Fooling Some of the People All of the Time, A Long Short Story [Hardcover]

David Einhorn (Author), Joel Greenblatt (Foreword)

Book Description

Publication Date: May 2, 2008

A revealing look at Wall Street, the financial media, and financial regulators by David Einhorn, the President of Greenlight Capital

Could 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, Allied was a leader in the private financing industry. Einhorn claimed Allied was using questionable accounting practices to prop itself up. Sound familiar? At the time of the original version of Fooling Some of the People All of the Time: A Long Short Story the outcome of his advice was unknown. Now, the story is complete and we know Einhorn was right. In 2008, Einhorn advised the same conference to short sell Lehman Brothers. And had the market been more open to his warnings, yes, the market meltdown might have been avoided, or at least minimized.

• Details the gripping battle between Allied Capital and Einhorn's Greenlight Capital
• Illuminates how questionable company practices are maintained and, at times, even protected by Wall Street
• Describes the failings of investment banks, analysts, journalists, and government regulators
• Describes how many parts of the Allied Capital story were replayed in the debate over Lehman Brothers

Fooling Some of the People All of the Time is an important call for effective government regulation, free speech, and fair play.

Editorial Reviews

Review

"Instead of stewing in private, Einhorn wrote a book "Fooling Some of the People All of the Time" about his six-year ordeal with Allied." (Daily Mail, September 18, 2008)

From the Inside Flap

In 2002, David Einhorn, the President of Greenlight Capital, gave a speech at a charity investment conference to benefit a children's cancer hospital. He was asked to share his best investment idea, so he did. He described his reasons why Greenlight had sold short the shares of Allied Capital, a leader in the private finance industry. Greenlight bet that the stock would decline because the company's business was in trouble and its accounting was corrupt. Einhorn's speech was so compelling that the next day, when the New York Stock Exchange opened for trading, Allied's shares remained closed. So many investors wanted to sell or short the stock that the NYSE could not balance all the sell orders to open Allied’s trading in an orderly fashion.

What followed was a firestorm of controversy. Allied responded with a Washington, D.C.–style spin-job— attacking Einhorn and disseminating half-truths and outright lies. Rather than protect investors by reviewing Einhorn's well-documented case against Allied, the SEC—at the behest of the politically connected Allied— instead investigated Einhorn for stock manipulation. Over the ensuing six years, the SEC allowed Allied

to make the problem bigger by approving more than a dozen additional stock offerings that raised over $1 billion from new investors. Undeterred by the spin-job, lies, and investigations, Greenlight continued its research after the speech and discovered Allied’s behavior was far worse than Einhorn ever suspected— and, shockingly, it continues to this day.

Fooling Some of the People All of the Time is the gripping chronicle of this ongoing saga. Page by page, it delves deep inside Wall Street, showing how the $6 billion hedge fund Greenlight Capital conducts its investment research and detailing the maneuvers of an unscrupulous company. Along the way, you'll witness feckless regulators, compromised politicians, and the barricades our capital markets have erected against exposing misconduct from important Wall Street customers. You will also discover the immense difficulties that prevent the government from sanctioning politically connected companies—making future Enrons inevitable. This revealing book shows the failings of Wall Street: its investment banks, analysts, journalists, and especially our government regulators.

At its most basic level, Allied Capital is the story of Wall Street at its worst. But the story is much bigger than one little-known company. Fooling Some of the People All of the Time is an important call for effective law enforcement, free speech, and fair play.

See all Editorial Reviews

Product Details

• Hardcover: 380 pages
• Publisher: Wiley; 1 edition (May 2, 2008)
• Language: English
• ISBN-10: 9780470073940
• ISBN-13: 978-0470073940
• ASIN: 0470073942
• Product Dimensions: 6.5 x 1.2 x 9.3 inches
• Shipping Weight: 1.5 pounds (View shipping rates and policies)
• Average Customer Review: 4.4 out of 5 stars  See all reviews (105 customer reviews)
• Amazon Best Sellers Rank: #226,504 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

98 of 101 people found the following review helpful

5.0 out of 5 stars Inside the Mind of an Exceptional Investor May 31, 2009

By Mercenary Trader

Format:Hardcover

Many well-respected money managers -- some of them with track records that spanned decades -- saw their reputations utterly destroyed in 2008. One manager who came through the carnage with reputation intact, and even enhanced, was David Einhorn (the author of this book). In addition to anticipating the fall of Lehman Brothers, Einhorn's fund, Greenlight Capital, significantly outperformed the S&P (though still ended up down on the year).

