The transcript from this week’s, MiB: David Einhorn, Greenlight Capital, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
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This is Masters in business with Barry Ritholtz on Bloomberg Radio.
Barry Ritholtz: This week on the podcast, I have an extra special guest, David Einhorn, founder of Greenlight Capital. What a fascinating investor and what a fascinating career David has had. He came to public attention for shorting, probably most famously, Lehman Brothers, about eight months before the company went bankrupt. But he has very publicly talked about other companies that he thought were either wildly overstating their results or actually engaging in, in outright fraud. He has put together an amazing track record at Greenlight in the middle 2000 and tens. The performance at the fund flagged, which sort of set him back hunting for what was going wrong with his style of value investing. And he came to some really fascinating conclusions, which led him to change how they approached investing. And since that happened, I don’t know, about four or five years ago, the fund has been putting up great numbers, outperforming doing really, really well. It’s kind of rare to not only find somebody whose variant perspective has allowed him to make some tremendous and successful investments early in their career, but when the world changed, they figured out they had a change, also made those adjustments and did so successfully. I thought this conversation was absolutely fascinating, and I think you will also, with no further ado, my discussion with Greenlight Capitals. David Einhorn,
00:01:51 [David Einhorn] Thank you so much. I’m excited to be here. Barry,
00:01:53 [Barry Ritholtz] I I’ve been looking forward to this for a long time. You and I had met way back when, and you’ve been one of the people that I’ve really been enthusiastic about getting here. So I’m, I’m thrilled you’re here. Let’s start out talking a little bit about your background. You, you graduate from Cornell Summa Laude with Distinction Phi Beta Kappa, all the good stuff. What’d you study there? What was the original career plan?
00:02:18 [David Einhorn] I, 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, 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. So I applied to half a dozen of the best programs.
00:03:03 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, on the, on-campus recruiting to see what, what I could find. I, I interviewed with the CIAI interviewed with Car Guil. 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 Jenette, which is no longer here, but it was an investment bank of, of some note at the time. And I joined their two year analyst program.
00:03:42 [Speaker Changed] So, so I get the full benefit of, of knowing what happened and, and hindsight bias. But I have a fairly good sense of you and your personality, and I know what DLJ was like. I don’t really see that as a great fit.
00:03:58 [Speaker Changed] It wasn’t a great fit. It was miserable for me within three weeks of getting there. I, the one thing you get in college is you have control over your time. And so you study when you wanna study, and as long as you get your work done, you know you can do great. And at DLJ, you know, they control your time. And I never really, I came from the Midwest and in the Midwest where I grew up, like 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, it was a tough, tough cultural fit for me. I,
00:04:45 [Speaker Changed] I, I read somewhere you described it as similar to a frat hazing.
00:04:50 [Speaker Changed] Well, I was in a fraternity 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 hanging, good nature, hazing, hanging out, and people you wanna spend time with, right? 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.
00:05:13 [Speaker Changed] So Siegler Collary and company was next. Tell us what you did there.
00:05:18 [Speaker Changed] Well, I went to Siegler Collary, I worked for Peter Collary. He was 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, I progressed the next time I could answer maybe five of them. And then after that, eventually I could, I could figure out how to answer most of the questions. But it was a, it was an amazing opportunity ’cause 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.
00:06:06 [Speaker Changed] Huh, really interesting. Then 1996 you launch Greenlight Capital. What were you 27 at the time? What gave you the confidence to say, sure, I could raise some money and launch a hedge fund and have my entire income dependent on how well we do? Where, where did the gumption for that come from?
00:06:25 [Speaker Changed] It, 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.
00:06:52 [Speaker Changed] And how did you find the process of raising money for a hedge fund when you guys were a bunch of young Turks? Barely a few years outta school?
00:07:01 [Speaker Changed] I would describe it as nearly impossible.
00:07:04 [Speaker Changed] Really. Yeah. And yet you guys still managed to raise enough to launch with a, a decent pile of capital?
00:07:10 [Speaker Changed] We didn’t. We raised with, with with of outside money, we raised about just about $1 million.
00:07:16 [Speaker Changed] So not a lot
00:07:17 [Speaker Changed] Of money. Not a lot of money.
00:07:18 [Speaker Changed] How did you ramp up from there? That, that seems like it’s tough to make a living trading a million dollars?
00:07:24 [Speaker Changed] 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, you know, small Wall Street bonuses. I had very little living expenses. There was no chance, like if this work didn’t work, I’d be on the street, right? 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 and as we began to tell our story on day zero, they’re not going to invest. But as my, one of the best things my original partner said was in, in April when we hadn’t raised as much money as we thought, he said, we better get started.
00:08:07 And I said, well, why are we gonna get started? Well, you know, you’re not gonna have a three year record until you’ve been going for three years, so you may as well get going. And, and that kind of worked. So as we got going and then as the initial results just turned out to be, you know, extremely fortunate, some of the people that we met with earlier that said, yeah, you know, 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 gonna 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.
00:08:51 [Speaker Changed] So, so not that complicated. You went out and said, here’s our strategy. You executed on the strategy, and when people saw you were doing what you said, suddenly the, the capital access became a little better. When was it clear, Hey, we’re gonna get to a billion dollars or more? How, how long did that take?
00:09:09 [Speaker Changed] Yeah, 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 a hundred and we’d, that was our best year ever. We made 57% now. Wow. And we have a dinner for our partners every year in January. And I remember going to that partner dinner and in January after our 57% year, and we announced we were gonna 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 10 tables and we have, I do a presentation PowerPoint and the rest of it, 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
00:09:55 [Speaker Changed] We that’s
00:09:56 [Speaker Changed] Unbelievable that we, that we ever had. And my answer was is we’re probably never gonna make 57% again. Right. And it doesn’t matter what the amount of the capital was. Like, we just had a, an incredible, it was just a perfect year, 19, 19 97,
00:10:09 [Speaker Changed] Right? Yeah. There was that big drop in the latter part of the year. And then the fast recovery, if you were on the right side of that, you, you would’ve done really well. And if you’re in the right companies, there were some companies in 97 that really screamed higher. So, so you close the fund, when do you reopen the gates to take capital in again? We,
00:10:29 [Speaker Changed] We reopened, I don’t know, sometime then two th 1998 was a tough year. That was the long-term capital year. Right. 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. Right. 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 six or 700 million at that point. And we closed the fund and then we left it closed until 2019. We, we had four openings where we would say we’re open and we raised a capital round like in a week or like in a month or something like this. Right. But other than those rounds, we were hard closed for the better part of like 19 years.
