David Einhorn is one of my Favorite People

The more I learn about David Einhorn, the more I admire him. Not only does he run a veru successful hedge fund, but he is known as an excellent and ruthless stock picker. He can't open his mouth about a stock without the stock moving.

Someone posted on the Herbalife conference call thread a conspiracy theory that Einhorn maybe be preparing to wage war on public Multi-Level Marketing firms. As a firm hater of the business model I'm hoping this conspiracy is true (for those of you who have no idea what I'm talking about:

Gray Fox:
The story is not over. At the conference, one of Einhorn's first slides just was completely white and had "MLM" in the middle. He said something like: "Today I want to talk about a company with material issues on many levels." I'm sure everyone though MLM meant multi-level marketing and not Martin Marietta Materials.

David Einhorn if you read this, keep doing what you're doing. You're a badass and an inspiration.

He's also a very good poker player. I started playing online poker at 15 and I've played at a WSOP event. But like Einhorn, poker is just a hobby that I want to continue pursuing as I make more money. He's now playing the biggest tournament ever: the $1 million dollar buy-in charity tournament at WSOP. I hope takes it down.

http://www.bloomberg.com/news/2012-06-21/einhorn-…

 

hmmm, if we roll back 10 years and look at the top performing guys, you'll see a fair few have been busted for insider trading/market manipulation. There were similar news articles about Madoff et al.

He's been clearly found out on one insider deal, and that was pretty clear cut (i read the full transcript). I like the guy, find him fun, and if he is as is, then I share your sentiments. However I can't help think there's something missing.

 
trazer985:
andyinsandiego:
What insider deal are you referring to trazer?

http://www.fsa.gov.uk/library/communication/pr/2012/005.shtml

that would be this one.

edit: and if someone of that net worth is willing to risk that much for such a little reward, it does make you wonder how he actually earns his money.

I'm no expert on insider trading laws but isn't this bullshit? They called him up with information to see how he'd react, he declined to listen to that information. In the US it would be legal for him to act on the phone call since he didn't agree to be party to inside information.

 
trazer985:
andyinsandiego:
What insider deal are you referring to trazer?

http://www.fsa.gov.uk/library/communication/pr/2012/005.shtml

that would be this one.

edit: and if someone of that net worth is willing to risk that much for such a little reward, it does make you wonder how he actually earns his money.

Really? If you thought that was insider trading then I've got a bridge to sell and an excellent investment opportunity for you.

If your broker called you up and asked you if you wanted to be involved in equity offering for a company in distress, what would you say? I'd say shit, no I don't want that... what company? Oh. I own them already. Ya I don't like them if they need to raise equity, I should probably sell them actually. It's not insider information it's no different than when a boiler room sees that you're a whale and calls you to buy XYZ Dogshit Inc., but it wasn't worth enough to Einhorn to fight it at a $9M fine... the publicity alone isn't worth it.

I hate victims who respect their executioners
 
ai215:
Unforseen:
Not only does he run a veru successful hedge fund, but he is known as an excellent and ruthless stock picker.

Don't these 2 go hand in hand, especially if you run a long/short equity fund? Thats like saying hes a really good linebacker, but he is also known for being great at tackling

Not necessarily...you can be an excellent stock picker and achieve great alpha consistently, but a ruthless stock picker shorts lehman prior to bankrupcy and obtains a reputation that pretty much bars him from saying any opinion on stocks in public.

 

David Einhorn and Bill Ackman are cool people, man.

The difference between successful people and others is largely a habit - a controlled habit of doing every task better, faster and more efficiently.
 

It's not odd, it's smart. If anything it's hilarious. Considering he basically made it as clear as possible that he wanted no part in the offering and there was technically no wall-cross by David or anyone at Greenlight, he wasn't acting on inside information. Ask anyone with legitimate knowledge on the situation and they'll tell you exactly what happened - the argument for punishing him was that a sophisticated and privileged investor like David should have known better than to do what he did because it's gaming the system. Not that he deliberately traded on inside information, since by technical definition he did not. Don't you think they would have prosecuted him criminally rather than fine him an insignificant amount (relatively speaking) if it was legit insider trading? I'm not gonna get in a flame war about it because we basically agree to disagree: my point is that it was a shrewd move by David because he knows better than 99% of HF managers how these rules work and he knew he hadn't come over the wall, wanting no part in the offering, and that gave him the ability to start dumping his shares right after the call. The argument against him is that while not technically insider trading, he knew what was going on and used the information in what most would consider an "unfair" way, and ended up gaming the system because he's smarter than the regulators (which isn't hard to do).

And you said it best in one of your earlier and hilariously ignorant posts, why would someone of that net worth be willing to risk that little amount of money? Because it was within the rules for him to do so. You think he was insider trading on Allied? I work with guys that were sitting in the damn room when they were ripping Penni Roll a new asshole. I'm sure you know him a lot better than I do but David's the kind of dude who goes out to dinner with his wife and doesn't order anything because he's too busy reading a 10-k to eat. And I'm sure he wrote that whole speech at Ira in '02 as a fucking cover up. Same with GAAP-uccino.

But what do I know, I'm fucking retarded. And you read the legal documents. I'm sure he's a fraud.

I hate victims who respect their executioners
 
BlackHat:
And you said it best in one of your earlier and hilariously ignorant posts, why would someone of that net worth be willing to risk that little amount of money?

like the billionaire at Galleon making a million from that Goldman deal and busted for years? Oh wait.... he made it all from insider, but only 1 case was provable.

Time to start quoting the judgment:

The FSA’s view is that Mr Einhorn’s decision to deal was based on the inside information he received. It is sufficient that a decision to deal is materially influenced by the inside information, it need not be the sole reason for the trading.

"Not that he deliberately traded on inside information, since by technical definition he did not." Standing by that still?

OK lets go back to basics: the definiton of insider trading:

he buying or selling of a security by someone who has access to material, nonpublic information about the security.

FSA Judgment:

The information was not generally available

There was no generally available information regarding the timing, size and shareholder support for the issuance and these factors could not have been deduced from other public information by market participants. Thus, it was not generally available information that Punch was at an advanced stage of the process towards the issuance of a significant amount of new equity, probably within a timescale of around a week, with the principal purpose of repaying Punch’s convertible bond and creating headroom with respect to certain covenants in Punch’s securitisation vehicles.

Mr Einhorn’s behaviour amounted to market abuse by way of insider dealing in breach of section 118(2) of the Act for the following reasons (as detailed further below): (i) Mr Einhorn was an insider; (ii) Mr Einhorn dealt in the investment; (iii) Mr Einhorn had inside information; and (iv) Mr Einhorn dealt on the basis of that inside information

Ok, if he KNEW what he was doing wasn't wrong, then why the hell would not even consult his own legal/compliance/risk teams? Does he not think, after a 45 minute conversation with insiders to check, you know, just to be sure? Think through how fast you have to be to issue that volume of sell orders in 2 minutes after a call ends.

