In 1996, David Einhorn was only 27. With just $900,000—half of it from his parents—he set up Greenlight Capital. On Wall Street that sum was little more than pocket change, but in Einhorn’s hands it became a kind of philosopher’s stone.
For the next dozen years the fund delivered a net annualized return north of 25%. That number kept other managers gasping somewhere far behind.
Einhorn’s edge came from a hybrid approach. He bought undervalued companies, and at the same time, he hunted over-valued, fragile firms and short them—no hesitation, no sentimentality. Long or short, bull market or bear, he tried to keep moving with the rhythm of the road beneath him.
Off the trading floor he proved just as comfortable at a poker table. In the 2006 World Series of Poker he finished 18th and donated all $660,000 in winnings to charity. In 2012 he took third in a multi-million-dollar poker charity event.
Poker, like markets, rewards those who decide well when the picture is incomplete and the pressure high.
His high point arrived before the 2008 crisis. Sensing odd footfalls in Lehman Brothers’ balance sheet, he built a short position in July 2007. The firm’s hidden, illiquid assets looked to him like a structural flaw—buried deep, hard to quantify, but impossible to ignore. Sooner or later, they would bring the whole thing down. When Lehman filed for bankruptcy in September 2008, Greenlight’s shorts earned more than $1 billion. Overnight, Einhorn became the guy who broke the tape long before anyone else saw the finish line.
Greenlight’s strong performance attracted investors in droves, each hoping to share in the momentum and success that had defined the fund’s early years. Assets under management peaked around $12 billion in 2014. But right at that summit began what Einhorn later called his “lost decade.”
The Long, Winded Stretch
From 2008 on, U.S. equities entered a super-bull cycle. If you had simply bought an index fund and jogged along, your returns looked spectacular. Yet an investor who gave Einhorn money at the start of 2014 spent nine years watching the account go sideways or worse. Only a 25% rebound in 2022 finally erased losses piled up since 2015.
Why did the man who once out-sprinted Lehman stumble so badly? Einhorn blamed a market that, in his words, had become “fundamentally broken.” In place of traditional value investors he saw three new pacers setting tempo:
- Passive index funds mechanically buy the largest market-cap companies, regardless of how overvalued they may be.
- Quant and algorithmic trading chase short-term momentum and market sentiment, rather than focusing on a company’s underlying fundamentals.
- Retail speculators gravitate toward “meme stocks”, making trades based on narratives rather than financial statements.
To Einhorn, asking “What’s this company worth?” had been replaced by “Will the price be higher tomorrow?” In that climate, his buy-cheap-sell-dear discipline felt like running uphill into gale-force wind.
But was that really the whole story?
In 2015, Greenlight Capital posted a net return of -20.2%—its second-worst year since inception. In his year-end letter to investors, Einhorn offered a candid postmortem. The fund’s biggest losses, he admitted, came from its largest positions: SunEdison (SUNE), CONSOL Energy (CNX), and Micron Technology (MU). All were value stocks in which he had placed high conviction bets. That year, their share prices plunged 74%, 77%, and 59%, respectively.
From a statistical standpoint, hitting three major blowups in a single year is unusual. Was it simply the downside of his well-known concentrated investment strategy? Or was it something else—perhaps a sign that Einhorn had stepped outside his circle of competence?
If the losses of 2015 marked a strategic blow, then Einhorn’s years-long battle with Tesla was something far more sweeping—a clash of investment philosophy, personal conviction, and the spirit of a changing era.
This wasn’t just a bad trade. It became an epic conflict that drained Greenlight Capital’s performance and exposed the limits of Einhorn’s worldview.
His short thesis on Tesla was rooted in a very traditional framework. He saw the company as a textbook bubble: severely overvalued, financially unsustainable, plagued by production bottlenecks, and facing fierce competition from legacy automakers. Judged by conventional metrics, his argument seemed airtight.
But the market didn’t follow the script. Shorting Tesla turned into a prolonged nightmare for Greenlight. In 2018, the fund suffered a 34% annual loss—one of the worst in its history. A major contributor was what Einhorn called the “Bubble Basket,” a collection of overhyped stocks he shorted, Tesla chief among them. In the second quarter of that year, the Tesla short alone was the fund’s second-largest loss.