00:11:18 [Speaker Changed] And, and there’s nothing that makes a wealthy investor one in more than a closed fund. Right. Isn’t that the psychology there?
00:11:27 [Speaker Changed] Absolutely. Like right now we’re an open fund and it’s really hard to convince people to invest
00:11:31 [Speaker Changed] You. You wanna get more capital clo announce you’re closing and they’ll be knocking your doors
00:11:35 [Speaker Changed] Down, you know, maybe, we’ll, maybe we’ll get to that point. So,
00:11:37 [Speaker Changed] So before we talk a little more about the style and the process at, at Greenlight, I have to mention that you’ve done incredibly well as an amateur poker player. You played in the World Series of Poker finishing, is that 18th and the poker main event finishing third, or do I have that backwards
00:11:57 [Speaker Changed] 18th and the main event? Yes. And,
00:11:58 [Speaker Changed] And, and one of ’em was a 4 million and change, the other was $660,000 pot, all of which donated to charity. Tell us a little bit about your interest in poker.
00:12:11 [Speaker Changed] Yeah, poker, you know, poker’s just a hobby. I, I play it for fun. I, I enjoy the game. It’s, I, I enjoy the people. So you get some banter and then I like sorting out the card problems and just trying to figure out like how to manipulate my way through a tournament or, or just even a game with friends.
00:12:27 [Speaker Changed] Are you playing the cards or playing the person across the table from you?
00:12:31 [Speaker Changed] Both, both.
00:12:33 [Speaker Changed] The obvious question, what are the parallels between poker and investing?
00:12:38 [Speaker Changed] There, there are some, there’s, there’s, you know, 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? Right? And then there’s things that you can infer, you know, what do I infer in a poker hand for what’s happened? What has your behavior been? How are, what do I think your bet means? Or something like this. And then in, in an investment, what can you infer, you know, how did 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 induce from individual facts that lead you to a conclusion? Right? And then there’s uncertainty, like what is net, 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, you know, macro event is going to 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.
00:13:40 [Speaker Changed] Huh, really, really interesting. Let’s talk process long-term value is, is a big aspect of what Greenlight Capital does. Tell us what your decision making process is like, where do the ideas come from? H how do you screen them and how do you figure out, we’re gonna pass on this one, but invest in that one. Right?
00:14:00 [Speaker Changed] 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 it’s misvalued. And since we’re looking for narratives as opposed, 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 find we start with, well what is it that we think that other people are likely to be overlooking about this 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.
00:14:48 [Speaker Changed] So how do you figure out what the variant perception is? Meaning how do you suss out what’s the consensus on a particular company and then tease out here’s where the misunderstanding is. Sure.
00:15:05 [Speaker Changed] Look, I’ll give an example. Sure. 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, right? And at the time Apple was trading at about nine times earnings. And that seems kind of crazy right now, right? But at the time we bought Apple at about nine times earnings. The narrative that was out there, the general belief was, is 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, you know, 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.
00:15:50 So you didn’t wanna pay a high multiple for Apple. And our assessment was, was that Apple was not just a hardware company, that it was actually a software company two, and also a services company three. And so you really had some blend that was needed between a hardware, commodity margin and a software, you know, high sustainable margin and a service, which is a recurring cash flow stream. And, and as you bought one Apple product, then you wanted other Apple products, and then once you had two or three Apple products, you weren’t going to switch to another phone because it was, you know, 15% cheaper because it was too much of a pain to like 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, the, the earnings went up 25 or 30% a year, and the multiple went from nine to 18 and we had a, we had a, a great result
00:16:52 [Speaker Changed] That that’s really, that’s really intriguing. So it’s narrative first, figure out where it differs from the crowd and then look at the data to make sure that that above thesis thesis is correct. So, so I asked this about the long side. How does the process differ when you’re looking on the short side? It,
00:17:12 [Speaker Changed] 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. Huh.
00:17:37 [Speaker Changed] Really, really interesting. So, so let’s talk a little bit about the workflow between you and the other analysts in the firm. I’m assuming there are other managers as well. Tell us a little bit about how that back and forth works.
00:17:50 [Speaker Changed] First of all, I love how you said you and the other analysts. Yes. Because I view myself as an analyst first. Why aren’t you? I, I am. I think that’s fantastic. I’m the portfolio manager and I’m actually the only portfolio manager. But, but I view my, I i, I enjoy my analyst job as certainly as much as I enjoy the portfolio
00:18:07 [Speaker Changed] Manager job. And lemme interrupt and point out that when you’ve given presentations on not just Apple, but Applied Capital and Lehman Brothers and anybody else I’ve seen you discuss, you don’t sound like a fund manager. You sound like a a, an analyst who’s saying, here’s my review of the everything, but great quarter guys, that that’s what the presentation looks like.
00:18:31 [Speaker Changed] 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, these presentations. It’s a, it’s a lot of work to do these things, to do these things correctly, but I really do enjoy it and I love rolling up my sleeves and, and getting into the, the heart of things.
00:18:53 [Speaker Changed] So let’s talk a little bit about the team at Greenlight. So how many other analysts are there? How many people are, are thinking about, Hey, this is an interesting story. Let, let’s dive into it.
00:19:03 [Speaker Changed] I have six analysts, I have two traders who execute the trades and we have a field researcher and that’s kind of the, in the investment team
00:19:11 [Speaker Changed] Field researcher. Yes. Just what it sounds, they’re out there kicking tires and, and
00:19:16 [Speaker Changed] 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, or some of these other services and help connect analysts with who that they might need to talk to and, and help bring them online or we’ll do proprietary surveys or we’ll do, you know, well we will travel around and look at things.
00:19:39 [Speaker Changed] So you have a reputation as a value investor. I’m not sure that really best describes the sort of holistic approach that you guys bring to the table, but I have to ask a question. You found Greenlight in 1996, does it mean the same thing today to be a value investor that it meant 20, 30 years ago?
00:20:03 [Speaker Changed] I, 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, right? Right. 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 dis that continuity the same way. But what we’ve learned over time, you know, when I started in 1996, you know, the, the main thing people would say when we would pitch our services was, well, what do we need another hedge fund for? Right? There’s a million guys trying to do what you’re doing in addition to, 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.
00:20:56 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 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 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 times earnings and they’re gonna do 20% better than everybody thinks, and the multiple re-rate as a result of that, we’re gonna do terrifically. And that assumes that we’re gonna figure out what somebody else is going to buy six months, a year, two years before they come to that conclusion.
