This script is starting to get a little old.
Big-name hedge fund manager’s investment is
down, or under water. The manager makes a case for his
investment in the public realm, thus ensuring headlines.
Presto. His investment instantly goes in the desired
It’s just another tool in a hedge fund
manager’s toolkit, but it usually works like a
charm. The latest example played out yesterday when Greenlight
Capital’s David Einhorn, who’s
mastered this tactic, fired off a press release urging Apple to
take steps to unlock balance sheet value, including
distributing preferred stock with a 4 percent annual dividend,
and filed suit to show he means business.
Einhorn, who later went on CNBC to further his case, made it
known he remains a big fan. Not only has he owned the stock
since 2010, he says, but he holds more Apple shares today than
ever before, notwithstanding some trades in the intervening
"The company has a problem of a depression," he told the
Squawk Box audience. "People who have gone through traumas feel
they never have enough cash."
How did Apple’s stock perform for the day? You
guess right. The stock surged $9 at the open. But then it
closed at $468 on an otherwise down day on Wall Street.
This is by no means a unique event for one of the most
sophisticated media hounds in the hedge fund industry. More
than a decade ago, Ackman famously ripped into finance company
Allied Capital for its flawed business model, advising the
country’s top investors to short its stock, then
wrote a book, "Fooling Some of the People All of the Time,"
about his hard-won triumph.
In recent years, the hedge fund manager, who’s
also a poker player of some reknown, has targeted companies
such as Lehman Brothers, Green Mountain Coffee Roasters, Taco
Bell and Chipotle Mexican Grill.
Another old hand at this is Pershing Square
Capital’s William Ackman. Witness his showcasing
Herbalife in December, when he packed several hundred people
into a midtown Manhattan auditorium on a day’s
notice, before plunging into a three-and-a-half-hour, 300-plus
slide presentation behind his short position on the
nutritional-supplements supplier. Very few people walked out in
Einhorn is someone who knows how to work with media, being
married to a veteran financial journalist and media analyst.
(He is married to former Barron’s columnist and
CNBC analyst Cheryl Strauss Einhorn.)
Einhorn and Ackman are hardly alone. Portfolio managers
routinely tout their stocks at conferences and other public
forums. Whether these are made to account for how their stock
picks ultimately perform is another question.
But I digress. There just seems something unseemly when
hedge fund managers do it.
Maybe it is because hedge fund managers have felt for
decades that it was a badge of honor to neither be seen nor
heard. (This columnist can attest to at least one occasion when
Einhorn agreed to sit for a lengthy magazine interview but
declined to be photographed.) The more opaque they were, the
more mystique they created for themselves, and the more
followers deemed them to be the smart money elite.
Indeed, one way for a hedge fund manager to subtly announce
their arrival was to suddenly stop speaking publicly.
No longer. These days, visibility is the word. Many firms
now have fairly detailed websites — a vast improvement
for hedge funds, particularly for the likes of Israel
Englander’s Millennium Management, among the most
secretive of them all.
This is not totally a bad thing, mind you. You can find some
interesting information from annual disclosures now required of
firms that must register with the Securities and Exchange
Still others hawk books and tout stocks at conferences and
Some of this publicity seeking can be a stroke of genius. I
have long felt the shrewdest thing Ackman did when he launched
Pershing Square in 2004 was to make himself available to the
press and openly talk about why his previous fund, Gotham
Partners, closed down. He delved into what exactly happened in
his dealings with then New York State Attorney General Eliot
Spitzer, who had briefly investigated the hedge fund manager,
only to drop the probe altogether when he found no
If he had remained mum, he probably wouldn’t
have created as much curiousity and interest around him. His
fund and his reputation would have been questioned for years
without Ackman being able to defend himself, and every article
would have tried to cast his Gotham Partners experience in an
unfavorable light. The media would have endlessly speculated
and perhaps made up Ackman’s narrative for him.
Instead, he addressed the issues head on, and moved on.
Today, a few star hedge fund managers have joined Einhorn in
playing the public like animal trainers in a circus. They know
when they say "Buy," the stock will soar, and vice versa.
However, it doesn’t always pan out as expected.
True, they may get an initial bump. But they know that if they
cashed out of their investment soon after, the regulators would
probably be all over them.
Of late some of these well-publicized picks have gone
opposite the desired direction. Green Mountain dropped about 80
percent in the nine or so months after Einhorn publicly pitched
his short. But then it nearly tripled before tumbling on
Thursday by more than 3 percent, when it gave a weaker than
expected outlook for its business.
Chipotle immediately fell after Einhorn made his case for
shorting the Mexican fastfood company in early October. On
Thursday the stock is above the price it was the day he made
Ackman’s Herbalife short was initially very
successful. But the stock has surged since his presentation,
after several high-profile investors either bought or touted
The moral of the story is actually reassuring. The so-called
smart money set may be able to influence a stock’s
performance or direction for a day or two or week. But, over a
longer period of time the company’s fundamentals
— things like revenues, profits, growth, margins,
competition and new products and investment —
ultimately determine a stock’s direction.
This is not a bad thing. It is how it should