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Fooling Some of the People All of the Time, a Long Short (and Now Complete) Story, Updated with New Epilogue

David Einhorn,

Joel Greenblatt (Foreword)

4.01 · Rating details · 3,447 ratings · 156 reviews

A revealing look at Wall Street, the financial media, and financial regulators by David Einhorn, the President of Greenlight CapitalCould 2008's credit crisis have been minimized or even avoided? In 2002, David Einhorn-one of the country's top investors-was asked at a charity investment conference to share his best investment advice. Short sell Allied Capital. At the time, ...more

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Paperback, 426 pages

Published December 7th 2010 by Wiley (first published May 27th 2007)

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Jul 23, 2012 Jon rated it really liked it

David Einhorn manages a hedge fund whose strategy partly consists of pinning incompetent or fraudulent companies and betting against them. This book centers on his fight with Allied Capital, one of the fraudulent companies.

Fraudulent data turns Einhorn on like a full-fledged disco party turned on the Bee Gees. Seriously, you can feel his excitement about the numbers bubbling over on every page, and, to be honest, much of it is skim-worthy. Because it's just data data data.

And still, this book h ...more

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May 05, 2011 Jacob rated it liked it

Shelves: economics, nonfiction, history, from_library, investing

This is either a very in-depth case study or a tedious recounting of someone's side of the argument in a years-long battle to expose a company's wrongdoing, depending on whether or not you are interested in the topic and very familiar with how businesses and investing work. It's the story of a battle between a hedge fund manager who short sold a company's stock and publicized it and that company's reaction. The author is extremely detail oriented, which means that every time the company fails to This is either a very in-depth case study or a tedious recounting of someone's side of the argument in a years-long battle to expose a company's wrongdoing, depending on whether or not you are interested in the topic and very familiar with how businesses and investing work. It's the story of a battle between a hedge fund manager who short sold a company's stock and publicized it and that company's reaction. The author is extremely detail oriented, which means that every time the company fails to discount the value of debt it carries and continues to list the value of the debt at cost, you are going to hear the details, even if similar things happened earlier in the story and the similar events could be summarized.

This means that if you want to know exactly what happened, you'll get the details you're looking for. However, if you're looking for a compelling story that helps you to understand and evaluate what's going on then you're better off looking for a book by Michael Lewis (The Big Short, Liar's Poker). There's a good story here, but David Einhorn is not a professional author and it shows as the reader must gather the story arc from the mass of detail. So the three star rating is really a four star rating (if you're a student of business or investing) averaged with a two star rating (if you're a reader with a casual interest in the business world).

It's too bad the story is longer and more detailed than it needs to be to get its message out, because the information it contains is relevant and important. In a nutshell, the author short sold a companies' stock because he could tell from analyzing its reporting that it wasn't doing nearly as well as it claimed. After publicly announcing the problems he'd found with the company's reporting, Einhorn found himself a target of personal verbal attacks by the company and the company continues its fraud. During persistent efforts to get government regulatory agencies (the SEC and SBA) and the media involved since their job is to expose and punish fraud, the author encounters little or no interest and receives at least as much backlash as action. So this story is a large example of how individual investors, the media, and the government all take much less interest than they should in exposing corruption and punishing white collar criminals.

The main thing to take from this is: when you invest, pay close attention to what you invest in because you really can't count on anyone else to make sure your investments are safe and you're not being cheated by the companies you invest in. ...more

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Aug 26, 2008 Max Stone rated it it was ok

I'm a big fan of David Einhorn, both his investing skill and his integrity. And I'm sure he is somewhere between 90% and 100% right on his fight with Allied Capital. But in general, what is the purpose of reading an extremely detailed account of a years-long scuffle between two parties which is authored by one of the parties. A book like this just cries out to be written by a third party. It might say exactly the same things, but it would be different coming from someone not in the fight.

Also i ...more

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Jan 27, 2018 Alex Song rated it it was amazing

Jesus Christ.

This book is so good. Who knew David Einhorn was such a beast at writing? This is investing at its best. Unfortunately the outcome wasn't a quicker/cleaner one.

This is a must-read if you are interested in:
- hedge funds
- short selling
- investing in BDCs and specialty finance companies
- what a shithole various US government agencies are

My version of the book was old and didn't have the epilogue... but the TLDR is basically: Allied Capital went BK and was acquired by Ares. BLX is still ...more

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Jan 30, 2012 Steve rated it liked it

Shelves: investment

This book is really two disparate parts welded together.

