Fooling Some of the People All of the Time: A Long Short Story Reviews

• Among the best investment books I've ever read

  
  By AKCK4JFM2Q3M7 on 2008-04-25
  David Einhorn's new book about his long-running battle with Allied Capital is an amazing book. More than just an investing book, it's an investing novel, with good guys and bad guys and clueless, gullible and conflicted investors, regulators, Wall St. "analysts" and media. I stayed up all night to read it.
  
  The review by George Anders in the Wall St. Journal recently missed the point. Anders focused on Einhorn, highlighting his tremendous track record and saying he's gutty, tenacious, patient and disciplined, but that's not the story! The real story is what Allied Capital has done and the utter failure of regulators, investors and the media to do anything about it. I don't see how it's possible to read this book and not come to the conclusion that this company has done -- and continues to do -- all sorts of terrible things, but rather than expressing an opinion on this, Anders makes it seem like a he-said-she-said tempest in a teapot and, reading between the lines, seems to be saying that because the stock hasn't plunged, that Einhorn's investment thesis has been proven wrong. It hasn't -- but it can sometimes take many years.
  
  (Full disclosure: Funds I manage are short the stock of Allied Capital and I'm mentioned briefly in the book.)
  
  

• Allied's Hefty Dividend Checks Have Cleared For Over 40 Years

  
  By A25ZP6MYC6F0X1 on 2008-05-05
  Einhorn is not alone in believing that financial statements are sometimes a form of creative writing. But dividends are not; when a dividend check successfully clears, there can be absolutely no doubt that the money really was in the bank. And given that Allied Capital not only pays a hefty dividend but has also defended and increased its hefty dividend for more than four decades, it is simply silly to mount the kind of bear raids that Einhorn has repeatedly mounted on Allied Capital during the last decade. All he has done has been to make it possible for savvy investors to get pieces of a very successful enterprise at bargain prices.
  
  

• David Einhorn isn't fooling anyone but himself

  
  By ACNBY57LG1CG4 on 2008-07-07
  Overview:
  David Einhorn, founder of a successful Wall Street hedge fund, has written a book which describes the controversy surrounding David's hedge fund selling short Allied Capital. While David makes some very damning points about Allied's management, he does not prove his central thesis, namely that Allied engaged in fraud. Despite this flaw, the book is still a worthwhile read.
  
  Background
  David's conclusion about ALD were based on his previous experience shorting Sirrom, a company that *was* a fraud and subsequently went bankrupt. Sirrom was in the same industry as Allied, namely loans to small businesses. David concluded that ALD must be a fruad since they, like Sirrom, did not write down the value of troubled assets in a timely manner and management was less than truthful when confronted with this fact (pg. 52). Referring to ALD's managers, David writes "people who are willing to lie about small things have no problem lying about big things" (pg. 64). The rest of the book, almost 300 pages, is David's attempt, unsuccessful in my estimation, to substantiate this claim.
  
  Why "Fooling..." is Worth Reading
  Despite the fundamental flaw of stating a thesis that he then fails to substantiate, "Fooling..." is still a worthwhile read for four reasons:
  1) David has made a lot of money, and his investment methodology is explained in detail. This is unique, and worthy of serious study.
  2) The book documents the inability of regulatory authorities to protect investors from dishonest management practices. Very sobering. Allied did engage in a number of unauthorized accounting practices that victimized it's investors, and none of it's managers were ever punished. In fact, they got rich at their investors expense.
  3) It shows that even superstar investors are human. On display is how a very rich man's obsession with proving he is right drove him to stick with a losing position, pouring time and resources into what became a personal crusade. I have made this mistake on a much smaller scale, and I imagine most investors have. Obviously, the book did not intend to teach this lesson, but there it is.
  4) Allieds is a "Business Development Corporations" (BDC), and the book explains how BDCs operate and make their money. David opines that BDCs are similar to junk bond funds, but are riskier (pg. 48). BDCs in general are very lucrative and pay high distributions when the USA economy is doing well, and tend to lose a lot of money during a recession. There is a lot of info here that investors can put to work.
  
  Synopsis of Events:
  David Einhorn, who is about as successful as a man can be on Wall Street without being Warren Buffet, concluded that Allied Capital is a fraud. He invested almost 8% of his hedge fund selling ALD short (he profits if ALD goes down, loses if it goes up). He then proceeded to try to get regulatory authorities, including the SEC and Eliot Spitzer (at the time the NY Attorney General) to investigate improper practices at Allied. For his efforts, he got investigated himself by these authorities. He recently published "Fooling Some of the People All of the Time" to prove he is right, and the rest of the world (SEC, financial press, investors, the stock market) are all wrong. David calls ALD a "ponzi scheme" (pg. 330), continually raising new capital to pay the dividend. While this claim should be easy to substantiate, no evidence or proof of any kind is offered. David predicts that eventually, ALD's fraudulent practices will cause the demise of the company. When the book was published, despite 6 years of intense effort on David's part to expose ALD, he lost money on his position (when you factor in dividends which he had to pay having shorted the stock).
  