Although Mr Einhorn’s approach to the Punch Call is not criticised, following the call Mr Einhorn should have been aware that he had been given inside information, or at the very least that there was a risk of this. He had a responsibility to consider whether the information received during the call constituted inside information before instructing the sale of shares.

In answer to your point about not wanting to be part of the call. I have a great way of not being part of calls. It's called hanging up. Other popular techniques are being polite but really having to go. Less popular ones are standing on the phone asking for specific numbers involved, and how far along the process they are, for 45 minutes.

I'll ask you this, since you point blank refuse that your idol might not be what you adore him as:

The information was not available to the public and therefore insider. What else could someone have done to actually act on this insider information, and therefore be an inside trader?

If it looks like a duck, and it sounds like a duck, it's a duck.

 
trazer985:
If it looks like a duck, and it sounds like a duck, it's a duck.

If you believe this, good luck finding a decent wife.

I won't get into it because you seem to either be a) a law student b) a trader who wishes he wasn't or c) totally out of the industry, and therefore not a lot of experience with stuff like this.

I hate doing the thing where you take a guy's argument piecemeal and try to refute each piece with quotations and shit you found via Google, but really quickly I'll at least give you Einhorn's statement after the fine:

"The fine is for trading in advance of a decision that had not been made, and the FSA concedes we did not believe we had any inside information. We did not enter into any confidentiality agreement, we explicitly requested that we not be given confidential information, and we do not believe we were given any such information. Further, all the witness testimony supports our view."

I'm pretty sure you mentioned that the FSA said he deliberately acted on inside information. Wouldn't they prosecute him then? They explicitly said that if anything he wasn't trying to engage in insider trading or market abuse. They basically made an example of the guy for gaming a shitty system. If you understand the offering, why it was happening, and the way insider trading rules work, you'll see that what David did wasn't wrong, but the fact that it was so blatant was a slap in the face to the FSA, which I totally understand.

David basically told the guy, 'if you were going to do an equity raise at 350 sterling, there's no way we could get behind that. We'd rather see you default and go bankrupt than dilute the upside that hard, so it's something we could never do.' He played the game the way anyone who is trying to make/save money (and was smart) would play it. He broke no rules, but he wasn't stupid either, he knew he got lucky by getting a call about the offering.

If you work in industry, you know that public information is horseshit. We all get such an insane amount of information that is unattainable to 99.9% of the general public and that's why the retail investor always loses. Yet it's not insider trading. Einhorn wasn't an insider, he never consented to getting behind the equity offering to hear explicit and definite details, but he took advantage of the stupidity of the CEO to save himself some coin, which is awesome if you ask me. You may have different virtues and see things differently, which is why I say I don't want to argue that with you, but at the end of the day you ask anyone with knowledge of the situation and they'll laugh about it. By the sheer volume of random quoted legal speak in your posts I'm assuming you don't have much experience with this stuff, so from the outside I can see why it would smell.

I hate victims who respect their executioners
 

I do work in the industry, the quantative side of trading (FO Quant/Dev), and it's really fucking obvious when insiders are trading.

We see a massive spike that sets off a trade, we look at the causing factors behind it (typically a news event or a significant order from an institutional investor). Every now and again we see a big spike and then minutes later a news event stating unknown sources that there's great news in the company. Typically insider trading of this ilk costs us money. We're prepared for news events, thats in the algorithm we arent prepared for people that know whats about to be the next news event.

I wasnt quoting random shit off google, I was quoting the actual FSA judgement, from the FSA website. If you read their judgement they concluded that it wasn't intentional. I concluded differently, based on the nature of how long he takes to make investment decisions, typical selling patterns and what he did on that day. A level headed poker vet doesn't act irrationally on a moment of madness.

I followed this case extremely closely, because he was a hero of mine, especially after seeing him at the WSOP in that jumper, but after reading the entire phone transcript, and the reports of the authorities, I now see him in the same bag as that Galleon bunch, just a lot nicer to the public image. His approach to the phone call was indeed one of a walled nature. His actions thereafter strictly broke every rule there is about a walled conversation, which I quoted for you above.

Exploiting the stupidity of the CEO? The CEO didnt lose anything out of this, not that this is relevant in an insider trading case. He knew full well what he'd just found out and acted on it. That's insider trading, it's despicable and people that do it should be fined, jailed and banned from the markets.

Unattainable is not the same as not freely available. The retail investor can buy a bloomberg delay subscription, and access what we access (all we get with the algos is a reuters + bb datafeed), nothing else. The cost is pretty low. What DE found out in that room I could never have known until the rest of the world did. This is the crux of the argument. I don't care if you think insider trading in that way is ok. It isn't. There was no investment in a data feed, or technical analysis behind this, it was a phone call to insiders which he then traded on.

Since you ignored the question above, I'll ask a different one.

If this is legal and you think it's fine and really smart, why aren't you doing it?

 

I've worked at three pretty big and well-regarded funds, and I can assure you that we are. Consistently, effectively, and relentlessly, with no plans to stop anytime soon. If you think it's wrong, we can agree to disagree, but this is how we operate. The majority of the alpha at these funds [well two of them, the other one was your typical run-of-the-mill l/s fund too big for its own good] comes from conversations with management, ex-employees, etc. that give us the kind of information that essentially nobody else in the market has. If we went directly to the SEC and told them about it it wouldn't be called inside information, yet it sounds like inside information and it smells like inside information. Hell, I could tell you about dividend raises and buybacks at a handful of 30B+ companies that are coming up, accurate to within 2-3 days, solely based on my diligence. Maybe as an algo trader it hits you guys way harder because obviously nobody assumes insider trading in their formulas and you can eat big losses because of it. That's probably part of why I never got into that stuff. This is a soft science, not a hard one, and knowing how much push and pull you're allowed is a big part of beating the benchmarks. I'd bet most algo traders would agree with your viewpoint, which as you said was different than the FSA's in that they thought Einhorn didn't intentionally trade on material info, but I'd also venture to guess that most HF analysts would scratch their heads and say what he did was fine. At that point it's just getting down to subjectivity. Following the language of the laws I think he was okay though, my opinion, but that being said, I get why he was fined.

I hate victims who respect their executioners
 
BlackHat:
The majority of the alpha at these funds [well two of them, the other one was your typical run-of-the-mill l/s fund too big for its own good] comes from conversations with management, ex-employees, etc. that give us the kind of information that essentially nobody else in the market has.

Thank you for being so candid here. Access to non-public information (not necessarily insider information) is an important source of alpha. That is why there is a whole cottage industry of expert network that is not going away despite the recent series of high profile SEC insider trading cases. I was actually at a Sadis Goldberg symposium shortly after the former SAC traders convictions and they had a whole panel on guidances for the proper M.O of the experts in relationship to the compliance clauses.