The first, quite enjoyable, section of the book describes Einhorn's start in the hedge fund business. If you have an interest in fund management, you'll get a lot out of how he put his first fund together and quickly rose to prominence with spectacular performance out of the gates. The book provides a detailed behind-the-scenes narrative on his early investment decisions and how each investment unfolded in the context of the overall fund. T This book is really two disparate parts welded together.

The first, quite enjoyable, section of the book describes Einhorn's start in the hedge fund business. If you have an interest in fund management, you'll get a lot out of how he put his first fund together and quickly rose to prominence with spectacular performance out of the gates. The book provides a detailed behind-the-scenes narrative on his early investment decisions and how each investment unfolded in the context of the overall fund. The main takeaway for me was the importance of gauging roughly where in the cycle the overall market is (based primarily on valuation and confidence levels) and positioning one's long/short ratio accordingly. Note that doesn't imply taking an all-or-nothing stand on the direction of the market (which can easily become more irrational in the short term) but it does imply overweighting the part of your portfolio which is most attractive (i.e. the longs during times of panic and the shorts during times of exuberance). By keeping both long and short exposures, the investor is still able to profit if the market moves against him. This thinking helped Einhorn do well during the dot.com bubble years and the subsequent crash (one of only a few investors to achieve this). Virtually all his returns in the crash years came from his shorts - a strong reminder of their value during tough times.

I liked his point that a successful short position needs to be based on both overvaluation and a flawed business model (or fraud). Just one of these conditions is not sufficient. Plenty of overvalued businesses continue to walk on air for long periods of time (like that cartoon character running off a cliff but not realizing it until he looks down) and in the interim a company may actually grow into its valuation (Amazon.com for instance). On the other hand if a business model is flawed but the market realizes it there is obviously little to be gained - only variant opinions are rewarded.

I did not, however, like Einhorn's point that 2x overvalued is effectively the same as 20x overvalued (i.e. both are irrational in the same way that 2x infinity is the same as 20x infinity). Personally, I would much rather be betting against a company at the 20x level as the hype and expectation are that much greater, creating a scenario where the smallest slip-up can bring collapse, and of course the maximum profit potential is larger. Recognizing this can help one increase a short position as it goes against you (in much the same way that value investors double down on battered stocks.)

While I really admire Einhorn as an investor it was highly discouraging to see how the short term orientation of his investors affected his decision making - including covering losing shorts that eventually would have paid off handsomely. It is a great pity that the hedge fund industry works on monthly and not annual or even longer-term performance. It can only be a detriment to eventual returns.

The second section of the book (comprising 2/3rds of its volume) consisted of a very detailed account of fraud at Allied Capital (a BDC investment company) in which Greenlight has held a very public short position (now vindicated with Allied's bankruptcy during the credit crisis). While I sided with Einhorn and was amazed at the extent of the cover-up, I found it much too detailed and convoluted to be enjoyable reading.

I enjoyed Buffet's comment to Einhorn that the problem with shorting crooks is that they'll play a lot dirtier than you will. It's interesting that Buffet has executed several shorts over his career and has no theoretical problem with the strategy but prefers to have a "long persona". After reading of Einhorn's constant battle with the media it is easy to see why. ...more

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Aug 10, 2012 Seth Spearman rated it really liked it

Shelves: economics, politics

I loved this book.

This book is not just a book. It is a public service. It is very eye-opening and disheartening and heroic look at corporate greed, market manipulation, colossal regulatory and media failure, all at the same time.

If you have a naive view of the virtue of the free markets, especially as they exist in the form of publicly traded corporations, and you don't want your naivete spoiled, then don't read this book. This is a story of a real stinker of a publicly traded corporation, Alli I loved this book.

This book is not just a book. It is a public service. It is very eye-opening and disheartening and heroic look at corporate greed, market manipulation, colossal regulatory and media failure, all at the same time.

If you have a naive view of the virtue of the free markets, especially as they exist in the form of publicly traded corporations, and you don't want your naivete spoiled, then don't read this book. This is a story of a real stinker of a publicly traded corporation, Allied Capital and the long-term effort of David Einhornm, principle partner at Greenlight Capital (another investment firm), to shed some light on the flimsy accounting behind its vapor-success.

(I don't mean to imply that all publicly traded corporations are filled with crooks but only to imply that the corporations that are front-loaded with crooks are able to avoid a day of reckoning through public and strongly-asserted lies, intimidation of critics, opaque record-keeping which means that they can persist in there profligacy for a very long time.)

