has been known to pull down celebrated companies from their lofty
heights with a single presentation showcasing their ill-boding
fundamental and market flaws based on research from his hedge
fund, Greenlight Capital. Chipotle (
), Herbalife (
) and Green Mountain Coffee Roasters (
) have all been Einhorn targets.
While GuruFocus does not catalogue the short positions of most
gurus because they are not required to disclose them, it can be
informative to look at the ones they report occasionally in their
Though one of Einhorn's first quarter short positions ranked as
his third most profitable, collectively they were less successful
than those of yester-quarters. While his long portfolio almost
matched the market's 10.5% return, his short portfolio suffered a
slight loss, according to his firm's letter. He exited at least
two short positions by quarter-end: Avalon Bay (
) and MBIA (
Avalon Bay (
Einhorn started short selling Avalon Bay in early 2007, in an
initially spot-on call. Avalon shares tumbled from an all-time
high beyond $145 in the first quarter to below $42 by early 2009.
As he says in his letter, his error was that his team "overstayed
our welcome." Gains erased as the stock traded up over subsequent
years to a current 52-week high of $151.23.
Avalon's stock price has increased along with the rising
popularity of real estate investment trusts (REITs) among
investors. The average residential REIT yields 3.4% and the
average financial REIT 6.3%, according to ReitMonitor.com, which
is particularly attractive in a world of historical low interest
rates on bonds. Avalon Bay's dividend yield stands at 2.99%, with
a 2.1% growth rate over three years - actually lower than 88% of
the 249 in the global residential REIT industry as its stock
At March 31, 2013, AvalonBay owned interest in 272 apartment
communities directly or indirectly, with 81,279 apartment homes
across 12 states and Washington, D.C. These communities are
located in "17 high barrier-to-entry markets characterized by a
low supply of zoned apartment land and lengthy and contentious
entitlement processes," according to the company.
Einhorn, however, left his short position with the diss: "It is a
mediocre business with cyclical valuation due to its REIT
Shares slumped slightly over the past few months as the company
acquired a portfolio of high quality apartment communities in
coastal markets from Archstone Enterprise LP, for which it issued
almost 15 million shares of common stock.
AvalonBay trades for a P/E of 30.90, P/B of 2.23 and P/S of
On the long side,
closed out his remaining 10,535 shares of AvalonBay in the first
, Chris David and Manning and Napier Advisors took advantage of
the fourth quarter of last year's slump to add to their
Einhorn also announced a victorious exit from an MBIA (
) short launched in 2002. Like many of his public short
positions, Einhorn believed he had uncovered "assorted accounting
and business chicanery" at MBIA, but it took five years before
the company saw consequences in its stock price: It fell from $76
to $2 from 2007 to 2009.
"While it is possible that sleepy regulators will ultimately put
this company and its management out of their misery, the opposite
seems equally possible. We've decided to enjoy the healthy profit
we made and step aside for the time being. Cumulatively, this was
the third most profitable short position in our history,"
Einhorn's letter said.
In 2002, MBIA traded between approximately $37 and $59 per share.
It went on to touch as high as $73 in 2007, before its
precipitous collapse at the end of that year.
Einhorn may have closed the position as a critical legal decision
was pending in a case related to restructuring and residential
mortgage-backed securities transactions open since the 2008
credit crisis. On May 9, the case was settled with Bank of
) agreeing to pay the company $1.7 billion net. The news lifted
shares approximately 57%.
The company also settled with Societe Generale and Flagstar in
May, which "improved its liquidity profile" and "reduced the risk
of regulatory intervention against it," MBIA President and CFO
Chuck Chaplin said in the company's first quarter results
"Although there are yet volatile structured exposures that we
expect to commute, and litigations with investors and mortgage
originators that need to be settled or adjudicated, the risk
profile of the company has been substantially improved since we
last reported," he added.
On the long side,
decreased his position in MBIA by 26% in the first quarter, or
16.3% of the company's outstanding shares, though other of
Fairholme's funds own as much as 10% and 22% of the company.
Berkowitz started investing in MBIA in 2010 as part of his all-in
bet on troubled financials. One of his funds now shows a 77% gain
from his average purchase price.
As the crisis-era litigation mess began to clear in the fourth
quarter 2012, Francis Chou and Whitney Tilson established
position in the company, and Jim Simons and Steven Cohen added to
the existing positions.
Up 1.82% on Monday, MBIA is trading for $15.70, with a P/E of
2.4, P/B of 0.94 and P/S of 1.23.
See David Einhorn's long portfolio here. Also check out the
Undervalued Stocks, Top Growth Companies and High Yield stocks of
David Einhorn.About GuruFocus: GuruFocus.com tracks the stocks
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