Interview with David Einhorn

[ValueArb]

On 4/3/2024 at 4:56 PM, Gregmal said:

I saw this, and just thought....how disingenuous? 

 

https://www.cnbc.com/2024/04/03/david-einhorn-thinks-inflation-is-reaccelerating-and-has-made-gold-a-very-large-position.html

 

Aint this dude been long and loud gold since basically the GFC?

 

Einhorn is a pure value investor, except when he isn't.

 

I have a theory that clients exhibit a powerful corrosive effect on money managers of all religions. Successful managers outperform being really good at their chosen skills and methods, then when their fund becomes huge and outperformance more difficult, thats when they have that first inevitable stumble that starts to cost them clients. Some can only handle it for a little while before they say "f it" and start following the crowd into the most popular ideas. Or they go off the reservation in other ways, convinced they are still smarter than the crowd so if their methods stop working they cast about for another "smarter than the other guy" methods they would have previously rejected. 

 

My theory was created while trying to understand why Buffett gave up his 25% profit share to run Berkshire for nearly free, where he doesn't have to coddle any clients or care when they sell out, just focus on doing his job 363 days a year excepting that one shareholder meeting a year. It probably helped keep him even keeled and outside of one speculation in silver (and allowing Ted/Todd to buy Snowflake at infinite PE) on the same track for 70 years.

[Rod]

Personally, I’m seeing far, far bigger discounts today in smaller stocks than I’ve ever seen before. I suspect that Einhorn is right. People have predicted for a long time that the rise of passive would damage price discovery. That probably hasn’t happened yet in the large stocks, but seems to have in the small ones.

[oscarazocar]

1 hour ago, Rod said:

Personally, I’m seeing far, far bigger discounts today in smaller stocks than I’ve ever seen before. I suspect that Einhorn is right. People have predicted for a long time that the rise of passive would damage price discovery. That probably hasn’t happened yet in the large stocks, but seems to have in the small ones.

 

What are some examples of the big discounts in smaller stocks that you are seeing?  Thanks.

[SharperDingaan]

As a small-cap investor for decades, we find this whole conversation both instructive, and highly amusing.

 

Einhorn is quite right in that small-caps don't feel the love when they do well; but why would you expect them to? They can't be bought/sold in quantity without moving the price, hence are useless to the trading market; the better trading solution is actually a small-cap ETF where the liquidity is deeper. And with that small-cap ETF, all that one need do is set up a 'bot up to buy/sell against an algorithm; and get out of way. You, as the human ... are just a liability.

 

To do well in the small-cap space, you have to accept the inherent higher risk and view the companies as businesses - not investments. Know what they do, how they make money, where their commodity cycles are, etc. It's about continuously growing cash flow via dividends, and the reinvestment of swing trade gains, through time. Playing the same game multiple times, versus the gamblers once and done. Not conductive to typical trading.

 

However, play well, and the dividend yield on your original $X of investment; moves to infinity over time, and becomes infinity when gains to date exceed the original investment. Hence swing trades aren't just trades, they are also a strategy not conductive to typical trading.

 

Be mindful of the conversational framing.

 

SD

Edited April 7 by SharperDingaan