that means that almost the best way to get your stock to go up is to start by being overvalued.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“And then you have all of what's left of active management and so much of it. The value industry has gotten completely annihilated. So if you have a situation where money is moved from active to passive, when that happens, the value managers get redeemed. The value stocks go down more. It causes more redemptions of the value managers. It caused those stocks to go down more. And all of a sudden the people are performing are the people who own the overvalued things that are getting the flows from the indexes that are getting the you take the money out of the value, put in the index, they're selling cheap stuff and they're buying, you know, whatever the highest multiple most overvalued things are in disproportionate weight. So then the active managers who participate in that area of the market get flows and they buy even more of that stuff. So what happens is instead of stocks reverting toward value, they actually diverge from value.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a big statement. Yeah, there's value is just not a consideration for most investment money that's out there. There's all the machine money and algorithmic money, which doesn't have an opinion about value. It has an opinion about price. Like, what is the price going to be in 15 minutes? And I want to be ahead of that, or zero day options. What is the price of the SP or whatever stock you're doing for today? What's it going to be in the next half hour or two hours, three hours? Those are opinions about price. Those are not opinions about value. Passive investors have no opinion about value. They're going to assume everybody else has done the work”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“They fire their staffs. There's way fewer people listening. And the result is if we buy these things, we're not going to get the same kind of return that we used to get. So what we have to do now is be even more disciplined on price. So we're not buying things at 10 times or 11 times earnings. We're buying things at 4 times earnings, five times earnings. And we're buying them where they have huge buybacks. And we can't count on other long-only investors to buy our things after us. We're going to have to get paid by the company. So we need 15, 20% cash flow type of numbers. And if that cash is then being returned to us, we're going to do pretty well over time.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“Mostly in the smaller part of the market, where there's literally nobody paying any attention. Like these companies could announce almost anything other than a sale of the company and nobody would notice. And so we've had to adjust our thinking because our thinking before used to be if we buy this at this time's earnings and they're going to do 20% better than everybody thinks and the multiple rerate says as a result of that we're going to do terrifically. And that assumes that we're going to figure out what somebody else is going to buy six months, a year, two years before they come to that conclusion. But what if those people aren't in business anymore? Or to the extent they are in business, they don't have any capital to employ into new ideas as those situations develop?”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“Growth is, in our view, a component of value. So if something is growing fast, it's going to be more valuable. So I don't really see that continuity the same way. But what we've learned over time, you know, when I started in 1996, the main thing people would say when we would pitch our services was, well, what do we need another hedge fund for? There's a million guys trying to do what you're doing. In addition to the hedge funds, there were all these mutual funds. And so there were lots and lots of people trying to pay attention and find undervalued things for customers. And that's changed a lot because the passive world has taken over. And the number of active managers is down a lot. And the active long only managers are down a lot. And they still have people paying attention to certain stocks, but there's entire segments now.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“I think things have changed a lot. I think the idea that we had back then, which a value investor to us means buying something for less than it's worth. So we don't view growth as the opposite of value. We view anti-value as the opposite of value.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, and finding people to talk to, you know, an analyst will say, I need to find an expert about this, and he'll go around LinkedIn or through his network or whatever it is, or some of these other services and help connect the analyst with who that they might need to talk to and help bring them online, or we'll do proprietary surveys, or we'll do, we'll travel around and look at things.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“I have six analysts. I have two traders who execute the trades, and we have a field researcher. And that's kind of the investment team.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, first of all, that's fantastic. But I do have to acknowledge a lot of these presentations come with a lot of help. Like, these are team efforts. I usually have an analyst who is helping me. I have other people at the firm helping me prepare these presentations. It's a lot of work to do these things correctly. But I really do enjoy it and I love rolling up my sleeves and getting into the heart of things”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“First of all, I love how you said you and the other analysts because I view myself as an analyst first. Aren't you? I am. I think that's fantastic. I'm the portfolio manager. And I'm actually the only portfolio manager.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“It doesn't in the research process. Again, we're looking for things that are misunderstood. What is it that we think is true that other people or the consensus or whatnot are overlooking or not putting weight on or where they're putting too much weight on something that is unimportant? And then we decide whether we think that it's misvalued and that as a result whether we think that the risk reward of owning the stock is sufficiently unfavorable that it makes sense to take a short position.