Too late for second-guessing Too late to go back to sleep.
 

read the whole thread but can anyone explain why that was not insider trading? Not going into the specifics, I thought insider trading: trading with nonpublic information. What about this case (receiving phone call from broker) made it not nonpublic?

Thanks

 
huethan:
This thread has the feel of the 1% (blackhat) vs the ows crowd.

yes, basically. being in industry and having this sort of stuff happen all the time, and knowing how the rules are enforced behind them, this isn't what we would consider inside information though it seems like it is and many could argue that it is. but from an enforcement standpoint, as the outcome definitely suggested, david einhorn got away with "insider trading" by doing what the industry-accepted practice is. it happens in law all the time. FSA knew they had no criminal case so they slapped him on the wrist and he accepted it because it would have been more of a pain in the ass not to.

I hate victims who respect their executioners
 

I have no horse in this race but must insist that any quotes from me are not used to espouse man crushes. If you want to use my words to idolize Kate Upton's breasts, the United States Constitution, John Wayne Movies, or beer, feel free.

FWIW, I really don't think Einhorn is guilty of anything, other than being smarter than a team of idiot bankers and a clueless CEO.

 
Gray Fox:
FWIW, I really don't think Einhorn is guilty of anything, other than being smarter than a team of idiot bankers and a clueless CEO.

If what Einhorn did was insider trading, I think that every banker doing a rights issue for a company should just spam every major investor in their company the plans.

"Issuing $1B in shares. Ur wallcrossed now. LOL."

 

Aren't there some differences between what is considered trading on insider information in the US and UK? I think someone brought it up in our earlier discussion of the fine... //www.wallstreetoasis.com/forums/d-einhorn-fined-£72-million

Aside from the legality of the trade, do you guys think that what he did was ethical? Where would you draw the line?

 

I know 99.99% of you do not care, but Einhorn made the final table. He's also pledged to donate his entire winnings to charity

From wsop.com:

Einhorn, who will enter the final table with 8.375 million and in sixth place, has pledged to donate all of his winnings from this tournament to charity. That's quite the gesture and quite the chunk of change to be donated, making him the lead runner for the most feel-good story at the final table.
 
Unforseen:
I know 99.99% of you do not care, but Einhorn made the final table. He's also pledged to donate his entire winnings to charity

From wsop.com:

Einhorn, who will enter the final table with 8.375 million and in sixth place, has pledged to donate all of his winnings from this tournament to charity. That's quite the gesture and quite the chunk of change to be donated, making him the lead runner for the most feel-good story at the final table.

Let's not pretend we weren't all pulling for him. I'll be watching babe, call me maybe.

I hate victims who respect their executioners
 

Its a very detailed book. Its amazing and one of the better books on hedge funds post 08 but its a heavy read. You will go very deep into the Allied Capital short and learn to admire Einhorn even more.

However if you want to just learn about investing in general try Klarman's Margin of Safety (assuming you've read the usual suspects).

 
SirTradesaLot:

Everybody on WSO will tell you it's great. However, David Einhorn is not an engaging writer. I found it so boring that I could not finish it.

One of the reasons I like it is also the reason I agree that its objectively dry (and, yes, boring at times). It's an extremely detailed explanation of how a thesis was developed, researched, and monitored and how it eventually played out. That means a lot of "and then on the next earnings call the CFO said..." and, due to the nature of the short (largely based on technical accounting principals), lots of tables and discussions of GAAP terminology. It also opened my eyes to the kind of primary diligence hedge funds do.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

I loved the book and have read it twice. But as SirTradesALot said, spots are quite dry and technical. You get to appreciate the good work quality funds do, though.

Confidence Game is a better read in the sense it's not as technical and is written better.

 
trazer985:

i'm hugely cynical about him, especially considering his punch trade. an investment book written with hindsight could contain anything, and it would obviously be true.

If you read the level of detail, including times and dates, it is clear that Allied Capital was a scam and the US Government was quite complicit for nearly a decade.

 
trazer985:

i'm hugely cynical about him, especially considering his punch trade. an investment book written with hindsight could contain anything, and it would obviously be true.

I'm surprised you feel that strongly about it. Even the people I know who think he did something wrong think it was a grey area/judgement call. Companys do hypotheticals/"non-deal" roadshows all the time, there was wide speculation about equity issuance already, and Greenlight specifically said they did not want wall-crossing info.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

This is crazy. Einhorn can make money on a position just by asking a few questions in a conference call. Not saying this is what happened but it's possible.

"Sincerity is an overrated virtue" - Milton Friedman
 

He's a legend.

He called Lehman before it went down, took a lot of heat for it, but was labelled a baller when everyone realized he was right.

febreeze:
anyone who hasn't done so, should read Fooling some of the people all of the time

Anyone have a PDF of it?

 
Brady4MVP:
The guy is such a fucking BOSS, it's sick. No doubt he's one of the 5 best hedge fund managers out there right now, in any space, along with the likes of Jim Simons, Seth Klarman, etc.
None of this should matter to you, Brady. He doesn't even have a degree from a decent Ivy, much less an MBA. How does he plan on closing his next round of fundraising without an MBA?
 
mb666:
Wasn't he on the board of Countrywide? He killed it with Lehman but his overall view of the subprime mortgage industry wasn't on par with Paulson and Kyle Bass.

The guy def has a knack for interpreting financial statements. Like Soros, he's taking advantage of the herd behind him.

I think Einhorn understands individual stocks on a deeper level than almost anyone out there. Not just financial statements analysis but also extensive research into a company's distribution channels, inner operations, etc.

Paulson made one REALLY good call and has been living off of it since. I'm not convinced that he is one of the truly elite hedge fund managers in terms of pure talent.

 
NewGuy:
With the level of diligence they do, I actually think working at Greenlight would be miserable.

Would still be an awesome learning experience that most people would kill to do for a couple of years. I definitely agree that he could ask questions on almost any stock and it would go down, but I wouldn't want to be long knowing that he's taking the other side.

 

Also, I doubt Einhorn actually shorted it before the call. And I bet he was very surprised by the market reaction to his questions. If anything, I bet greenlight loads up the truck on Herbalife shares tomorrow. I'd be a massive buyer right now. This thing will pop 10+% tomorrow. You heard it here.

 
NewGuy:
Also, I doubt Einhorn actually shorted it before the call. And I bet he was very surprised by the market reaction to his questions. If anything, I bet greenlight loads up the truck on Herbalife shares tomorrow. I'd be a massive buyer right now. This thing will pop 10+% tomorrow. You heard it here.

Yeah definitely. Because Einhorn's the type of guy that does his due diligence during conference calls. He definitely didn't want to get them on the record responding to those questions, and he certainly doesn't already have a short position, nor does he know the company better than senior management.