  Epilogue
  Today, 8 years after his accusation were first made, ALD is still in business. While it's stock price has under-performed the market, when you factor in the dividends (actually tax distributions) it has been a pretty decent investment. It is hard to imagine how a company that systematically defrauded it's investors could survive 8 years of constant hostile scrutiny from a smart and rich hedge fund, paying hefty dividends the whole time. If it was a ponzy scheme, it should have imploded years ago. As far as I am concerned, this fact, combined with David's lack of hard evidence, disproves his thesis.
  
  

• Detailed insight into both a hedge fund and a loan company's abuse of the system

  
  By A89KN0ADLUNPW on 2008-05-13
  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).
  
  

• A great book and a must read for anyone interested in investing

  
  By AL86GW5I64XU9 on 2008-05-06
  I was lucky enough to get a hold of an advance copy of the book from Amazon. Couldn't put it down. Finished it and went out and bought one for everyone at our company. Then went and bought more over the weekend to hand out to folks. It is an absolutely terrific book, and thank you, David Einhorn, for writing it. I loved the first few chapters on Greenlight and was absolutely mesmerized by the rest. One of my colleagues has gotten about half way through and said he did not realize that folks could "not get it" when faced with compelling evidence. I told him to read on, and that his disbelief will get much worse. I think that it is a stunning example of the concept of cognitive dissonance (at best, and probably being very kind with that). Writing this book took a great deal of courage and I know I am a better investor for having read it.
  
  
• A Scary Read. A Warning to America. An Excellent Book.
  By A2S1HD0T9K9T0F on 2008-05-04
  Ever wonder how the Internet bubble REALLY formed? How Enron got away with fraud for so long? Do you think that the truth always comes out eventually? And that the good guys win in the end?
  
  Read this book and see how even the free American economy can't handle bad news about its companies. How companies are able to hide the truth from investors and how some on Wall Street and even the government end up helping them out.
  
  This true story is Kafkaesque. The writing is easy to understand. And the ending is a wakeup call.
  
  
• Riveting and Important
  By A34CU9L8LQW6LG on 2008-05-07
  I received this book around lunchtime and read it cover to cover by the end of the afternoon. It was a riveting read - I found myself shocked at the lengths a company management would go to discredit detailed research that pointed to both corporate deception and a tolerance of a culture of fraud, but more than anything disgusted by the laziness of the investigators who could have put a stop to this behavior. I am hopeful this important book makes a difference in both corporate governance and government oversight.
  
  
• A Painful but Important Read
  By A39KS438IBRU6E on 2008-05-17
  Virtually all of the current reviews accurately describe this book. The individual who pans it, declaring that Allied's long history of paying dividends invalidates Einhorn's thesis, either likely didn't actually read the book or doesn't understand the fact that the funds garnered from Allied's constant chain of secondary offerings have essentially been used to pay all those dividends through deceptive if not fraudulent accounting. This is the classic description of a Ponzi scheme.
  
  One of the weaker points of the book as a complete report on the rationale for shorting ALD is that it is primarily an indictment of BLX, Allied's Small Business loan subsidiary. Since BLX is a minor (but hardly insignificant) portion of ALD's 'assets', the reader is left to guess at what the value of the rest of ALD's current portfolio may be. Based on this book though, one is almost forced to conclude that ALD is rotting from within.
  
  Another conclusion that one takes away is that as always, when the government is subsidizing/guaranteeing anything (in this case small business loans through the SBA) it is inevitable that waste, abuse and outright fraud will result as the incentives to abuse the program are so much greater than the incentives to detect and prosecute the abusers and too many (bureaucrats, politicians and regulators) are dependent on the resulting stream of money that flows from these programs and their clients. Of course the taxpayer ends up holding the bag.
  
  The audience for this book is probably quite limited as you need a fairly sophisticated financial background and some persistence to get through it, but I highly recommend it. Certainly every taxpayer and shareholder of Allied should (but likely won't) read it. Thank you Mr. Einhorn for bringing this story to light and for pledging your eventual profits (if any)from your ALD short to charity.
  
  
• An important work
  By AIYQ5S2H7AG6O on 2008-05-18
  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.
  
  
• Einhorn's pain is our gain
  By A1N0KI3RV7WNJW on 2008-04-30
  In a world where the answer to every vexing economic problem seems to be "Deregulation" (if not lower taxes!) here comes a wildly successful hedge fund manager (of all things!) to show us that in a world where the current crop of referees are either incompetent, asleep or bought off, the solution is hardly to wish for a world with no referees and/or no rules. Indeed, a Wall Street world without proper rules and vigilant rule-keepers is a scary and dangerous place--as the current Credit Crisis makes well clear. If this book was only about one duplicitous company called Allied Capital and Einhorn's awful experience shorting its stock, it would still be a provocative and insightful read by an unusual insider-as-outsider. But it is more than that. It is the story of the how truly skewed things can get when our government chooses to look the other way. Einhorn doesn't start the story as a true-innocent--no hedge fund titan, however young, is that--but it is amazing what happens once his speech about the company (for a charity, no less!) starts this book, and his world, spinning: it is as if he's fallen down a rabbit hole and finds himself on some surrealistic, subterrean level beneath Wall Street. Nothing like being investigated by the S.E.C. for having the termerity to short a stock and the "unpatriotic" cojones to talk about it. Einhorn points out that free speech, in certain circumstances, is not so very free but gets quite expensive...so much so that it gets quashed.
  