00:21:48 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, they fire their staffs. There’s way fewer people listening. And the result is, is, 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 four 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 gonna have to get paid by the company. So we need 15, 20% cash flow type of type of numbers. And if that cash is then being returned to us, we’re gonna do pretty well over time. So
00:22:37 [Speaker Changed] I’m, I’m intrigued by that description, but buried within it is essentially the rise of passive has damaged either price discovery or the reaction to price discovery on the sell side. Is that a fair statement?
00:22:53 [Speaker Changed] Oh, no question. I I view the markets as fundamentally broken, like the number
00:22:57 [Speaker Changed] Fundamentally broken. Yeah, that’s a big statement.
00:22:59 [Speaker Changed] Yeah. There’s, 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 is, 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 wanna be ahead of that or zero day options. What is the price of the s and p or whatever stock you’re doing for today, what’s it going to be in the next half hour, two hours, three hours? Those are opinions about price. Those are not opinions about value. Passive investors have no opinion about value. They’re gonna assume everybody else’s done the work, right? Right. 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, from, 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.
00:23:58 Right? And all of a sudden the people are performing are the people who, who own the overvalued things that are getting the flows from the indexes that are getting the re you take the money outta the value, put it in the index, they’re selling cheap stuff and they’re buying, you know, whatever the highest, multiple, most overvalued things are in, 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 the, so what happens is instead of stocks reverting toward value, they actually diverge from value. And that’s, 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. Huh.
00:24:37 [Speaker Changed] Really interesting. I, I know value has had a rough, I don’t know, since the financial crisis, let’s call it 15 years, that’s the most cogent explanation I’ve heard for here’s why value hasn’t mean reverted since that period. And it’s the first time I’ve heard anyone say you can blame passive in the flows to the biggest companies as, as the reason for that, that taking place. So let’s dive into that a little bit. You, you, you go through the 2010s value is out of favor. I think your explanation makes sense. What was it like on you when, hey, I have this philosophy that’s worked for a hundred years, it’s not working anymore. How, how do you manage around that?
00:25:21 [Speaker Changed] 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, your longs announce great results. Your shorts announce mediocre results. You feel like you should be making money on the day they announce 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, a lower level.
00:26:07 And it was just super frustrating and we didn’t really understand what was happening. But what was happening was, is what I just explained before, there were just massive redemptions from people of style like ours. 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 hedge funds are tiny piece of the market, right? But the, the, I mean there were many, many years where all anybody cared about what’s Fidelity gonna do, what’s Capital Group gonna do, what’s, you know, t Rowe 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, right 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 and we had just a rough go until we figured this out.
00:26:56 [Speaker Changed] And to put some numbers on, on that, the hedge fund industry is about two and a half, $3 trillion. Mutual funds are a multiple of that. They’re, they’re 10 x or more throw in ETFs and, and passive. And it’s even bigger. How, what was the moment that, the aha moment that, oh, this is what’s going on. How, how did you figure this out?
00:27:18 [Speaker Changed] 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 seeing 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. Huh.
00:27:42 [Speaker Changed] Really intriguing. I have to assume once you get through that difficult stretch and, and sort of reframe your perspective and understand what’s going on that has to make you a better investor going forward. How did it change how you approached what you were doing?
00:27:58 [Speaker Changed] Well, we made two significant changes. First one I kind of explained before, we’re not gonna buy something at 10 times earnings thinking the earnings are gonna be 15% better and then think we’re gonna get a 13 multiple at the end of that and have made 50, 50% over a year and a half. Like that was our old way of doing it because that isn’t going to work.
00:28:16 [Speaker Changed] Not enough juice in that squeeze to make it worthwhile.
00:28:18 [Speaker Changed] 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 Collary used to say, a bargain that remains a bargain is no bargain. Right? Right. And so now we can take that to, we can realize, well, what has been created from this, which is what’s been created is, is is there’s complete apathy in a certain segment of the market and you no longer have to pay 10 times earnings for that type of a situation. I mean that we, there are ones at 10 times earnings and we pass on those, but we can find that same type of situation right now at four times earnings and at five times earnings. And if you pay four or five times earnings and the balance sheet is not levered and they’re able to return the cash and buy back 10, 15, 20% of the stock in four or five years, they’re going to run out of stock or the stock is going to go up. So you’re literally counting on the companies to, to make that happen for you.
00:29:16 [Speaker Changed] So I, I want to think about this in terms of the tradable US equities out there. Wilshire 5,000 is kind of about 3,400 names, not quite 5,000. It sounds like you are looking at a, a huge percentage of those names and pretty much finding they’re uninvestible. I don’t know if it’s the bottom thousand or 1500, but they’re just too mediocre and under followed for it to be interesting to you.
00:29:51 [Speaker Changed] Look, we have always had generally between 30 and 60% of our capital in our top five names, and we have maybe 15 or 20 names that make any difference at all in the long part of our portfolio. So we don’t need 500 companies to invest in, we need 15.
00:30:09 [Speaker Changed] And and you’re today. So, so since that change about five years ago, the numbers of the fund have in improved dramatically. You’re outperforming, you’re, you’re putting up good numbers that’s on a concentrated portfolio and it’s 10, 15, 20 stocks are the drivers. Yes. Huh. Real really interesting. Short sellers seem to be an endangered species value investors are thrown in the towel. How, what, what allows you to stick to your disciplines?
00:30:41 [Speaker Changed] Well, it’s actually much more exciting now. Like I mentioned before in 1996, there was just tons of competition. And right now I just feel like there’s way fewer people competing with us for ideas, trying to do what we’re doing. And so I just think the opportunity is actually probably as good or better than, than it’s ever been. And that energizes me every day to come in and try to try to find ideas.
00:31:05 [Speaker Changed] So Professor Andrew Lowe over at MIT was discussing the issue of price discovery and the rise of passive. And his theory plays very much into what you’re saying, which is as passive attracts more and more assets and people exit things like shorting and value, it creates inefficiencies. And suddenly where there wasn’t a whole lot of opportunity pre-shift, now those opportunities seem to be more and more available. I i is that a fair, I know he’s an academic, but is that a fair description of what you see going on? Yeah,
00:31:41 [Speaker Changed] No, it, it, it really is the, the competitors have essentially left the field and it means, like I said, things that we used to have to pay 10 times earnings for, we can pay five times earnings for. And you think that the market is very expensive, but our names are not expensive. And companies and, and these aren’t terrible companies, they’re just companies that are too small and nobody cares and you know, they’re not in the sexiest of, of places.
