Billionaire David Einhorn’s GM Plan Crashes and Burns (GM) – Investopedia
David Einhorn, billionaire and leader of Greenlight Capital, is facing another highly public defeat. Earlier in the year, he made headlines by dramatically increasing his long position in General Motors (GM), and analysts predicted that he was making an activist move to sway the business with his purchase. It seems that his plan was to convince GM investors to split the ownership of GM into two different classes of stock. Last week, at GM’s annual meeting, only 4% of the company’s shareholders fell in line iwth Einhorn’s plan.
Why Two Classes of Stock?
Einhorn was hoping that GM stock would be split into two classes, with one paying a dividend and one that simply tracked the company’s growth. With his significant stake in GM, Einhorn would have stood to gain significantly off of the share split.
Einhorn bought into GM in the early portion of 2011, according to Automotive News. Since that time, the price of GM stock has risen considerable. Earlier this year, Einhorn added about $1.5 billion to his investment at a time when GM was trading at $36 per share, and it is hovering just below that now. In total, Einhorn’s investment in GM remains slightly on the positive side, although his fund has seen declines of about 3.3% so far this year.
Einhorn’s Predictions a Mixed Bag
This is not the first time that Einhorn has been somewhat off with the predictions he has made public. The investor made a name for himself when he accurately predicted the downfall of Lehman Brothers’ ahead of the 2008 crisis. In the time since then, though, many of his predictions have not come to pass. In the middle of 2014, for example, he predicted that Athenahealth Inc’s shares would fall by 80%; the climbed by more than a quarter of their value over the next 18 months. Later in 2014, Einhorn made a presentation at the Robin Hood investor conference suggesting that SunEdison was a strong buy. The company went bankrupt less than two years later.
On the other hand, some of Einhorn’s other predictions have come to pass. In 2015, he cautioned against fracking companies, and these companies saw trouble later in the year. Nonetheless, Einhorn has led Greenlight to gains of 93% in total since the beginning of 2009 through the month of May this year. This may be due to Einhorn’s diversified portfolio of 38 stocks and a few additional short bets. The fund generally tracks the S&P 500, becoming a reliable performer that is protected against occasional stock market plunges. Whether or not that investment product is worth the much higher fees relative to an index fund is up to investors to decide.