Short Stocks Like David Einhorn?

Business Insider recently linked to an interview with David Einhorn in which he lays out how he short stocks--or at least how he did it in this past financial crisis. Here's the relevant section:

Interviewer: Okay. I guess I want you to continue to sort of chronologically in August of ’07, as you said you see BNP Paribas freeze redemptions and that gives concern and you’re talking to the rating agencies among other things and you’ve identified the type of companies that you had concerns about. Can you just sort of take us through chronologically through the end of ’07 and into ’08 and how things changed, if at all, for you folks?

David Einhorn: Yeah absolutely. So this is sometime in August, we put on a bunch of positions and our team here basically divided up the names for sort of further work cause we wanted to figure out which were the ones that were the most exposed. Whereas the initial couple dozen was ticked off relatively quickly over the course of a weekend, which is not our normal amount of time to [do] due diligence, but I felt that given what was going on, there may not be a lot of time. And so we began putting on those couple dozen positions a little faster than we ordinarily would if we were just researching an individual security.

So from there we began concentrating our work and trying to figure out well which were the better, more exposed companies and which were the less exposed companies and over the course of the next couple of months, we focused the list down and we covered a number of the shorts and we increased a number of the shorts as we focused on the people that we thought were most vulnerable.

In sum, Einhorn quickly shorted a group of businesses in an industry with problems, worked feverishly to differentiate the worst of that bunch from the best, and then covered his shorts or added to them accordingly. You can check out the rest of the interview at Santangel's Review.

Einhorn Doesn't Like Bugs

At least not of the Volkswagen variety. A recent article in the Wall Street Journal explains why:

Numbers normally speak for themselves with investment returns. It is a rare case when no figure can portray the full impact.

Hedge-fund manager David Einhorn (left), of New York’s Greenlight Capital, in a recent investor letter listed in a table the internal rate of return of 14 positions he closed in the first quarter. A bearish bet on jewelry retailer Zale generated a return of 92% and another on U.S. Bancorp returned 78%, Greenlight said in the May 1 letter. Then there were investments in companies such as Dr Pepper Snapple Group and Aldar Properties that generated losses of 46% and 91%, respectively, it continued.

But for the by now infamous Volkswagen trade, which dealt a punishing blow to hedge-fund managers around the world last year, Greenlight didn’t list a figure. It simply said, “bad.”

The only additional explanation it gave: “a relatively small position that caused a large loss.”

The article goes on to say that the position ending up costing Greenlight over one percent of its performance for the year.