For a shorter text on how this can happen here is a sample article...
http://www.nytimes.com/2009/01/04/opi...

The book is just as damning of the watchdogs that are supposed to protect us from the villains; namely, the S.E.C. and the financial media. Because Greenlight Capital is a hedge fund manager and had a short sell in Allied, the watchdogs were investigating and maligning them instead of the real villains. (A short sell means that Greenlight stood to gain from a drop in the Allied stock price. Personally this book made me a BIG FAN of the shorts...after all since the media and regulators are on a perpetual siesta who else is there to protect the investor?)

One warning about the book. IT DOES NOT SPARE ANY DETAILS. It is very easy to get bogged down in a lot of technical details. I scanned a lot of it. But, on the other hand, the level of details is what lends it such compelling veracity. But if technical detail is not your think you may find it hard to make it through.

Mostly the book is pretty persuasive that at least part of the cause of the economic meltdown of 2008+ can be laid at the feet of Wall Street and the moral hazards created by perverse compensation packages for managers and regulatory failures. Even worse, the situation has not been meaningfully addressed, even by Sarbanes-Oxley. Here are some closing statements from the book...

"The recent financial reform legislation doesn't address most of the obvious problems, including irresponsible government enforcement, the exaggerated power or credit ratings agencies, the existence of derivatives that add systemic risk but provide little value to society, and the presence of too-big-to-fail institutions at sizes where they remain too big to fail."

David Einhorn is now officially on my list of modern-day heroes. If you read his book, let me know what you think.

Seth ...more

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Dec 29, 2010 Rick rated it it was ok

Shelves: finance

It started out so promising... The first 50 or 60 pages are really great. They lay out a classic David v Goliath tale of an investor who is challenging a large and successful company with the belief that the company is engaging in accounting fraud. The challenge, raised by the author as CEO of hedge fund Greenlight Capital is one of the classic tales in hedge fund lore where a company goes out of its way to attack and discredit an individual. Einhorn, who was betting against the company, spent t ...more

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Jan 12, 2018 Loh rated it it was amazing

Shelves: favorites, finance-economics-business

To some, David Einhorn presents a convoluted argument regarding Allied Capital (the book essentially is a 400pg short investment thesis) - but I think if one takes the time and effort to digest and follow his train of thought (and read up on accounting theory), Einhorn's tenacity, intensity and research prowess shines through.

He is incredibly thorough and detailed about the financial shenanigans that Allied Capital engages in, and to aspiring securities analysts, there is no better example for ...more

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Oct 11, 2020 NeeOn rated it it was ok

1 man's multi-year short-sell crusade against Allied Capital. I get it, short sellers are a necessary part of the system. I guess this woulda been more interesting if I was US-based as the intricacies involved were eye opening but US-centric. ...more

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Dec 15, 2020 William rated it liked it

Starts off pretty interesting, setting the landscape for how the business models work etc and how the fraud is enabled to happen.

But then proceeding to spend 100+ pages describing asset/investment write ups and write offs/downs is not particularly interesting, not that useful and not much of a learning point.

All boils down to ... “when loans are unrecoverable, the prudent thing to do is write them off”

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Jan 19, 2021 Ektor Nikolinakos rated it it was amazing

eye-opening

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Mar 29, 2018 Zhou Fang rated it really liked it · review of another edition

Shelves: investing

David Einhorn is not only a hedge fund manager with an impressive track record, he is also an incredibly clear writer. Fooling Some of the People All of the Time is a book that reveals much about both his investing process in general and his experience shorting Allied Capital in particular. Despite his ultimate success in shorting Allied Capital, Einhorn's story strengthens my conviction that investors should stay away from short selling.

Greenlight's investment process could be described as sim ...more

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Oct 29, 2012 Brandon rated it it was amazing

I get a lot of books handed or recommended to me, most of which seem to miss what I actually enjoy in books. This one seemed one of the most egregious examples; a book about details behind short selling positions and market failure. Queue the confetti. While I had enjoyed Einhorn's takedown of GMC, this didn't seem like it would do anything for me.

I was wrong.

Halfway through, I had to stop and thank my friend for the recommendation. This is an interesting inside view of corporate (dys)function a ...more

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Mar 29, 2011 James rated it liked it

Shelves: life-in-amerika

A rather dry book, the author is right about the accounting games at Allied,
but he uses most of the book repeating particular ideas.