 
NewGuy:
Also, I doubt Einhorn actually shorted it before the call. And I bet he was very surprised by the market reaction to his questions. If anything, I bet greenlight loads up the truck on Herbalife shares tomorrow. I'd be a massive buyer right now. This thing will pop 10+% tomorrow. You heard it here.
How's that prediction working out so far? Down 2% in the first 2.5hrs of trading.

EDIT: Now down 6.3% today, hope you had a good time loading up on HLF!

 

I don't get it. I saw the question and I read the transcript. His question seemed pretty innocuous and the CFO said they could easily provide the data. Does anyone have any idea what Einhorn's getting at or why people think this line of questioning suggests some fundamental weakness in either the business or the financials?

 

David Einhorn is the best research analyst in the business. Nobody comes close. I'd kill a small child and eat the remains in front of a live studio audience just for an opportunity to interview with him.

I hate victims who respect their executioners
 

I'd still load up on Herbalife if I could. But we don't trade US stocks at my fund. And you unpreftigious idiots criticising my "buy" with the benefit of one day or hindsight make me laugh. These are the sort of opportunities event driven funds kill for.

 
NewGuy:
I'd still load up on Herbalife if I could. But we don't trade US stocks at my fund. And you unpreftigious idiots criticising my "buy" with the benefit of one day or hindsight make me laugh. These are the sort of opportunities event driven funds kill for.

Ahh the old "Take the other side when David Einhorn starts asking questions on a conference call" Event, A classic strategy.

 

My man-crush on this guy cannot be explained in words. He understands the things that are important to understand, and he only swings at pitches he can hit. And he's [relatively] young for how successful he's been.

I hate victims who respect their executioners
 

He followed up with an explanation of why he wasn't long YUM brands. Their China exposure, if I remember correctly.

I also don't understand why people like doritos locos tacos. That just sounds fucking disgusting. I can appreciate a cheesy gordita crunch, but doritos locos sounds like the equivalent of nathan's selling hotdogs in a giant scooped out cheeto.

 
balls.mahoney:
He followed up with an explanation of why he wasn't long YUM brands. Their China exposure, if I remember correctly.

I also don't understand why people like doritos locos tacos. That just sounds fucking disgusting. I can appreciate a cheesy gordita crunch, but doritos locos sounds like the equivalent of nathan's selling hotdogs in a giant scooped out cheeto.

You can get the dorito shell inside of a cheesy gordita crunch. You're welcome

This to all my hatin' folks seeing me getting guac right now..
 

Harder to pick good longs in the market cap size Einhorn is forced to play in -- not making excuses for the guy because I don't really follow his longs anyway, but that's a fact. The long side, especially in that cap range, is way, way more competitive than the short side.

From what I have seen, he mostly targets over extended momentum stocks (of the IBD type) that are about to experience decelerating momentum and a change in shareholder constituency. That's a good strategy and highly actionable and liquid enough for a large capital base hedge fund like Greenlight.

Point is, I bet he's a monster on the long side as well and if he were playing with a smaller pool of capital, I'm sure that would be more evident (not that his overall performance isn't awesome, because it is).

 

So many people were short on this stock, 12% of float with 4 days to cover. Not a big deal. It's not like he was the only one shorting this stock and many people short the stock near the top which is a better short.

 

Einhorn is brilliant, but his thesis on CMG is only partially right. He's right on healthcare, food costs, tough macro, overowned stock, and sky-high valuation, but the Cantina Bell argument is garbage (they claim not to have experienced any impact from Taco Bell, which I believe... I think worst case, there were some people who tried Taco Bell, but it's too small to matter). We've been short since June, but the thesis had nothing to do with the Cantina Bell. Furthermore the magnitude of this decline isn't at all related to Einhorn, though you guys, like the financial press, are eager to get on your knees and worship him on such a prescient call. Plenty of people saw this train wreck coming... look at the short interest.

 
DontMakeMeShortYou:
Einhorn is brilliant, but his thesis on CMG is only partially right. He's right on healthcare, food costs, tough macro, overowned stock, and sky-high valuation, but the Cantina Bell argument is garbage (they claim not to have experienced any impact from Taco Bell, which I believe... I think worst case, there were some people who tried Taco Bell, but it's too small to matter). We've been short since June, but the thesis had nothing to do with the Cantina Bell. Furthermore the magnitude of this decline isn't at all related to Einhorn, though you guys, like the financial press, are eager to get on your knees and worship him on such a prescient call. Plenty of people saw this train wreck coming... look at the short interest.

Amen! CMG was trading at rich levels, but this drop cant be attributed to greenlight. Followers latch onto his words so closely that any einhorn correction would be realized in minutes, if not seconds. Maybe its because I'm from a smaller town, but there are still many areas where a CMG would kill it. You should have seen the lines when the first Panera Bread came to my home town...

With that said - look at valuation... CMG is on the complete outside high end of the spectrum when it comes to QSR companies....

 
DontMakeMeShortYou:
Einhorn is brilliant, but his thesis on CMG is only partially right. He's right on healthcare, food costs, tough macro, overowned stock, and sky-high valuation, but the Cantina Bell argument is garbage (they claim not to have experienced any impact from Taco Bell, which I believe... I think worst case, there were some people who tried Taco Bell, but it's too small to matter). We've been short since June, but the thesis had nothing to do with the Cantina Bell. Furthermore the magnitude of this decline isn't at all related to Einhorn, though you guys, like the financial press, are eager to get on your knees and worship him on such a prescient call. Plenty of people saw this train wreck coming... look at the short interest.

Exactly. This wasn't some groundbreaking bold call by Einhorn. We've been short since the uptrend died in May or whenever. I was confused by the Taco Bell argument since just from experience I think the number of people out there who weigh Taco Bell against Chipotle is countable on one hand. That could change over time but I highly doubt it, though all the conventional reasons for betting against CMG are entirely valid and in my eyes pretty damn obvious. That said, I still think the guy's awesome on the short side but tend to agree that his longs are average. I'm not piling into STX anytime soon. And as bad as I want to short LULU again the time isn't right (though today says otherwise) just yet. Never take another investor's advice without at least knowing what he's talking about.

Disclosure: I am short TRIP

I hate victims who respect their executioners
 

Short CMG since $335. But not this last time. July '11. OK this is not true, but all his arguments were true then. And yet I would have been stopped out by my risk manager by Mar '12, max, regardless of fundamentals, or whatever greasy shit Taco Bell came up with. The point being? Should I try to ETF-package whatever crap goes up or down more than 20%?

 

I think Einhorn's justification is wrong regarding CMG. In my opinion, Taco Bell won't hold a candle to CMG in terms of quality. There is a completely different brand of people that go to CMG than Taco Bell.