Then came 2020. Tesla’s stock skyrocketed 740%, and once again, Einhorn’s position became the fund’s single biggest drag.
What started as an investment thesis gradually turned personal. Elon Musk publicly mocked Einhorn on social media, at one point joking he’d send him a box of “short shorts” to help him cope. The public taunts likely made it even harder for Einhorn to walk away. What could have been a tactical retreat turned into a battle to protect his name. He held his ground, absorbing massive losses rather than cutting the position.
In the end, the trade wasn’t just about Tesla—it was about ego, identity, and the refusal to surrender to a market that no longer made sense to him.
Avoiding short selling is often considered a core tenet of value investing—because even if your analysis is right, you might not survive long enough to be proven correct.
In investing, doing the right thing at the wrong time can be indistinguishable from being wrong.
Einhorn, like Charlie Munger, may have been skeptical of Tesla. But skepticism and shorting are not the same. One is an opinion; the other is a high-risk bet with real financial consequences.
To many, Tesla’s value wasn’t about its current financials. It was about the future—about innovation, disruption, and the bold vision of its founder. In that kind of narrative-driven, belief-fueled market, traditional valuation tools lose their grip.
Einhorn didn’t—or perhaps couldn’t—adapt to this new paradigm. It’s one thing to say, “I don’t understand this story.” It’s another to actively bet against it.
In short, Greenlight Capital’s setbacks were the result of multiple forces converging:
On a macro level, the value investing philosophy Einhorn had long championed was overshadowed by growth investing for nearly a decade. Ultra-low interest rates and abundant liquidity made high-valuation growth stocks increasingly attractive, drawing capital toward a small group of dominant tech companies.
On a strategic level, past success bred a kind of overconfidence—even stubbornness. As the market paradigm shifted, Einhorn was slow to adapt and struggled to course-correct.
But Einhorn is no ordinary investor. Despite the sharp decline in assets, Greenlight has been gradually recovering over the past two years. By the first quarter of 2025, the fund was showing signs of a meaningful rebound.
David Einhorn’s success is admirable—but it’s his setbacks that offer deeper lessons.
Lessons from the Course
From the high cost of his missteps, we can distill a few rules worth taping above any investor’s desk
Rule 1: Risk management outruns brilliance.
There’s no denying Einhorn is exceptionally intelligent—a rare talent in analysis and reasoning. But brilliance alone doesn’t protect against disaster. When risk control breaks down, even the smartest investors can suffer crushing losses.
His concentrated long bets in 2015, and the prolonged short position against Tesla, both stemmed from the same root issue: overconfidence in his own judgment, and bets that exceeded the boundaries of prudent risk.
Rule 2: The market can stay irrational longer than you can stay solvent
Markets can diverge from fundamentals for a long time—sometimes longer than a manager’s capital or clients’ patience can last.
When you believe the market is “wrong,” it may continue being wrong far longer than expected. If you’re fighting the tide, you’d better have a small position and a long leash.
Otherwise, even if you’re eventually proven right, you may already be out of the game.
Rule 3: Past success can become your greatest liability
Einhorn’s reputation as a sharp, fearless contrarian—the man who took down Lehman—became a defining part of his identity.
That self-image was a powerful asset when he was right. But when he took on Elon Musk and Tesla, it turned into a psychological trap.
When investment decisions become intertwined with personal pride and self-perception, it becomes difficult to see things clearly, let alone admit you’re wrong.
Rule 4: Know the rules—but watch when they change
Einhorn’s career straddles two very different eras of investing.
Before 2008, markets were largely driven by active managers, and deep fundamental research was rewarded. That was the rulebook he learned from—and excelled in.
But after the financial crisis, the rise of quantitative easing, passive investing, and retail traders fueled by social media reshaped the market landscape.
Einhorn saw the rules were changing—but either couldn’t or wouldn’t adapt. He kept using an old map in a new world. The outcome was inevitable. If we remember these lessons—and are willing to regularly examine our own thinking—we might make fewer costly mistakes.
We might last longer. And, if we’re lucky, go a little farther.