Thursday, September 11, 2014

Good Reader Comment on the Einhorn Book Review

Good reader comment on my review of Fooling Some of the People All of the Time, A Long Short Story by David Einhorn:

"I found FSOTPAOTT fascinating. Not so much for its description of Allied, which was a run-of-the-mill BDC Ponzi, but for Einhorn's rationale for sticking with a losing investment for years. He writes at the beginning of the book about the dangers of having an 'evolving thesis' and then does exactly that with Allied.

I suspect he would have been quicker to cut his losses if he hadn't criticized the company publicly. When they responded to his presentation by blatantly lying, that set him off and made him obsessed with proving the company was a fraud. He says it's a cautionary tale about nefarious companies, lazy regulators, etc.--- I would say it's a cautionary tale about marrying your trades and feeling a need to be right.

Allied doesn't seem to have performed worse during the credit crisis than other BDCs like ACAS. I looked up historical data for Sirrom, and it likewise doesn't seem to have done worse than other BDCs in 1998-- they were all down 50%+ during the LTCM drama."
That's a great point about the evolving thesis. And the public bashing is dangerous. Look at Ackman and Herbalife. (I think Hempton is right and Ackman is wrong, btw.) A gigantic, public position becomes something from which you can't back down.


Anonymous said...

Didn't Ackman back down from JCP? Wasn't that a gigantic, public position?

CP said...

Thanks for your overly-literal interpretation of what I said.

Anonymous said...