If you need proof, Business Insider has a fascinating breakdown of how several different stocks behaved yesterday after being mentioned on stage at the conference. At 12:40 p.m., Larry Robbins of Glenview Capital Management told the crowd that he's bullish on hospital stocks. At 12:41, trading on Tenet Healthcare Corp's stock spiked, sending the price higher. Ten minutes later he said he was shorting the energy company ITC Holdings. Everyone back in the office immediately started selling. DoubleLine Capital’s Jeffrey Gundlach got up and said he wasn't fond of Apple. The stock dipped 2 percent in the afternoon, dropping the company's market value by $96 million. You probably can't blame all of that on Gundlach, since the stock was already down for the day (and tanked even further on Thursday), but he certainly didn't help.
Then came hedge fund superstar David Einhorn, the billionaire founder of Greenlight Capital (and the lifelong Mets fan above.) Einhorn made his name as a short seller, famously betting against Lehman Brothers before it collapsed and, more recently, Green Mountain Coffee, which has struggled for months. He stood up for Apple yesterday, saying that it had the potential to be a $1 trillion company, which helped the stock rebound from Gundlach's damage a bit. Then he slamed a company called Martin Marietta Materials, saying it was "a strange stock in a cyclical business." Their stock immediately dropped 10 percent and trading had to be temporarliy halted.
Maybe the most dramatic example is the one stock that didn't get mentioned: Herbalife. Many people in attendance assumed that Einhorn himself was already shorting the stock, based on some questions he asked during a company conference call earlier in the year. So when he got up to speak yesterday, everyone eagerly waited for him to crush that stock too. When he finished his presentation without saying a word about Herbalife, the stock went up 20 percent. Everyone decided the stock was safe, simply because David Eihorn didn't say it wasn't.
The problem, as you may have figured out, is that many of these calls become self-fulfilling prophecies. David Einhorn decides to short a stock. Then he tells a huge room of other investors that the stock is no good. They believe him (or assume that everyone sitting next to them will believe him.) Everyone sells. The price collapses. David Einhorn makes a ton of money for his clients and looks very smart for shorting. Repeat.
People are definitely starting to notice that his outsized influence can have a warping effect on the market. Martin Marietta says there is nothing wrong with their company, and that may be true, but we'll never know because Einhorn's prediction never got a chance to play out naturally. Even other analysts who might secretly believe in the strength of a particular stock are forced to admit they can't recommend it if there is even the possiblity that Einhorn might be shorting it. It's just too risky.