I am not an investor in Greenlight (Einhorn's fund), but I always enjoy reading their quarterly letters. They are consistently detailed, forthright and insightful, the way all investor communication should be.

I also give Einhorn respect (and admiration) for his 18th place finish in the 2006 World Series of Poker -- the $659,730 winings of which he donated to charity. The guy can clearly handle himself at a poker table.

The book itself was an interesting read on multiple levels. A friend of mine, who crunches spreadsheets in his sleep, made a friendly wager I wouldn't be able to get through the whole thing, as there is a great degree of detail (some would say mind-numbing detail) covering Allied Capital's various accounting irregularities.

I won the wager by devouring the book -- moreso out of hunger to absorb a highly trained investor's deeply analytical thought processes, than from a need to understand the particulars of Allied Capital or BDCs (business development companies).

The book sheds light on a number of excellent concepts above and beyond the Allied saga. The opening chapters, which describe the origins and philosophies and thought processes behind Greenlight Capital, are extremely informative....

The book as a whole, including all the Allied Capital detail, further offers a picture of what an exceptional investing mind looks like. If one were to try and reverse engineer the source of Einhorn's success (leaving out the irreducible good fortune component), four qualities would stand out:

- Exceptional analytical capability

- Exceptional creative ability

- Deep concentration ability

- Deep intestinal fortitude

To surpass "good" and make it to "great" as a trader or an investor, I would argue one needs all four traits. The presence of some but not all of these traits, I believe, accounts for the overwhelming tide of mediocre performance we see from Wall Street.

The typical investment banking path, for example, focuses heavily on the analytical side... while stomping the creative side into the dirt. The first few years of being an i-banker (if not one's entire career) are hallmarked by soul-crushingly repetitious activities that by and large replace spreadsheet gruntwork with any semblance of creative unconventional thought.

Worse still, the general institutional investment mindset runs directly counter to the "deep intestinal fortitude" idea -- in fact the whole of institutional investment culture seems expressly designed to browbeat the average manager into the mold of a gutless, benchmark-hugging coward, desperately afraid to deviate too far from the safety-approved track of his peers.

As if this were not enough, the mediocre types that hold the keys to most of the locks in the institutional investment world reinforce their plodding natures (and thus bolster their plodding dominance) with a "tried and true, proof in triplicate" way of thinking that drives the mavericks and creative thinkers mad (and out the door). At the end of the day, finding all four traits within a single individual becomes a rare thing indeed.

"Fooling" does have a touch of personal vendetta feel to it at times. The deep accounting detail can also be a bog in places, especially if one does not view keeping up with the myriad intricacies as an amusing challenge.

But the opening chapters alone are worth the price of admission... and if you want a gritty, true-to-life, wide-ranging gestalt feel for the combination of smarts and guts and tenacity it takes to successfully run a multi-billion-dollar hedge fund, "Fooling Some of the People All of the Time" delivers. Read more ›

78 of 84 people found the following review helpful

5.0 out of 5 stars An important work May 18, 2008

By M. Brodsky

Format:Hardcover

It would suffice that this book is well-written, engaging and informative, but it is more than that. It is an important book, for two reasons. First, it shows how much of an investment edge it can be to employ deep research and critical thought. The fact that many other investors continued to be fooled by the company even after Einhorn published his analysis may seem frustrating to the reader, but as an investor I view that reaction as confirmatory that there will always be lots of ways for independent, meticulous thinkers to make money. Second, the book demonstrates how difficult and lonely it can be to engage in activist investing, especially from the short side. Consistent with the story in this book, I have almost invariably found that the more correct the activist's views are, the more likely s/he will be subjected to ad hominem attacks; and that, when presented with cogent evidence of a serious problem, government officials either do nothing or protect the malefactor. Indeed, the business news of the last nine months is replete with examples of this. I am unaware of another book on investing that captures this second element. It is all the more commendable that Einhorn can tell this incredibly frustrating tale calmly, resisting the temptation to engage in histrionics or self-righteousness.