CMG was trading at a sky high valuation of a 55+ P/E in April. Now it's probably in the 30 range. I think they just fell victim to the 'expectation treadmill.' They enjoyed a number of years of impressive comparable store sales growth of 10+% and now they have to "settle" for 4-6% (which is still light years ahead of competitors). Previous years comp sales growth was attributed to menu price increases which they halted in 2012. I don't think the last two revenue misses were all that unexpected. Revenue is still growing 20-25% yoy.

I think now would probably be a good time to buy CMG.

My name is Nicky, but you can call me Dre.
 

He is a genius but I'm not going to blindly follow him into trades. He also said that analysts make calls based on his pitches are "the same as the replacement refs"

"Einhorn begins talking about an anonymous “Influential Investor” from 1996 who purchased shares in Cityscape stock and touted it at the Barron’s Roundtable. The stock tanked, and the investor admitted the mistake. The lesson he preached to those who followed him into the name is: “do your own homework”. Einhorn reiterates: never blindly follow an investor into a stock."

FWIW, the influential investor he reference was Michael Price

 
Whgm45:
Einhorn's primary reason was the competition from Taco Bell's new Cantina menu. That competition never materialized, hence I'd question calling him a God for this call.

Yah I'm not gonna diss him for the call, he probably made a ton of money on it. Personally though, I believe the past two misses are a result of the expectation treadmill. The market gets used to, and EXPECTS 25-30% yoy revenue growth with 10+% comp sales. That is simply unsustainable. So the stock gets punished even though they are killing their competitors right now. Panera barely holds a candle to Chipotle and Panera is run exceptionally well in their own right.

If you are a contrarian investor, now would be a good time to think about purchasing some CMG. P/E has retreated to a multiple more in line with top tier competitors and hopefully the market has priced in the expectation of only mid-single digit comp growth.

If CMG comes back and raises prices a little they will be right back to 10% comp sales, post a beat and the stock will jump 15%.

My name is Nicky, but you can call me Dre.
 

Yesterday's Dealbreaker article pulled in the important content out into a pretty short, readable format. My readingi boiled down to this:

PUNCH: Hey David, want to get your thoughts on our capital structure - we are thinking about raising equity. DAVID: Whoa, bad idea, you're just saying that because of a recent pop in the stock price. Wait a bit. PUNCH: Will you sign an NDA? DAVID: No. I won't spread this information but I want to be able to transact. Is this a done deal or are you just having conversations. PUNCH: We have done a lot of analysis and are talking to people, but it's not a done deal. Other shareholders have signed on to our plans DAVID: What plans? PUNCH: Plans in the NDA, you'd have to sign one to find out DAVID: Not gonna do it. Wouldn't be prudent at this juncture PUNCH: OK

 
Relinquis:

Shocking to see a CEO so candid about working for the bondholders instead of the shareholders....

I think he, and all CEO's, have to do this to a certain extent. In a highly leveraged company like Punch, if you don't think about creditors first you risk liquidation, which would certainly leave shareholders worse off. The CEO is basically arguing that the options are a) raise equity to shore up the balance sheet or b) risk default and bankruptcy.

The funniest part of this whole conversation is that the CEO makes it very clear that they are going to raise new equity with almost 100% certainty and THEN asks whether Einhorn will sign and NDA. Outrageous.

 

Yeah, he has basically said that he doesn't believe he can survive with this much leverage and wants to dilute shareholders as a result... the whole point of running a highly leveraged company is that you have the ability to manage cash-flow and leverage as a core competency so you don't resort to dilution/raising equity. He has basically said that the rationale for running the company this way is not sustainable, so diluting the equity makes his time as CEO easier, but it doesn't really make the equity that much safer... its still a highly leveraged company.

The ML broker was fined £350,000. This article has a bit of detail: http://uk.reuters.com/article/2012/02/16/uk-punch-fsa-merrill-idUKTRE81…

The FSA said that Osborne, an experienced corporate broker, failed in his duties not to disclose inside information and to consider the risk of market abuse. It accepts that Osborne's actions were not deliberate.

"(Osborne) was trusted as the gatekeeper of inside information and should have been extremely cautious in proceeding with the call with Greenlight in light of the clear legal and regulatory risks involved," Tracey McDermott, acting director of enforcement and financial crime, said.

"By disclosing inside information, Osborne engaged in serious market abuse. His actions undermined the orderliness and integrity of the market and the high penalty reflects the seriousness of his breach."

Osborne said he did not believe the FSA's decision was fair, and that he had followed proper procedures throughout the transaction. Einhorn and Greenlight Capital also disputed the FSA's sanctions but decided against a formal challenge.

"None of the many advisers or others involved in this transaction believed that any inside information had been passed by me at the time or raised any issues regarding the sale of shares by Greenlight. The FSA is clear that not one single piece of information I disclosed constituted inside information," he said in a statement on Thursday.

"I believe that the level of fine is disproportionate and bears no relation to previous cases of inadvertent disclosure and is even higher than many cases of deliberate disclosure."

The FSA acknowledges that Einhorn asked not to be "wall crossed," or told of any inside information, but says Osborne still proceeded with the conference call on June 9.

In January, the FSA also handed out fines to Greenlight's trader and former compliance officer Alexander Ten Holter, and Casper Agnew, a trading desk director at JP Morgan Cazenove, who failed to identify the possibility the trade was made on the basis of inside information.

 

The cheap money ends with QE2. Might be resumed after the market corrects sharply and the Fed is pressured into QE3.

I would short the Euro against the dollar right now btw, lots of headwinds against the Euro that aren't getting press right now, plus with QE2 over the dollar will look good. I'm market neutral on equities and short commodities.

 
alexpasch:
The cheap money ends with QE2. Might be resumed after the market corrects sharply and the Fed is pressured into QE3.

I would short the Euro against the dollar right now btw, lots of headwinds against the Euro that aren't getting press right now, plus with QE2 over the dollar will look good. I'm market neutral on equities and short commodities.

agree with you on the Euro... it's not going to hold up at 1.45-1.50 to the dollar for very long.

 

When there's a cloud of suspicion over an expert stock picker and whether he has equal access to information as the rest of us... that adds a whole another dimension to his story.

The truth is you're the weak. And I'm the tyranny of evil men. But I'm tryin', Ringo. I'm tryin' real hard to be the shepherd.
 
jtbbdxbnycmad:
When there's a cloud of suspicion over an expert stock picker and whether he has equal access to information as the rest of us... that adds a whole another dimension to his story.
Just because we all have equal access to information, ie: Bloomberg terminals, EDGAR, Investor Relations, doesn't mean he must get his info from the inside. It's his job to dig into companies, and he gets paid hundreds of millions a year to do it. I don't pour through 10Ks and call CEOs every day because I have no capital, credibility, influence on the market, or incentive. Even if I found the opportunity of a lifetime, there's nothing I can do about it. He can probably tell if a CEO is lying through the phone, but the only reason he's on the phone with them in the first place is because he's a billionaire who can move a stock price if he opens his mouth.
 