00:32:08 [Speaker Changed] So your strategies include long, short and macro as well as hedged. Can you explain what you focus on in the macro portion of the funds? Sure. Or, or is that something that just colors everything?
00:32:21 [Speaker Changed] No, no, no. Macro is a, we, it’s a separate category and what we do and, and I’m the macro manager and what I’ve learned over time is, is if you have an idea, find the most direct way to express it. So if you wanna be bullish about oil prices, don’t buy 10 oil stocks. Buy oil. If you have an opinion about interest rates, don’t try to buy a bunch of banks. Buy SFR futures or sell SR futures or buy 10 year futures or whatever it is that you think you want to do. And I find that if you can make your insight translate most directly into the investment, then at least if you’re right or you’re wrong, it’s going to be for the reasons that you thought. And it’s not gonna be because you bought some oil company, it turned out that, you know, they spilled the oil or the, the, the, the well turned dry or something like that. You don’t really have a lot of insight about that. If your view is, is there’s a great oil prospect and look at this, well it’s going to be amazing, well then go ahead buy that oil company because that’s what your insight is.
00:33:19 [Speaker Changed] That sounds very different than the way a lot of macro oriented funds invest. They have a big top down picture and they kind of spread the bets around, hey, these are the sectors and these are the areas we think are gonna be most affected if our macro call is right. You’re suggesting much more focused, much more precise than that sort of 30,000 foot view?
00:33:43 [Speaker Changed] Well I just think like a few years ago we came to the view that there was going to be a bunch of inflation and we could have bought a bunch of commodities, but the best thing to do or commodity companies or companies that would benefit from inflation. But the best thing to do was there’s a derivative called an inflation swap where you actually got to bet on what will the reported inflation be versus the market expectations and it’s a derivative and they pay you the difference. And so if you think if the market says inflation is gonna be 2% over the next year and you bet on the over effectively, and then it turns out that it’s 6%, well you make four points times your notional and it doesn’t matter what anybody’s opinion is ’cause the CPI is the CPI and that’s what defines the bet. So you don’t even have to figure out what market sentiment is going to be or what other investors are gonna do. It just realizes all the way through. And so I always find if we can find a direct way to express an opinion that’s better than an indirect way.
00:34:34 [Speaker Changed] Huh, very interesting. Let, let’s talk about shorting, which is really what, what made your name way back when. It seems especially challenging these days when the markets have been going up as much as they have last year and, and 20 and 21 short funds are, are disappearing. How do you think about shorting today and and how different is it now than the days of Allied Capital and, and Lehman Brothers?
00:35:01 [Speaker Changed] Yeah, shorting is very difficult. You know, a couple years ago we had a great year of shorting. Last year was not a good year shorting for us. You know, a lot of the absence of market participants figuring out what things are worth translates into more difficulty in shorting ’cause value. It’s just not a consideration for so many investment strategies or so many investors. I mean like all the retail investors, not all, but many of them, they, they couldn’t figure out value even if they wanted to. Many of the professional investors have completely lost their, their view of what value is. Again, they have opinions about price, but they don’t have opinions about value. And the other thing is, is the, the world has become very cynical. And so, you know, if, if a company is like committing fraud, the market has been conditioned, well, when they announced the fraud, that’s a great time to buy the stock. And that used to be like the opposite of that. And then you add in that the regulatory infrastructure is essentially gone, like there is gone,
00:36:05 [Speaker Changed] Gone regulatory, not, not weakens, just non-existent,
00:36:09 [Speaker Changed] Gone there, there is no SEC policing corporate behavior. You know, they’re not, look, they used to do real things to companies. They used to go after the management and tell them they can’t be directors or officers. They used to, you know, and for life for, for a while they would, you know, they would, they would find some companies occasionally they would make people even like, oh, well we’ll just improve the disclosure, restate the financials, stuff like that. Like these things don’t, don’t happen anymore. Like they’ve essentially,
00:36:37 [Speaker Changed] Didn’t they yell at Elon Musk for smoking weed on Joe Rogan’s show? Or I don’t know, something silly like
00:36:42 [Speaker Changed] That. I don’t think that, I don’t think it was the SEC with that. What happened with the SEC was last year there was a story that there was a whistleblower who sent a letter to the SEC said, there’s massive accounting fraud at Tesla and I have 20,000 documents I’d love to show you. And the SEC didn’t even bother to follow up with the whistleblower.
00:36:58 [Speaker Changed] Wow.
00:36:59 [Speaker Changed] So that, that’s kind of where we’re at.
00:37:01 [Speaker Changed] Wow. That, that, that’s a a a a huge, huge statement. The regulators are, are not doing their job. Do you think there’s appreciably more fraud in corporate statements today than what we saw 20 years ago?
00:37:16 [Speaker Changed] Right. Well, let me just say it’s not like the SEC is completely gone. Like if you have some inside information, you tip off your brother-in-Law and he makes $50,000, they’re, they’re gonna find that and come down ton of bricks on that. What does that, all kinds of regulations they want to deal with like the hedge fund industry and, and the rest of it, they’re doing stuff in crypto and, and things like this. But in terms of their basic policing of financial statements, financial disclosures, corporate behavior, that’s where the SEC has they, they’ve essentially stopped what they’re, what they’re doing there, unless the company completely goes to bankruptcy. And once the bankruptcy has happened, possibly they will look at
00:37:55 [Speaker Changed] It that that’s a little, little too late to help out the investors involved. Well,
00:37:59 [Speaker Changed] They, I don’t think they view that as their role because they, they’re, the concern is, is if they come in and, and do something to, you know, before the money has been lost, that might make the stock go down a few percent that day and then they’ll be blamed because then they’ll have helped cause investors to have lost money and, and they don’t want that responsibility.
00:38:18 [Speaker Changed] So, so let’s talk about a little more about those financial statements. There, there are four large accounting firms that do the vast majority of the ordering for, for most of the biggest companies in the US and they’re hired and paid by those companies. I’ve always wondered that that seems to be a little bit of an incestuous relationship. Kind of reminds me back on the rating companies s and p and Moody’s being paid by the bond underwriters, which wasn’t how it always was. It sounds like your implying that the entire system for identifying policing and punishing fraud before a company runs into trouble is, is not working.