The book was written before the story ended.
See wiki http://en.wikipedia.org/wiki/Allied_C...

For the last word.

Allied wasn't a total fraud like Enron or global crossing,
but the people in charge goosed the accounting to make their pay and bonuses bigger.

In the end the company was sold for $5 a share in 2010,
down from the $26 when the author started battle with ma ...more

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Sep 04, 2011 David Ball rated it really liked it

The version I read of this was published in 2008, just as the financial crisis took off, and while I very much enjoyed the story, I wasn't happy with where Einhorn chose to stop writing. Being a trader, I was vaguely aware of how the Allied story ended, and if ever there was a book that needed an epilogue it was this one. But how the story unfolded was fascinating - you could almost call this an "accounting thriller". I'm shocked that it took six years for the regulators, media, and investment i ...more

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Jun 25, 2008 Carson rated it it was amazing · review of another edition

Recommended to Carson by: Paul

Great Book! This story demonstrates primary research in an investment setting at its best.

Also, this is a great example of what happens in big government (the Small Business Administration in this story). “Let’s give career Washington-types billions of dollars and measure them on how well they are able to spend it! Let’s not hold them accountable for how well the loans ultimately perform.”

Also, for the company in questions, they should “bribe,” I mean give campaign contributions to, the politici ...more

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Sep 25, 2008 Matt rated it it was amazing

Shelves: read-it

Just finished this the other night. Unless you are interested in finance and investing, it may bore you.
However, I really enjoyed it. I respect Einhorn a lot and have read the excerpts from other speeches he has given.
This book further fuels my anger towards the management of large companies, who recognize fraud or stretching numbers, or at the very least improperly accounting for valuation and revenues, as merely a hurdle to increased profits. It also made me angry that he basically gift-wrappe ...more

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Jul 06, 2009 Laura Gembolis rated it it was ok

Shelves: nonfiction, written-review, econ

While the big message in this book is good, it's delivered much like someone who's been wronged and takes it personally by documenting every single transgression against him. This leads to a very accurate book with much documentation - transcripts, letters and news articles. Put another way: good for facts - bad for storytelling. The story would have benefited from setting a larger context of fraud. I think it would have been stronger from someone not so close to the subject. Or a stronger edito ...more

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Jan 02, 2015 Ngee Poo rated it liked it

The book's essence, and the unfavourable economics of short-selling in general, can be summarised by the following quote:

"...Allied is just one position in our portfolio. But, for the company and its management, it is the whole ballgame, so they will say and do things we wouldn't consider doing in order to win."

...more

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Sep 12, 2014 Thomas rated it it was amazing

Indispensable for people wishing to experience dishonest corporate culture.

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Mar 31, 2018 Rodney Royden rated it it was amazing

Absolute must read - especially for anyone considering a career in business and politics.

In short, basically a book about a dispute between a short-seller (Einhorn)* who shorted a company that he believed was fraudulently misrepresenting the numbers to mislead the public (Allied Express.)

Einhorn lobbied using evidence and tenacity but his viewpoint was shot down repeatedly by the media and the government (without obvious transparent reasonable inquiry into Einhorn's claims.)

* I hesitate to simp Absolute must read - especially for anyone considering a career in business and politics.

In short, basically a book about a dispute between a short-seller (Einhorn)* who shorted a company that he believed was fraudulently misrepresenting the numbers to mislead the public (Allied Express.)

Einhorn lobbied using evidence and tenacity but his viewpoint was shot down repeatedly by the media and the government (without obvious transparent reasonable inquiry into Einhorn's claims.)

* I hesitate to simply characterise Einhorn as a 'short-seller'- but do so for brevity. It was quite clear that Einhorn was not solely motivated by profit and I truly wonder if the hidden costs of Einhorn's time, stress, and uncertainty are properly accounted for in any assessment of a short outcome.

WHY IS THIS A MUST READ
-----------------------
The book is superbly well written; driving you forward through the story. I did find the numbers/complexity/details hard to follow at some points but this is a GREAT insight into the reality of the situation.

THAT is why this book is a must - read. It is written to be REAL and not just written to be read. A post mortem case study makes everything seem too easy and simple. Yet this book takes you on the journey. Eingorn does not share any doubts he had about his position but this story shows that being 'right' about the facts/accounting is sometimes not enough.

Einhorn supports his convictions and puts his reputation on the line for YEARS - whilst bureaucrats obfuscate the issues. Basically hiding behind size and connections so that people either are afraid to uncover the truth or lack the immense resources required to do so (especially human traits like temperament and persistence.)