People have a hard time understanding the difference between asking the right questions and straight up insider trading. Just because the information isn't delivered right to your doorstep in person by the CEO doesn't make it insider info, and the fact that these guys do in-depth research for a living means they're going to dig up a lot more than the public is going to know about a business. The guy understands how businesses work and has the experience to know what questions are important to ask and when someone is purposely avoiding a particular piece of information. This stuff is commonplace for experienced analysts and like someone mentioned, you can easily get a sense for things that would be nonpublic if said explicitly, but management can unintentionally provide us with a tell. The fact that the average investor isn't interacting with management and getting the opportunity to grill them and try to get a sense for stuff that could potentially be nonpublic is probably upsetting for most people but definitely not insider trading.

I hate victims who respect their executioners
 

I am bullish on MSFT and think they are/have to make some large game-changers to stay competitive. Relatively the same stock price for the last decade...cmon? You have to change!

I do like their new mobile operating system upgrades that launched this week and think this will only get better. Also, their enterprise initiatives are going to give RIM a run however google's getting there too

Will be very interesting to see how they weather this storm within the next year Giving a free 4gb xbox with a laptop isn't going to cut it

Imma drop some coin into them though

 

Price is what you pay; value is what you get. Look at MSFT's growth in revenues and earnings historically over any period you want. Any way you look at it, the company has performed exceptionally. And the company has a moat like a castle, ignoring the distant, nebulous threat posed by the "cloud revolution." On an EV/EBIT basis, MSFT is now as cheap as it was in September 2009, at the heart of the market crash. Eventually the market will wake up.

 

Disagree with above. Ballmer needs to go. I got tons of monkey shit for my last MSFT post but I'm extremely bearish if this company doesn't change its management fast. First of all, they missed out on an entire development cycle. Literally, they missed the ball on mobile computing. Windows 7 phone might have some growth with the Nokia deal (check out CIO magazine today). The reality is that Windows controls all product decisions in the company, and the company is not able to leverage its other assets/products (like Office) without interoffice politics from Windows groups.

Take a look at Kinect. When the product was released, many developers (outside of Microsoft) "hacked" the system to make it do things beyond playing games. Microsoft's initial response was to discourage these practices. This is an old school way of thinking: instead of allowing third party developers to come up with new uses for the product, Microsoft initially aimed to take complete control of the product, refusing to let them do so. After some haggling, MSFT finally agreed to allow outside developers to build new applications for the product.

I think this old school style thinking comes from their management. MSFT was never really an innovator; they simply took good ideas and found a way to sell them. Its in the company's blood. Look at Gates. Many of the contributions MSFT is known for today are just improvements upon other products (GUI, Office Suite), with clever marketing/strongholding business practices. Ballmer lives in that world (he has been with the company since the beginning), and doesn't understand the way MSFT needs to change in order to compete in this new marketplace.

looking for that pick-me-up to power through an all-nighter?
 

I think when you have that much money, you start to look for cool shit to do. This would qualify as cool shit with the potential (maybe?) for some profit if he can turn it around.

If I had asked people what they wanted, they would have said faster horses - Henry Ford
 

Interesting article, GD. But even if he does become majority owner, he'll still have to deal with that $1 billion lawsuit that's still pending as well as the losses from the Madoff scandal. I wonder if either of those things affected the valuation in any significant way...

Metal. Music. Life. www.headofmetal.com
 
Pfalzer:

We had a discussion sometime last week about whether buying a sports team is a prospect that makes sense. Well, it appears our good friend David Einhorn of Greenlight Capital is responding to the bullpen call for an investor to prop up the Mets. (Where's Midas? I'm sure he is celebrating!)

Undisclosed location. Winning. Seriously though, Einhorn will be running the show within 5 years. Just from the preliminary stuff I have read, he's got Wilpon over a barrel. He's got himself insulated (dare, I say fully hedged) from the risks stemming from the Madoff association. He's already dropped a few subtle comments in interviews that you definitely wouldn't if this were just a prop up the shop (see what I did there?) scenario.

Overall, if you're a Met fan you have to be happy. In an odd way though, I feel for Fred Wilpon. I am older than most of the guys on this board and I have suffered through some inexplicably difficult years in orange and blue. Hell, Shea was so dead at one point that we snuck in quarter kegs in the bottom of a wheel chair. But I digress...

Fred Wilpon's the type of rags to riches NYC story that the typical monkey aspires to become. It's a shame he's going out like this, even though I have flung shit at him over the years as if he was SirBankalot or something. I doubt we will ever know whether he was implicit in the Madoff thing but one thing's for sure... he's gonna pay for it.

As far as the Mets go...New York City National League baseball franchise...much like real estate... they ain't makin' any more of it. What I'd be more concerned with as a Met fan is the shitstorm WIlpon talked up in that interview. Combine his words and the last week or so of action and I am beting Jose Reyes is going to want Pujols money. If Einhorn can talk, as well as he banks bread and lets those dollars talk...the Mets will be fine.

 
Midas Mulligan Magoo:
Pfalzer:

We had a discussion sometime last week about whether buying a sports team is a prospect that makes sense. Well, it appears our good friend David Einhorn of Greenlight Capital is responding to the bullpen call for an investor to prop up the Mets. (Where's Midas? I'm sure he is celebrating!)

Undisclosed location. Winning. Seriously though, Einhorn will be running the show within 5 years. Just from the preliminary stuff I have read, he's got Wilpon over a barrel. He's got himself insulated (dare, I say fully hedged) from the risks stemming from the Madoff association. He's already dropped a few subtle comments in interviews that you definitely wouldn't if this were just a prop up the shop (see what I did there?) scenario.

Overall, if you're a Met fan you have to be happy. In an odd way though, I feel for Fred Wilpon. I am older than most of the guys on this board and I have suffered through some inexplicably difficult years in orange and blue. Hell, Shea was so dead at one point that we snuck in quarter kegs in the bottom of a wheel chair. But I digress...

Fred Wilpon's the type of rags to riches NYC story that the typical monkey aspires to become. It's a shame he's going out like this, even though I have flung shit at him over the years as if he was SirBankalot or something. I doubt we will ever know whether he was implicit in the Madoff thing but one thing's for sure... he's gonna pay for it.

As far as the Mets go...New York City National League baseball franchise...much like real estate... they ain't makin' any more of it. What I'd be more concerned with as a Met fan is the shitstorm WIlpon talked up in that interview. Combine his words and the last week or so of action and I am beting Jose Reyes is going to want Pujols money. If Einhorn can talk, as well as he banks bread and lets those dollars talk...the Mets will be fine.