00:39:04 [Speaker Changed] Look, most people in business who are running companies try to conduct their business basically, honestly. So they’re, they’re, they’re selling their product. They’re developing their product, they’re paying their people, they’re ca they’re recording their books, the auditors come in, they’re trying to show them the right results. Things work out pretty good. The the question is, is for the handful that are, that don’t view the world that way, that want to take advantage of the system and, you know, fake it or lie or cheat or whatever that is they wanna do. And for those companies there’s, there’s probably, they can probably get away with what they want to.
00:39:39 [Speaker Changed] And, and at one point in time the regulators were aggressively policing that and that seems to have faded.
00:39:47 [Speaker Changed] Yeah, I think that’s right. Huh.
00:39:49 [Speaker Changed] Really, really fascinating. So, so, so let’s talk about something related. You do these wonderful postmortems in your quarterly letters. It’s kind of legendary. Here’s what went right with this trade, here’s what went wrong, here’s why this sector did well or poorly, or why this stock did or didn’t work out. Explain what goes into putting these letters together, together. It reminds me a little bit of the presentations you do.
00:40:14 [Speaker Changed] Like the quarterly letters is something I enjoy doing. I start thinking about it maybe a month before the quarter ends, like what, what themes are going on in the world that I might want talk about. And then sometime after the quarter, I, I get some information about like how we did in the market and what stocks helped us and the rest of it. And then I write a letter and I write the first draft. The first draft is what I want to say. It’s, it’s unedited and unfiltered. And then I pass it off to the team and they fill in the holes and then they help correct me about things maybe that I shouldn’t say. And it gets edited down through, through a few cycles. But in terms of the postmortems, I, I’ve always been like, you know, if something goes great, explain why it went great. If it didn’t go well and we lost money on it, just say, so if we do a really, really good job, we’re gonna be wrong 35% of the time. Right, right. So what’s the shame in writing in a letter? We invested in this particular stock and it didn’t work out the way that we wanted it to and we lost a whole bunch of money. It’s in the result anyway. So you may as well describe it.
00:41:21 [Speaker Changed] Huh. That, that’s really interesting. So, so I know what your presentations are. Like I, I know what the quarterly letter is. Like what’s a typical day like for you at, at Greenlight? What, what happens on a random Wednesday?
00:41:34 [Speaker Changed] You know, the great thing about this business is every day you wake up and you just don’t know what you’re gonna get. You, you know, you have things that are on your schedule, oh, this company is gonna announce earnings or you’re gonna, you’re, you’re gonna talk to this analyst or you’re gonna talk to this management team or whatever it is. And you have a few things that are on your calendar and then you have the rest of the day. And the rest of the day is dealing with the incoming email, it’s dealing with the news, it’s dealing with developments that you didn’t particularly expect in deciding if there’s anything that you need to research further or trade or, or, or do. And so, you know, you just, you know, you never know what you’re gonna get on any particular day. And, and that’s what makes it so exciting. Huh.
00:42:12 [Speaker Changed] Really, really interesting. In, in your most recent letter, you mentioned the Fed. Did they do a good job on inflation? What sort of a grade would you give them for how well they’ve handled the entire post COVID era?
00:42:27 [Speaker Changed] Well, I don’t know how to award a grade. I’m not, that’s, I’m not the professor and, and I’m not here to grade the Fed. I would observe that they’ve done some things very well. You know, they, they created a stability at the bottom of the crisis. They provided liquidity. They didn’t let lots of things go bankrupt and so forth. Now there’s a moral hazard that comes from that because you condition people to think that things won’t be allowed to go bankrupt. And essentially you’re, you’re socializing a lot of risk effectively onto the national balance sheet. Then they had the period of pretending that there wasn’t going to be any inflation no matter how much money that they printed. And then when that became evident, they spent a long time explaining that it was transitory. And then they finally decided that maybe it wasn’t transitory and they should do something about it.
00:43:13 And then they decided after, after none of it was transitory, it turned out that some of it was transitory and now it’s rolling itself back down. The basic thing with the Fed, I think is they don’t seem to have, i I disagree with their view relating to the relationship between interest rates and the economy and inflation and what they’re actually doing. Because I believe that when rates get low below a certain amount, they actually slow down the economy by lowering them further. And when, and so as a result, I, I had this thesis called the, I called it the jelly donut monetary policy where the first jelly donut tastes great, but the 25th jelly donut, you’re not really helping yourself anymore. And so you had these emergency fed policies and that in an emergency that makes sense, but then after the emergency passes, they kept the policies and you kept rates at zero for like some really long period of time.
00:44:08 And it was essentially just like giving a diabetic person more jelly donuts since the economy had a very gradual and slow recovery. And now as they had the inflation and the rates have come back up, they thought that they would be slowing the economy, but they’re actually strengthening the economy, higher rates, getting off the zero bound, not if you moved rates from five to 10, it would certainly slow the economy, but from zero to five it actually strengthens the economy. I think that’s why we have this really strong GDP growth that is, you know, that is persisting right now. I think it’s surprised a lot of people. And so I think it’s really weird now that everybody thinks that they’re gonna lower rates. Things are pretty good. Like employment is really pretty full right now and the economy is kind of humming along. And I think the idea that they’re gonna rush back to really lower rates and they may do it right, but I don’t think that they’re really going to, to help anybody, you know, by, by, by doing so. The,
00:45:04 [Speaker Changed] The argument, the best argument I’ve seen anyway for lower rates is, hey, you have all these people with three and 4% mortgages. We’ve had a wild shortfall in home construction in the 2010s following the financial crisis. I know you were a big fan of the home builders certainly worked out well given the shortfall. And if we want to get some supply to the market, you have everybody frozen in place with 4% mortgages. You gotta get mortgages down from seven to at least low sixes or high fives and all that supply will come out and therefore inflation will come down in the housing sector. Do you buy that sort of analyst or economist commentary that that’s what’s gonna drive rates lower?
00:45:49 [Speaker Changed] Well, a couple of things. First of all, housing prices off the 10 year, it doesn’t price off the fed funds. So if the Fed funds goes from five and something to three and something like everybody thinks that it’s going to do, it’s not clear that that’s going to move the 10 year rate at all. The 10 year consider the
00:46:05 [Speaker Changed] Same place. It’d already that, right? We went from just about 5% to three eight or so.
00:46:09 [Speaker Changed] Great. And the Fed funds hasn’t even moved yet. Right.
