David Einhorn Spots Financial-Reform Problems and Blue-Chip Bargains

The hedge-fund manager who called the falls of Allied Capital and Lehman Brothers shares his views on the shortcomings of financial reform and five stocks he likes.

Thanks to his astute calls on the failings of Allied Capital and Lehman Brothers, David Einhorn has gained a reputation as one of the nation’s shrewdest hedge-fund managers. Profits from the short sales of those stocks have helped his $7 billion fund, Greenlight Capital, achieve scintillating results. From its inception in 1996 through November 30, the fund returned an annualized 21%, net of fees (over the same period Standard & Poor’s 500-stock index gained 6% annualized).

Although Einhorn attracted more attention in October when he suggested that the stock of St. Joe, a real estate development company in Florida, was greatly overvalued, he clearly wants to be known for more than his investing acumen. In 2008, he published a book, called Fooling Some of the People All of the Time, about his battle against Allied, a business-development company, and his lengthy campaign to get federal regulators to act on his assertions that Allied engaged in deceptive accounting practices. At one point, the Securities and Exchange Commission investigated Einhorn for allegedly manipulating Allied’s stock. He was eventually cleared of wrongdoing.

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Jennifer Schonberger
Staff Writer, Kiplinger's Personal Finance