Billionaire hedge fund hot-shot David Einhorn, the founder of Greenlight Capital, gets his investment edge by identifying something the public has been misinformed about.
Einhorn, who’s known for publicly shorting Lehman Brothers’ stock before the bank’s demise and most recently shorting Green Mountain Coffee Roasters, said the following, according to hedge fund blog Market Folly who published notes from the CIMA conference Q&A session.
Once you have an idea, what is your edge?:
We want to find out what the misunderstanding is. Sometimes it’s a conspiracy to misinform people. Wall Street has this agenda. We like to identify something in which the public has been misinformed. How do you know you’re right? That’s what the work is. We find out what everyone thinks, and then what we think, and then we test it. What we need to know to convince ourselves that we understand it. Fairly informal process, not a firm checklist.
Hmm…conspiracy to misinform? Very interesting.