00:46:12 So it, it’s not clear that these two rates correlate a hundred percent. And so you could even have a situation where you lower the rates and the inflation starts coming back and it causes the long rates to, to go up. It wouldn’t surprise me at all, you know, relating to the housing. I mean, I’m the chairman of a home builder, it’s green brick partners and we’re building houses as fast as we can. There’s a ton of demand for the houses. The rates are, I mean, sure we’d love lower rates to get people’s monthly payments down a little bit. I mean that would be great, but it doesn’t really matter. There’s plenty of demand. The market is is very, very strong for us. And so, you know, we’re, we’re limited by how fast can we build the houses and that that’s terrific.
00:46:55 [Speaker Changed] So it’s interesting how you discuss variant perception in various macro issues in various stocks. It seems like the consensus for what the Fed’s gonna do and what the economy’s gonna do more broadly has been so wrong for, for so long. When, when you’re looking at everybody predicting both recession for two years and getting it wrong and fed cuts for two years and getting it wrong, how, how do you think about that in terms of analyzing the Fed and what that means to deploying capital?
00:47:27 [Speaker Changed] Sure. Look, I think that the economy is strong. I don’t think we are in a recession. I don’t think we’re about to be in a recession. And so as a result, I’m still more worried that if they lower rates a whole bunch, they’ll get the inflation to come back. So I’m still lung inflation and I kind of don’t think we’re gonna see anywhere near as many fed cuts as people are are talking about this year. You know, it’s kind of funny. People often look at just like the wrong thing or, or they look at, they find something very irrelevant and they spend a lot of time on it. Like recently, you know, it came out that the federal government was gonna borrow like $50 billion less this quarter. So they’re only gonna borrow 700 billion instead of Right. 750 billion
00:48:09 [Speaker Changed] And pass on the savings to you.
00:48:10 [Speaker Changed] Right? Yeah. You know, it’s, it’s, it’s fantastic. And so there’s a lot of enthusiasm for like a data point and this is like the world looking for data points, but they’re missing like it’s a forest for trees, right? Like who really cares if they’re borrowing 700 billion or 750 billion? They’re borrowing so much money that you just have to look at this and go like, where’s $3 trillion gonna go to lend to the Fed this year? Where’s three or 4 trillion to go next, next time? So if you just take a step back and you say like, how sustainable is this and where is all of this money gonna come from you, you realize like instead of being enthusiastic for, hey, they’re gonna borrow 50 billion less is if that’s going to make all of the difference in the world, Hey, we could, we can sell 700 billion of bonds, but we can’t sell 750.
00:48:53 Like, this is completely strange to me. And I think as you, as market looks at it over the course of the year, we’re gonna at some point get back to the point where they’re saying, you know, we’re really borrowing maybe more than more than we should. And when you talk to people in Congress, like they have no plans to do anything about this, like, like it’s not even like there’s an intermediate plan for fiscal responsibility. So the idea that the market is focused on 50 billion here there of incremental treasury borrowings, or how many 10 year bonds they’re gonna sell, or how many 30 year bonds, what it is, is underneath that is an acknowledgement that there’s a big problem because otherwise they wouldn’t be focused on it. But they’re distracting from the problem by trying to find like a second derivative incremental data point. And I think that the easier thing to do is to keep the eye on the bigger picture, which should play itself out maybe over the more intermediate term.
00:49:45 [Speaker Changed] So, so here’s the pushback to the, to the deficit challenge. You know, we’re not that far apart in age. My entire adult life, I’ve been told deficits are a problem, they’re gonna cause inflation, destroy the dollar, crowd out private investments. None of that seems to have happened over the past couple of decades. Do we really need to make the deficit our, our biggest priority? Tell us what the, the risk factors are from that?
00:50:15 [Speaker Changed] Well, we can’t make the deficit our biggest priority. It’s our biggest problem. Like Congress can’t do anything about this. If you talk to a congress person and say, or a senator and say, well what are you gonna do about the deficit? Like the amount of change that would need to happen to move the needle, it’s kind of almost like a waste of time because nobody’s willing to make the major major type of tax increases or the major, major types of spending cuts. You know, they’re willing to like nickel and dime away at the other side’s constituency. So the Republicans are willing to stick it to the Democrat voters a little bit. The Democrats are willing to stick it to the Republican voters a little bit. But at the end of the day, like there’s nobody who’s serious about it. It’s more like, well it’s unsustainable and we’re gonna go up the roller coaster and at some point it’s going to go down and then we’re going to to deal with it then.
00:51:01 And what is that crisis gonna look like? I don’t know what that crisis is gonna look like. And I know this has been a long time building, but it’s going up at an accelerating pace. I mean, we’re now well over a hundred percent debt to GDP, right? So if interest rates are 4% or something like that, you’re paying out 4% or more of GDP in interest, right? And so you’re paying out a big percentage of your tax collections in, in debt service, even before you get to what you actually wanna have. And you’re at a six point half percent deficit to GDP with full employment, which is something we’ve never seen before outside of a war. And so if we have a recession, you know, that number’s gonna get much, much worse. And at some point, you know, where is the $3 trillion going to come from? We just talked about the hedge fund industry. The whole hedge fund industry is $3 trillion. So the government’s gonna borrow the entire hedge fund industry this year and then add that, just tides them over for 2024. Where is it gonna come for 2025? Figuring this out to the nearest moment is impossible because it’s a question of confidence. It’s a reflexivity, it’s, it’s George Soros theory. Like, this is all fine until it’s not fine. But when it’s not fine, then we’re gonna have a really interesting problem. Huh.
00:52:10 [Speaker Changed] Really, really interesting. Let, let me pivot a little bit and talk about the Einhorn Collaborative. What, what is that? Why did you start this organization?
00:52:20 [Speaker Changed] The Einhorn Collaborative is my philanthropic effort, and it is a view that we’re, have a, a crisis of connection. That people are not connecting to one another, that the society is becoming more divided, and that we need to work on bridging people back together
00:52:41 [Speaker Changed] So that, that requires stronger relationships, bracing differences. Do we have any general resources going in that direction? Or is this something that really isn’t happening? Well,
00:52:54 [Speaker Changed] It’s really interesting ’cause like 70% or so of America is not politically polarized. It’s just the 15% on the far of each side that get all the attention and drive everybody else crazy. Most people don’t care that much and they kind of want to get along. Our efforts are not just political. In fact, they’re mostly not political, they’re cultural. We are working on helping mothers bond with their newborn babies, for example. ’cause if you can develop a connection with a newborn baby between the mom and the baby in a, in a dual kind of way, it sure it’s, it’s, it’s great for the mother, but it teaches the baby also how to have a normal relationship with somebody and then they can take that forward into the rest of their life.