Whoa, whoa--is that optimism I see, Midas?

I mean, Reyes has been injured so often (he's on bereavement now too, right?), I think that'll affect how much of a price he'll be able to command. And honestly, that lawsuit is so ridiculous it isn't even funny; it's obvious that the team can't pay, at least not now.

Yeah, what's happening to Wilpon sucks. Bad break for sure, but a guy who has had that kind of success in the past will probably have an easier time recovering. Here's hoping he lands on his feet, whatever happens--and maybe some of your winning can be transferred to the orange and blue.

Metal. Music. Life. www.headofmetal.com
 

I really don't think he did anything wrong here. As someone who was victimized by the overzealous fundraising of portfolio companies (and all the subsequent dilution) over and over again, I think you have an obligation as a major shareholder to keep your ear to the ground and find out ahead of time if a company you own is going looking for cash.

Raising money through dilution is never good for a company's stock price, and you owe it to yourself to dump it before the word's on the Street.

 

Ed,

The fact that it was the right investment move doesn't exonerate him at all. In fact, the action is all the more unacceptable. If he had, through his own research of the public record, concluded that Punch Taverns plc was about to dilute its shareholders' positions, then he's entitled to whatever loss protection he can come up with. That doesn't seem plausible at this point. He didn't "find out" or figure it out over time; he found out from a broker.

I, like many others, think his treatment of Allied and Lehman was the stuff of legend, but in this case, it's hard to be sympathetic.

The truth is you're the weak. And I'm the tyranny of evil men. But I'm tryin', Ringo. I'm tryin' real hard to be the shepherd.
 

Wait what !?

"Under UK law that distinction doesn’t seem to apply: if you trade on inside information, you’ve committed “market abuse,” and are in trouble. It doesn’t matter if you agreed, or didn’t agree, or were or were not asked to agree, to keep it confidential or not trade on it: if it came from inside, and isn’t public, you can’t trade. [UPDATE: As Einhorn pointed out on his call about the matter, UK precedents are not so clear - in previous insider trading cases there always was a breach of a wall-cross. But the US "breach of a duty" standard does not seem to explicitly apply so, y'know, first time for everything.]"

So then theoretically-if I didn't want Einhorn to trade my stock-I could just call him & say "hey, we're looking to raise capital." Before he says anything. Even if he doesn't agree to wall-cross (?), TOO BAD, I already told you non-public information.

What is stopping a broker from just calling a PM and shouting non public info into the phone? Too late! You heard NPI, can't do anything about it!

Comments Eddie/grayfox ?

 

My initial observation was that the move today was irrational. I'm familiar with how successful Greenlight has been with their shorts (Allied, Lehman, Green Mountain, etc), read his book, and would not want to be on the other side of a trade. That being said his questions were relatively innocuous - the distributor mix at the low end is important to the growth of the business but is not a GAAP line item that would be skewed and indicative of accounting fraud. Most of the big ones he has nailed have been actual accounting frauds. There is a very legitimate chance that the CFO digs up the relevant figures, they have deteriorated slightly but there is nothing illicit going on, and the stock slowly recovers.

All of that being said, I doubt Einhorn himself would be on the call unless something big was in the works. I see this playing out one of two ways.

-Greenlight is short. HLF gets back to him and other investors with the distributor mix and is very transparent about things. The stock suffers a bit but many of the shorts cover. Einhorn made a nice little profit and the world goes on its way.

-Greenlight is short. HLF isn't forthright with disclosure on the distributor mix or there are more accounting issues. There are 15 days until the Ira Sohn conference. This could very well be a grace period for HLF to make things right. If not, Einhorn goes into full out assault mode and HLF gets ripped to shreds at the conference. If a few questions on a call are enough to send the stock down 20%, I can't imagine how ugly it would be off of a full short thesis.

The idea of him being long and manipulating the price for an entry point seems like a very low probability event to me. He seems like too much of a stand up guy. I doubt it would be legally awry, but after the whole mess with Punch I don't think they want another headache.

 
Gray Fox:
My initial observation was that the move today was irrational. I'm familiar with how successful Greenlight has been with their shorts (Allied, Lehman, Green Mountain, etc), read his book, and would not want to be on the other side of a trade. That being said his questions were relatively innocuous - the distributor mix at the low end is important to the growth of the business but is not a GAAP line item that would be skewed and indicative of accounting fraud. Most of the big ones he has nailed have been actual accounting frauds. There is a very legitimate chance that the CFO digs up the relevant figures, they have deteriorated slightly but there is nothing illicit going on, and the stock slowly recovers.

All of that being said, I doubt Einhorn himself would be on the call unless something big was in the works. I see this playing out one of two ways.

-Greenlight is short. HLF gets back to him and other investors with the distributor mix and is very transparent about things. The stock suffers a bit but many of the shorts cover. Einhorn made a nice little profit and the world goes on its way.

-Greenlight is short. HLF isn't forthright with disclosure on the distributor mix or there are more accounting issues. There are 15 days until the Ira Sohn conference. This could very well be a grace period for HLF to make things right. If not, Einhorn goes into full out assault mode and HLF gets ripped to shreds at the conference. If a few questions on a call are enough to send the stock down 20%, I can't imagine how ugly it would be off of a full short thesis.

The idea of him being long and manipulating the price for an entry point seems like a very low probability event to me. He seems like too much of a stand up guy. I doubt it would be legally awry, but after the whole mess with Punch I don't think they want another headache.

Nice. Very curious to see how this ends up.

 
Gray Fox:
My initial observation was that the move today was irrational. I'm familiar with how successful Greenlight has been with their shorts (Allied, Lehman, Green Mountain, etc), read his book, and would not want to be on the other side of a trade. That being said his questions were relatively innocuous - the distributor mix at the low end is important to the growth of the business but is not a GAAP line item that would be skewed and indicative of accounting fraud. Most of the big ones he has nailed have been actual accounting frauds. There is a very legitimate chance that the CFO digs up the relevant figures, they have deteriorated slightly but there is nothing illicit going on, and the stock slowly recovers.

All of that being said, I doubt Einhorn himself would be on the call unless something big was in the works. I see this playing out one of two ways.

-Greenlight is short. HLF gets back to him and other investors with the distributor mix and is very transparent about things. The stock suffers a bit but many of the shorts cover. Einhorn made a nice little profit and the world goes on its way.

-Greenlight is short. HLF isn't forthright with disclosure on the distributor mix or there are more accounting issues. There are 15 days until the Ira Sohn conference. This could very well be a grace period for HLF to make things right. If not, Einhorn goes into full out assault mode and HLF gets ripped to shreds at the conference. If a few questions on a call are enough to send the stock down 20%, I can't imagine how ugly it would be off of a full short thesis.