Only suggestions (for readers or authors) to maximise benefits from reading the book.
- create a high level timeline to understand the story
- think of Allied's viewpoint too
- think em-pathetically of Einhorn's situation. What toll would this experience have had on existing and future relationships and behaviours? ...more

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Jul 16, 2020 Carlos Salas rated it it was amazing

I read this book when first published and think it was one of the best publications covering short-selling while delivering an entertaining tale. The book is a first-person description of the first years of David Heinhorn's Greenlight capital hedge fund following a long-short strategy with a dedicated value style. It covers several chapters, being Allied Capital and Lehman brothers among the ones that really occupy more pages.

Some good ideas that allow me to develop my shorting style were to wat ...more

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Sep 30, 2020 Ole Christian rated it it was amazing

Einhorn has written a facinating, detailed and well-evidenced summary of the events that led up to the final collapse of Allied Capital, an investment company. It reads like a detective story, and Einhorn has done well in explaining all topics covered in an easy-to-grasp way, so that anyone can read the book.

In the book's summary Einhorn elevates the lessons learned from the Allied story to valuable lessons for business management, politicians, regulators, retail and institutional investors, ac ...more

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May 31, 2020 Sergiu rated it really liked it

How would you like a corporate fraud saga presented to you? As a Hollywood drama, Netflix a documentary, a journalist-written novel-style book, or the a details-rich diary of the main actor.
This book falls in the last category - an in-depth review of a fraud story (that most of us never heard of) told by the investor who raised the red flags on Lehman brothers.

Be prepared for the book to get technical, in a very non-best-seller manner. You would almost not expect anything else from someone who ...more

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Oct 15, 2017 JDK1962 rated it really liked it

I read this on the heels of watching the second series of the Showtime drama "Billions" (a guilty pleasure), and while not as compelling as the tales of Axe Capital, it's still a fascinating, outraging tale. It boggles the mind that you can lay out a case of (at best) improper accounting, and all of the responsible regulators feel free to shrug it off. I felt at the time that SEC Chairman Christopher Cox was completely worthless--a prime example of a regulator who was actually against any meanin ...more

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Dec 18, 2019 Dio Handoyo rated it really liked it

A great text on how the financial system, as a collective of its individual institutions, might still fail to enforce the rules of the game even when accurate financial reporting is for its own good. Beyond the fact that the subject is highly complex (and dry), the conflict of interests plaguing the system were plenty abound. Conflicts affecting sell-side analysts, the media, even regulators (driven by politicians' funding sources) are well-understood, but it is another thing to hear accounts of ...more

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Apr 24, 2020 Vasco rated it it was amazing

Shelves: food-for-thought, long-as-hell, lots-of-drama

Wow, looking at the start and end dates, it almost seems like I couldn't have just taken one and a half months to finish this book.

The bad: nothing in particular. Einhorn's communication style is very logical and objective. Compared to a similar book, Confidence Game about Bill Ackman and MBIA, it does seem a bit less sexy and a bit more "boring", but maybe to a finance expert it actually seems even more down to detail and rigorous. The accounting of events is excruciatingly detailed.

The good: d ...more

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Nov 18, 2020 John rated it it was amazing

A tour-de-force by one of the greatest investors of our generation, David Einhorn chronicles his treacherous journey that is both both investment analysis and a moral tale. I liked the former much more than the latter, whilst acknowledging that both elements complement each other. The concepts in this book are fairly advanced and are, in my opinion, not suited to a beginner or someone without financial training and experience. However, should you be able to decode the numerous acronyms, analytic ...more

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Jul 09, 2017 Kristjan Velbri rated it liked it

An historic account of how Einhorn shorted a stock and then went through the lengthy process of proving that the company was in bad shape. When everyone has a vested interest in looking the other way, it can be difficult to prove that a company is mismanaging its finances and lying to its customers. That is exactly what was happening and the company deserved to be shorted. The read itself is full of minute details, hence it takes some focus to chew through this interesting, but at times a little ...more

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Jul 03, 2019 James K Worswick rated it did not like it

Shelves: abandoned

The first part of the book was good.

Note that I bought this book in hopes that I would learn some techniques on how to spot companies that are dishonest to their shareholders. I got a few information, but most of the book felt like it was either trying to be a mix between story telling, informative and a rant.

Unfortunately, I got very few points from this book because the book was written (and structured) very poorly. The information inside this book is not friendly towards people who have no ex ...more

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