00:53:37 [Speaker Changed] Let, let’s stay with that a second. How does a philanthropy help a mother bond with a baby?
00:53:43 [Speaker Changed] Well, we’re literally starting a program where we’ve done a lot of research. We’ve done clinical studies, and essentially if you, you teach the mother to hold the baby, you teach the mother to talk to the baby, you to teach the mother what to say to a baby, how to get the baby to make eye contact back and forth. And how when the baby becomes dysregulated, you know, crying or whatever it is, how do you regulate back and become calm? And once you learn to calm yourself and once the mother learns to calm the baby, and sometimes actually the baby calms the mother, by creating this kind of dual relationship, you wind up with a healthy relationship between the mother and the baby, which they’re then both able to take out positively into the rest of their lives.
00:54:30 [Speaker Changed] Huh. That’s really interesting. What, what other work does the collaborative do? Where else do you focus? We,
00:54:35 [Speaker Changed] We focus on what we call, we call that bonding, we call another aspect of what we’re doing, bridging. That’s where we’re trying to bridge across difference in communities. We’re getting some people together of different religions or different political persuasions or different cultural views and giving them opportunities to experience things together, whether it’s service, whether it’s dinner, whether it’s going to the church of the different religion or going to the mosque of the different religion or the synagogue and creating, you know, bonding between religious groups and so forth.
00:55:11 [Speaker Changed] H how do you measure success in these different areas? How can you tell, hey, the philanthropic capital we’re putting to work is actually having an impact?
00:55:20 [Speaker Changed] Well, you, well, you can, because like, like in the, in the bonding thing I was talking about with them, with the babies and the mothers, you can actually follow them on a longitudinal basis and say, how are these people performing? How are these people behaving? How are they, you know, are they healthy? Are they, how are their relationships? Do they make friends when they get to middle school? And so on and so forth. You’re
00:55:41 [Speaker Changed] You’re tracking this over time? Yes. Huh. Really interesting. Let, let’s stick with philanthropy. You’ve been very generous to your alma mater Cornell. We’ve seen a lot of pushback, especially amongst alums from various Ivy Leagues to their campuses. You seem to still have a great relationship with Cornell. What do you like that’s going on there? What are they doing right and wrong that UPenn and Harvard seems to have dropped the ball on?
00:56:08 [Speaker Changed] Well, I, I think Cornell, look, everybody has problems and Cornell has problems too. And I’m not gonna point anything at any of these other universities that I’m not as, as involved with. My philosophy for this is to try to bring about positive change. I think when you have a crisis, it creates an opportunity for change. And I think that the, that you do this internally, you do this by discussing it with the president. You discuss it with the provost, you discuss it with the other trustees, you discuss it with the deans. I’ve been very involved in many, many conversations and some things I’m very happy about and some things I feel like there’s a lot more that can be done. But I believe in trying to work this out through the system and not coming out in a very public way and, and criticizing in, in the newspaper or on this interview or something like that, you,
00:57:03 [Speaker Changed] You seem to be very quietly going about bringing positivity to a rancorous debate as opposed to just throwing gasoline on the fire.
00:57:12 [Speaker Changed] I, I think that’s right. And I, ’cause I believe in bridging. Like I believe, you know, people on both sides of this argument think that they’re right and they don’t think that they’re bad people, right? No matter which side you’re on, you think you’re the good guy, right? And so at some level, maybe they are, or maybe we gotta at least understand it. And then you gotta figure out how do you engage in it, and then how is it that you can find some commonality? What values do we all have in common, even if we disagree in important ways about what policies are being per are being performed or what the, you know, what the behavior is. And, and yes, you do need some base level of societal norm, and if you don’t have that, you can’t have anything. But once you get through that base level, then you can try to figure out how you bring people together.
00:58:00 And sometimes just agreeing to disagree is fine. Right? A another major initiative we have is something that we call the New Plural List. And the new plural list is a funding collaborative. We’ve gotten 22 funders, a very diverse views, everything from the Cokes to the Hewletts. And what we do is we pool our money and we’re working on these cultural problems. We’ve, we’ve created a fund, essentially what we do. And then we make grants out into the field of field builders of people who are doing things to unite the, to unite and bridge differences. And so what’s interesting is, is, is first you have just the funders figuring out how they can sit at the table together because some of these people don’t like each other or they don’t like what they do in other areas of whatever it is that they’re doing. And they’ve agreed to come together. And then you put ’em together and then you actually have to say, what is it that we have in common that we can fund for the good of the country? Right? And then you do the funding and you get the benefit of that from the good of the country and that,
00:59:00 [Speaker Changed] So you get both the collaboration
00:59:01 [Speaker Changed] And the, that, that that’s a real core effort from the Einhorn collaboratives. We’ve actually kind of got this thing going for the last three years. So,
00:59:07 [Speaker Changed] So let me ask you a philosophical question. How, how much of this division amongst different people and, you know, actively disliking the other side just stems from a lack of empathy to people who have different views. It, it seems like that was something that used to be a little more available in the pre online, pre-social media era. And you’re trying to get back to that working around what, what do you do when you look at a a, a Facebook or a TikTok or a Twitter where the vitriol and just the insanity goes off the charts?
00:59:51 [Speaker Changed] You know, I, I saw a little caption saying like, I need to spend more time arguing with strangers on the internet about politics. Like, this sounds like a really bad idea to me. Right? Right. I don’t really spend very much time myself on these kinds of social media. I don’t think that they’re helping. In fact, they’re probably hurting. It’s, it’s hard, you know, it, having some humility makes a lot of sense, and that’s like admitting that you’re not right about everything and learning that you’re wrong and, and you need to spend time with people that you disagree with. You know, if you only spend time with people who agree with you, you don’t learn anything. It’s the people who you disagree with that can point out your biases and you can notice their biases. And it helps you learn and helps you grow and it helps you develop your thinking. And, and so it makes a, it makes a lot of sense to engage with people that you, that you don’t agree with.
01:00:41 [Speaker Changed] Stay, stay out of the echo chamber a little bit and, and, and look for diverse voices. Let’s talk about the Michael J. Fox Foundation for Parkinson’s research you serve on, on that board. Tell us a little bit about what you do for them.
01:00:54 [Speaker Changed] Well, for them mostly I host poker tournaments. Oh, really? Yeah, because I’m not very good at the science part. Like, like this is really, really hard problem that they’re dealing with. I mean, this is a brain disease and there’s nothing more complicated than the brain and trying to figure out like how to ameliorate this is really, really hard work. But Michael J. Fox has put together the world experts on this, gathered a ton of funding and is actually making real important progress. Last year they had a major, major breakthrough where they have developed what they call a biomarker, which basically means that they can tap into, into your back and take out some of your material and figure out whether you’re likely to have or maybe even already have Parkinson’s. And so if you’re on the course to it, that means they can identify and diagnose it earlier, which means we can get to treatment, you know, faster.