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“Products, you weren't going to switch to another phone because it was 15% cheaper because it was too much of a pain to port all of your stuff over. So we thought they were just building a recurring business and it deserved sort of like a consumer branded multiple. And I made many speeches about this and nobody cared about it at all. And we held it for, I don't know, for a number of years. And eventually the earnings went up 25 or 30 percent a year and the multiple went from 9 to 18. And we had a great result.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“The narrative that was out there, the general belief was they had this thing called an iPhone and eventually Samsung would compete it away and the Chinese would compete it away and people would look at the builds and say how much does the memory cost and how much does the processor cost and hardware companies never make any money for a long period of time and Apple would eventually go the way the Nokia flip phone went which was followed by the BlackBerry phone and so on and so forth. So you didn't want to pay a high multiple for Apple. assessment was that Apple was not just a hardware company, that it was actually a software company too and also services company three. And so you really had some blend that was needed between a hardware commodity margin and a software high sustainable margin and a service which is a recurring cash flow stream. And as you bought one Apple product, then you wanted other Apple products. And then once you had two or three Apple”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. I'll give an example Why not I do that? You know, about a decade ago, we bought this company, you might have heard of it, it's called Apple. And at the time, Apple was trading at about nine times earnings. And that seems kind of crazy right now. But at the time we bought Apple at about nine times earnings,”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“Right. Our idea finding is very idiosyncratic. We generally start with a narrative. We start with a qualitative assessment. What is it that we think is likely to be misunderstood about something? And if we think something is misunderstood, then perhaps misvalued. And since we're looking for narratives and then do valuation work second, as opposed to cheap, we don't screen. So we're not looking for quantitative measures like this thing is trading at half a book value. Let's go figure out why it's a good thing to buy or not. We start with, well, what is it that we think that other people are likely to be overlooking about the situation? And if they are in fact overlooking something, and then we deem it to be important, perhaps it's mispriced. And so we're looking for those differences of opinions.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“Be in an investment, or what's the next actual development? And then you play those things out to a result and you manage your risk along the way.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“There are some. In solving a poker hand, there's things that you know, like what cards can you see? And investing, there's facts that you know, like what was the actual in the press release? What was the financial statements? What do they actually say? And then there's things that you can infer, you know, what do I infer in a poker hand for what's happened? What is your behavior been? What do I think your bet means or something like this? And then in an investment, what can you infer? How would management's tone sound when they were on the conference call? How did they react to particular questions? Or if you're doing research in the field, like what can you find in the field that's not definitive, but what can you adduce from individual facts that lead you to a conclusion, right? And then there's uncertainty. Like what's going to happen next? Like, what is the next card? You don't know what the next card is going to be in a poker hand, and you don't know what the next macro event is going to be.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“One of Poker's just a hobby. I play it for fun. I enjoy the game. I enjoy the people. So you get some banter. And then I like sorting out the card problems and just trying to figure out how to manipulate my way through a tournament or just even a game with friends.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“We reopened, I don't know, sometime 1998 was a tough year. That was the long term capital year And by the end of the year, some people were beginning to redeem because we had six straight down months from like March to September. And so we opened again and we were able to replace the capital that wanted to leave with new capital that was coming in. Then we stayed open until about 2000. And then in 2000, I don't know, we were maybe around 600 or 700 million at that point. And we closed the fund. And then we left it closed until 2019. We had four openings where we would say we're open and we raised a capital around a week or like in a month or something like this. But other than those rounds, we were hard closed for the better part of like 19 years.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“And it doesn't matter what the amount of the capital was. Like we just had an incredible, it was just a perfect year 1997.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't know about a billion dollars, but at the end of the first year, we were at 10, and at the end of the second year, we were at $100. And that was our best year ever. We made 57% net. And we have a dinner for our partners every year in January. And I remember going to that partner dinner in January after our 57% year, and we announced we were going to close the fund for the time being to absorb what we were doing. And we had about, I don't know, we had about eight or ten tables. And I do a presentation PowerPoint and the rest of it. And then you have questions and answers. And what we had essentially was a bloodbath. The partners were raising their hands and saying, you've raised too much money. How are you going to keep these returns up? This is really terrible. And I just couldn't believe, like, this dinner didn't go well. It was like one of the worst partner dinners that we ever had. And my answer was, is we're probably never going to make 57% again.