The idea of him being long and manipulating the price for an entry point seems like a very low probability event to me. He seems like too much of a stand up guy. I doubt it would be legally awry, but after the whole mess with Punch I don't think they want another headache.

Great analysis. The 20% drop is the market discounting the very real possibility that Einhorn is going to present a damaging thesis against HLF at the upcoming conference.

I find it amusing that HLF just so happens to report its quarterly earnings so shortly before the Ira Sohn conference. I think Einhorn is onto HLF and is going for an expose. The timing of the earning call allows him to give everybody a heads up on what he is up to.

Too late for second-guessing Too late to go back to sleep.
 
Gray Fox:
My initial observation was that the move today was irrational. I'm familiar with how successful Greenlight has been with their shorts (Allied, Lehman, Green Mountain, etc), read his book, and would not want to be on the other side of a trade. That being said his questions were relatively innocuous - the distributor mix at the low end is important to the growth of the business but is not a GAAP line item that would be skewed and indicative of accounting fraud. Most of the big ones he has nailed have been actual accounting frauds. There is a very legitimate chance that the CFO digs up the relevant figures, they have deteriorated slightly but there is nothing illicit going on, and the stock slowly recovers.

All of that being said, I doubt Einhorn himself would be on the call unless something big was in the works. I see this playing out one of two ways.

-Greenlight is short. HLF gets back to him and other investors with the distributor mix and is very transparent about things. The stock suffers a bit but many of the shorts cover. Einhorn made a nice little profit and the world goes on its way.

-Greenlight is short. HLF isn't forthright with disclosure on the distributor mix or there are more accounting issues. There are 15 days until the Ira Sohn conference. This could very well be a grace period for HLF to make things right. If not, Einhorn goes into full out assault mode and HLF gets ripped to shreds at the conference. If a few questions on a call are enough to send the stock down 20%, I can't imagine how ugly it would be off of a full short thesis.

The idea of him being long and manipulating the price for an entry point seems like a very low probability event to me. He seems like too much of a stand up guy. I doubt it would be legally awry, but after the whole mess with Punch I don't think they want another headache.

HLF stumbled again today following GMCR's miss last night and the buy back announcement is doing little to reverse the decline. GMCR's earning miss last night vindicated Einhorn's thesis on that one and presumably lends further credence to the possibility that Einhorn is about the strike again. Can't wait until the Conference to find out...

Too late for second-guessing Too late to go back to sleep.
 
blueslord2910:
I listened to it and read the scripts too. I do not understand why the stock dropped 20%

Because Einhorn was the on the call and not one of his analysts. It was meant to make a point - the questions were somewhat inconsequential/innocuous but the tone was obvious.

"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."
 

GF,

I did not mean to imply that Einhorn is trying to manipulate. I meant that its possible he was trying to develop a long thesis. His questions were pretty simple and that response from management did not sound like they're trying to avoid the issue.

Anyone on here submit an idea to Ira Sohn? I'm thinking about doing it.

Follow me on Twitter: https://twitter.com/_KarateBoy_
 

Multi-level marketing stocks have defied gravity until now. On a purely numerical basis, they look very attractive, but it isn't difficult for someone to realize that fundamentally these businesses shouldn't be allowed to exist. 99.9% of distributors don't make money, and a majority of products are bought by those distributors, not end customers. These stocks have been putting up consistently good numbers, beating quarter after quarter, and in a market that is hungry for growth (especially in EMs) people will turn a blind eye and buy it. The irrationality has been going on for a while. It doesn't take much of a jolt to wake people up. It's not about the specific question that was asked. This is a situation where everyone knows the game will be up at some point, so when people see the first hint of smoke, they rush for the door because they don't want to be the last one out.

 
Gate_Crasher:
EDIT: Just saw the link.

Edit: Can someone please explain to me what does it all mean in a simple manner. I think I am missing on what the significance of the questions and answers are.

Thank you

His question has to do with two things primarily: 1) Distributor mix. It's important to know how a company gets its products to end-users, because this can have implications for sales timing, revenue recognition, working capital, and margin. Any time you have a non-typical relationship with your suppliers or distributors, there's potential for earnings manipulation because you can do things like use your leverage to force product into a distribution channel, creating additional sales for you in the short-term but "stuffing the channel" with excess supply in the longer-term.

To use a hypothetical example here, if HLF has 10,000 ladies who host herbalife parties and are selling it to their friends and family, HLF can "stuff the channel" by forcing or incentivizing them to buy, say, a 18-month supply upfront instead of a 12-month supply. This creates additional sales for HLF now (which they likely recognize immediately because they've moved the product and gotten paid for it) but means that those sales won't reoccur for over a year. (I don't know enough about HLF's business model to know if this is what's happening, just an example.)

For another example of why this sort of thing is important, read up on Greenlight's thesis on GMCR. A big part is growth potential (or lack thereof) but also important is the atypical relationship with their key vendor.

2) Quality of reporting. HLF used to disclose the distributor break-down; now they don't. The cynical interpretation is that the distributor mix has changed for the worse and the company is trying to disguise/hide this.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

By the way, do you guys have any idea what their buying/shorting strategy in order not to be followed by the average investor ? Because as soon as one broker/bloomberg employee sees what greenlight capital is doing, copying their moves could potentially mean big $$.

How do globally known hedge funds and money managers "cover their tracks" in general ?? Do they temporarily open dummy companies to do important trades and dismantle them after a profitable trade?

 

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I hate victims who respect their executioners
 

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Career Advancement Opportunities

March 2024 Hedge Fund

  • Point72 98.9%
  • D.E. Shaw 97.9%
  • Magnetar Capital 96.8%
  • Citadel Investment Group 95.8%
  • AQR Capital Management 94.7%

Overall Employee Satisfaction

March 2024 Hedge Fund

  • Magnetar Capital 98.9%
  • D.E. Shaw 97.8%
  • Blackstone Group 96.8%
  • Two Sigma Investments 95.7%
  • Citadel Investment Group 94.6%

Professional Growth Opportunities

March 2024 Hedge Fund

  • AQR Capital Management 99.0%
  • Point72 97.9%
  • D.E. Shaw 96.9%
  • Citadel Investment Group 95.8%
  • Magnetar Capital 94.8%

Total Avg Compensation

March 2024 Hedge Fund

  • Portfolio Manager (9) $1,648
  • Vice President (23) $474
  • Director/MD (12) $423
  • NA (6) $322
  • 3rd+ Year Associate (24) $287
  • Manager (4) $282
  • Engineer/Quant (71) $274
  • 2nd Year Associate (30) $251
  • 1st Year Associate (73) $190
  • Analysts (225) $179
  • Intern/Summer Associate (22) $131
  • Junior Trader (5) $102
  • Intern/Summer Analyst (249) $85
notes
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success
From 10 rejections to 1 dream investment banking internship

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