01:01:48 [Speaker Changed] And I’m assuming the poker tournaments are raising a ton of money for them and everybody has a great time.
01:01:53 [Speaker Changed] No, the poker tournaments are my best, are the best kind of fundraiser because people wanna support the cause, but they don’t really wanna hear all about it for an hour. And so it’s way better than these dinners with the PowerPoint presentations and the speeches and the, and the stuff like that. I mean, we do that too in, in a lot of the things that we, we support. But poker tournaments are fun because people are just gonna have a great evening and we’re gonna raise a bunch of money, which is kind of really what we want to do.
01:02:16 [Speaker Changed] And, and what about the Robin Hood Foundation? What, what are you looking to do there and, and what’s your involvement with that group?
01:02:23 [Speaker Changed] Well, I’ve been involved with Robinhood for a long time. I was actually the chair of it for a couple years, but that, that ended a while ago we’re onto even more effective chairs than me, which is really, which is really great. You know, the Robinhood Foundation’s truly remarkable. It’s when you talk about measured impact, they measure like everything that they’re doing. But then if you take a step back further and you ask yourself, you look at these, I’ll just call them Blue State big cities and the problems that they have across the country, and you see what’s going on in Chicago and you see what’s going on in San Francisco and you see what’s happening in, you know, in, in some of the other major cities. And then you look at New York, you know, new York’s doing a lot better than a lot of these other cities. And I think that a lot, some of this is from the cumulative effect of the Robinhood Foundation, really. It’s something I’m very, very proud to be involved with.
01:03:13 [Speaker Changed] Huh. Really, really quite fascinating. Let’s jump to our favorite questions that we ask all of our guests. Starting with what, what have you been either watching or listening to? What, what’s been keeping you entertained,
01:03:27 [Speaker Changed] Entertained? Well, I just finished watching the last season of Fargo, which is deep in it’s dark and it’s fantastic. And it’s right there with the previous four Seasons. You know, there was the movie a long time ago. Yes. But then they’ve done a series on FX and, and, and they’re fantastic. They get a different cast and a different story each time. And, and it’s, it’s, it’s dark. Yeah. I, I enjoy that. I, I
01:03:50 [Speaker Changed] I have a vivid recollection of the scene of her trying to get rid of the body with the wood chipper in the movie. That, that stays with you a long time. That was a pretty dark film. Yeah,
01:04:00 [Speaker Changed] Well, they’ve built five seasons since
01:04:02 [Speaker Changed] Then. Five different cast each
01:04:04 [Speaker Changed] Season, five totally different cast, different stories. But the theme is always the same. You know, the, the story’s told exactly where it is, except the names have been changed to, you know, protect the survivors and so forth.
01:04:15 [Speaker Changed] So, so let’s talk about your mentors who helped to shape your career.
01:04:19 [Speaker Changed] Yeah. I don’t think I ever really had like a single mentor. The closest would’ve been my boss, Peter Collary, when I was at Segler Collary. But he was really more my boss, I think. And I, I learned a lot from him. I think I’ve just taken on knowledge from various people and things that, that I’ve observed along the way. Hmm.
01:04:37 [Speaker Changed] Let’s talk about books. What are you reading now and what are some of your favorites?
01:04:41 [Speaker Changed] Well, I read a baseball book every year. Usually the baseball prospectus. I read a poker book every year. Last year’s was on, on physical tells, reading people’s expressions, really, and figuring all of, all of that out. I don’t get to read a lot of books. I’m really maybe three or four books a year at this point.
01:04:59 [Speaker Changed] You, you mentioned you read a baseball book every year. What went wrong in 2023 for the Mets? And do we have a chance this year? What, what are you thinking about?
01:05:09 [Speaker Changed] You know, the thing is is it’s January and January’s about the season. You really don’t think a lot about baseball. It wasn’t a great year for the Mets. There’s been lots and lots that have been written about it. I’m also a Brewers fan. I’m from Milwaukee, so I still do brewers, bucks and Packers. And I’m a little still recovering from the loss to the 49 ERs from a couple weeks ago.
01:05:30 [Speaker Changed] Our final two questions. What sort of advice would you give to a recent college grad interested in a career in either investing or finance?
01:05:40 [Speaker Changed] My advice for all young people is figure out what you’re good at and find something that you can do that plays to your strength, right? People have strengths and they have weaknesses, and you wanna improve your weaknesses, but don’t do that at your job. Do that in your social life. Do that for your hobbies. You know, if you wanna get physically stronger, go lift weights or something like that if you’re not strong. But you know, if you’re not strong, don’t try to become an athlete because that doesn’t play to your strength. Figure it out. What is it that you are good at, where you have the best advantage over other people? Because there’s plenty of people who are gonna be competing for whatever it is that you are trying to do. So you may as well at least be trying to, trying to play to your strength.
01:06:22 [Speaker Changed] Hmm. And our final question, what do you know about the world of investing today? You wish you knew 30 or so years ago when you were first starting out?
01:06:31 [Speaker Changed] Well, I guess if I had to pick one thing, I think it’s been just the change in the dynamic of the market. The way that it’s broken from active and passive and all of the rest of it. And to also just kind of realize that, you know, people act to follow their motivations. If you figure out what the motivations are, you can often understand people’s actions.
01:06:54 [Speaker Changed] Huh. Really interesting. Thank you, David, for being so generous with your time. We have been speaking with David Einhorn, president and founder of Greenlight Capital. If you enjoy this conversation, check out any of the 500 Pess discussions we’ve had over the previous 10 years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcasts. Be sure and check out our new podcast at the Money where each week I speak to an expert for 10 minutes about the most important aspect of your money, investing, earning, and spending. That’s at the money. You’ll find that in your Masters in Business Feed. Sign up for my daily reading list@riol.com. Follow me on Twitter at ritholtz. Follow all of the Bloomberg family of podcasts at podcast. I would be remiss if I did not thank the crack team that helps us put these conversations together each week. Kali Lap is my audio engineer. Atika Val is my project manager. Anna Luke is my producer. Sean Russo is my researcher. I’m Barry Ritholtz. You’ve been listening to Masters of Business. I’m Bloomberg Radio.
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