72 of 81 people found the following review helpful

4.0 out of 5 stars Detailed insight into both a hedge fund and a loan company's abuse of the system May 12, 2008

By Scott E. Packard

Format:Hardcover|Amazon Verified Purchase

The book is really close to being 2 or 3 books in one. Initially heard about the book in the WSJ, I pre-ordered it on Amazon and took a few weeks to read.
In the first part Mr. Einhorn writes several chapters aimed at a non-professional investor to build the background of how a hedge fund invests, building the reader's knowledge from zero to fluent enough to understand the book. There's a glossary in the back of the book to refer to if you forget any of the terms. In fact, later on Mr. Einhorn's open and full disclosure of his investing philosophy, technique, and results contrast with those of Allied Capital and its collection of LLCs.

The second part of the book builds from a small trickle to a river of fraud, and frankly this is the hardest part to get through. You're directed to watch Mr. Einhorn's speech on the web in order to understand a dissection of reactions that follow, and I admit that I felt as if I was reading a story from somebody who was picked on too much in the schoolyard and is taking revenge by writing a book. As I kept reading the chapters the story suddenly took me by surprise (around P.200 or so).

It then becomes a story of how, if you were to implement a business poorly and needed to keep it going no matter what, you would do whatever it took to keep paying a dividend to keep your stock from tanking. You might start by fibbing on the health of the business one year, sell healthy companies to hide your true results a few years later, and start directing campaign donations to the right parties a few years later. In for a penny, in for a pound. Mr. Einhorn didn't mention, but in years past I have read, that Enron kept going for so long because they did a good job spreading their money around to both the politicians and the local community. Mr.... Einhorn does mention how much many parts of the US (Wall Street, the various parts of government, and mom-and-pop investors) want to continue the company so as not to lose whatever interest they have vested into the company or system.

In the end I feel educated about his hedge fund, I feel in over my head on how to value a company's investments if the company is similar to Allied Capital, I feel a bit angry on how narrow the scope and small the punishment delivered (but not surprised - I've seen how narrow the scope of investigations of companies are before), and I feel that Mr. Einhorn has, for lack of a more subtle way of putting it, wasted enough of his life worrying about this company. You're not going to get back the years you've spent. You should go on to enjoy something else in life (but I appreciate the sacrifice you made so I could read about this in a book). Read more ›

25 of 26 people found the following review helpful

3.0 out of 5 stars Good History Doesn't Always Make Great Reading January 9, 2010

By Biz Book Reader

Format:Hardcover|Amazon Verified Purchase

Here is the best (and easiest) way to figure out whether or not you want to read this book: watch the speech by the author that started the whole controversy detailed in this book (you can find the video on the author's site or YouTube by searching "Einhorn Allied speech"). If some combination of his general sincerity, obvious enthusiasm for "what is right" and readiness to get into accounting detail hold your attention, you'll enjoy the book; if not, chances are you won't. (Of course, there is a different argument to be made about who SHOULD read the book -- regulators, legislators, investors, managers, business students -- but last time I checked, those folks aren't building required reading lists based on Amazon reviews.)

Because we have the advantage of hindsight, we know that Einhorn was right about pretty much everything, even as the story has continued to unfold after the book's publication: Allied's accounting irregularities, their unsustainable business practices (he anticipated Allied's need to sell Callidus -- see p.327), and ultimately the decision to short the stock (Allied shorted the stock at $26.25 -- it closed 2009 around $4). But the reason to read this book is for process more than outcome. You'll learn a bit about how some hedge funds operate, but you'll learn a lot more about deceptive corporate management, negligent boards of directors, lazy government regulators and easily distracted journalists. Sadly, many readers may not find much "news" in any of that.

The book is a bit dry and detailed at points, perhaps partly due to legal concerns but primarily because it is about accounting, governance and regulation. That said, it's a pretty quick and compelling read for those with any interest in the subject.