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“And as we began to tell our story on day zero, they're not going to invest. But as one of the best things my original partner said was in April, when we hadn't raised as much money as we thought, he said, we better get started. And I said, well, why are we going to get started? Well, you know, you're not going to have a three-year record until you've been going for three years. So you may as well get going. And that kind of worked. So as we got going, and then as the initial results just turned out to be extremely fortunate, some of the people that we met with earlier that said, yeah, two young guys, I don't know. But now they're putting up some results and the results were following from the thesis that we were telling them. Here's our style. Here's how we implement it. We're going to buy these five stocks. Then we bought those five stocks and then they went up and now we made this money. And here's the next five stocks that we're going to buy. That explaining that process and communication to people built confidence and one by one they began to give us some capital.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the thing was I didn't really view it as all that risky because I had some savings, I'd had, you know, four small Wall Street bonuses. I'd very little living expenses. There was no chance like if this didn't work, I'd be on the street. So I would just go get another job similar to the one that I just left if I needed to. So I just didn't see this as so risky. And it didn't matter if I didn't make very much money. I didn't expect to make any money right away. But the thing was, is we did get to meet a lot of people.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“It came up on very, very short notice. You know, I got to the end of 1995, and I was a little bit disappointed in how the compensation worked out. As was the fellow who was in the office next to me, and we went out to lunch that December one day and said, why don't we just go launch our own thing? And in early January, there was a huge snowstorm and we were on the street looking for office space.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“I went to Siegler Collery. I worked for Peter Colliery. The research oriented of the two partners, and he basically would tell you here's an idea, go look at the idea, go figure it out, tell me if we should invest in it. And I would go and read all the stuff and spend a week getting ready and making spreadsheets and talking to people, and I would give it to Peter, and then he'd take it all home the next night. That night, come back the next day, and ask me 15 questions, and I wouldn't know the answer to any of them. And by the time I progressed, the next time I could answer maybe five of them. And then after that, eventually I could figure out how to answer most of the questions. But it was an amazing opportunity because he would just show me what I should be asking, what I should be looking for. And ultimately, I just learned how to do that.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I was in a And there was hazing, but it wasn't bad. I actually didn't mind the hazing at all because it was combined with basketball and parties and beer and good natured hazing out and people you want to spend time with. When you have that same behavior and when they're done hazing you, then they're abusing you over your work and your schedule and the rest of it. Well, that's not fun at all.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“It wasn't a great fit. It was miserable for me within three weeks of getting there. The one thing you get in college is you have control over your time. And so you study when you want to study, and as long as you get your work done, you can do great. And at DLJ, they control your time. And I never really, I came from the Midwest. And in the Midwest, where I grew up, all the dads were home for dinner, not just my dad. Everybody's dad was home for dinner. And we didn't understand this thing about, you know, overnights in the office. And, you know, if you don't come in on Saturday, don't even think about coming in on Sunday and all of this kind of stuff. So I didn't really understand what I was signing up for. And by the time I figured it out, I mean, it was a tough, tough cultural fit for me.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“So I applied to half a dozen of the best programs. I got rejected at all of them. Really? And that gave me an opportunity to enter the job market. So then I just started interviewing with companies as they came on the on-campus recruiting to see what I could find. I interviewed with the CIA. I interviewed with Cargilt. They could put me running a grain elevator. Gosh knows where. I interviewed with consulting companies and banking companies. I interviewed with some airlines. I interviewed with just whatever was coming onto campus. And eventually I got a job offer at Donaldson Lefkin Genret, which is no longer here, but it was an investment bank of some note at the time. And I joined their two-year analyst program.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source
“I studied government. I was a government major And the thing with me is that I don't really think too far out into the future. What I just try to do is do a really good job wherever I'm doing when I'm doing it and figure that that will just create good options for me going forward. So in high school, I didn't worry where I'd go to college. I just tried to do well. In college, I didn't try to worry about what my career would be. I just figured if I do well, I would be able to be presented with good options. So I didn't even begin thinking about my career really until my senior year. And at that point, I decided what I really wanted to do was be a PhD in economics.”
2024-02-08 · Masters in Business · David Einhorn: Market Structures Are Broken · IDENTIFIED FROM THE TRANSCRIPT · source