  The book might have more accounting arcana than some readers would wish, but one can easily fast-forward through those sections and still get the meat of Einhorn's argument. Since hedge fund managers are being blamed for everything from the housing bust to raising the price of high-art (sharks in formaldehyde) and other assorted commodities (corn, oil, Ferraris) it's a bracing surprise to be presented with a book that is as useful, as righteous, and as necessary as this one.
  
  Einhorn's pain is our gain.
  
  
  
  
  
• Get Your Accounting Skills Up
  By A2Q6LYRL68RPNV on 2008-05-07
  I just finished reading this book and can say it is one of the best books I've read in a while. Accounting rules are not perfect and can often distort economic reality. While the fundamental short thesis for Allied is simple (as most should be), the key issues are so much more profound. Perception versus reality. Allied used accounting rules to distort the economic reality of the business. The book examines the conflicts of interest within the capital markets and does not dismiss the actions are various participants, but tries to understand their rationale by examining incentives within the system. David Einhorn's book highlights the importance of a strong accounting background and the need to question so called "truths". The most disheartening outcome of the allied situation is that even though an investment thesis may prove to be correct, it does not necessarily mean you will get paid on the idea. Allied stock should have gone to $3 dollars and its CEO should have gone to jail. While the truth may not win in every situation, I think it does in the long run and his MBIA short is an example of that. We should all work towards being as diligent and as patient as David Einhorn is in every aspect of our lives.
  
  
• Gripping story, well narrated
  By A2Q5UUQ3CL0FCD on 2008-05-01
  A fascinating story told at the intersection of investing, accounting, regulation, business interests, greedy management, private investigators and government malfeasance.... A tale of how the real world works and how there are a few souls fighting on our behalf.
  
  
• Rare insight into a frightening reality we all must be aware of
  By A269AK2RCT93YN on 2008-05-02
  David Einhorn makes the complex simple, and the sad truth irrefutable.
  His work should instigate significant change in our financial governing agencies.
  Those who do not read this book risk maintaining dangerous misunderstandings about the governance of our corporations and our financial markets.
  
  His astonishing story teaches a harsh reality - that America's assumptions about corporate honesty and government protection are simply wrong.
  His experience of SEC unresponsiveness to corporate fraud, exactly the situation we expect them to protect us against, is so well grounded in fact that page after page I kept asking myself, "could there possibly be more???"
  
  
• A "must read" for all individual investors
  By A2UEMWFN1FY9JT on 2008-05-26
  If you manage your own investments, and especially if you buy individual stocks, this book is a "must read" for you. It will open your eyes about the risks of owning individual company stocks. Few people have the ability to research a company the way the author's hedge fund can. Even with those resources Greenlight hasn't been able to force Allied Capital to come clean about their dishonest accounting practices. The only hope individual investors have is to stay clear of companies like this.
  
  
• Superior thinking in a sea of mediocrity
  By A25JHS8L1W0Z1R on 2008-05-14
  So few individuals think clearly on Wall Street that when one of them actually lays it out in a book as Einhorn has the effect is to give us valuable lessons in developing the clear thinking necessary to work through the sea of mediocrity on Wall Street with its multi-level hidden agenda and sales oriented analyses. I rate Einhorn a superior thinker and an excellent writer-a great combination.
  
  
• Excellent and Thought Provoking
  By A17AKX9AM7HTMI on 2008-05-26
  Einhorn's book is an excellent walk through investment analysis, critical thinking, and common sense. Whether you side with him or not, there is certainly much to be learned. That Einhorn released this book in the middle of the saga is a major plus. We can continue to follow the story in the news, on the message boards, and of course by watching ALD's stock price.
  
  
• A Super Investment Read
  By ADUQWLBQR7BM0 on 2008-05-27
  I have not read an investment related book since Liar's Poker which I wanted to keep reading and finish in a single day. I liken this book to Michael Lewis' work only in that it will likely stand as equally as much of a "must read," however one important distinction should be made - this book dives much deeper into the actual investment premise and process of a position. It is just as much educational as it is truly entertaining. For anyone in the investment business, you will get something out of it above the inevitable a laugh or gasp at some of what went on at Allied Capital. I found myself exclaiming out loud that some of what went on was just too ridiculous to be true. Unfortunately it did indeed happen, and the book is full of supporting evidence. Further, it details a culture of inaction at regulators, which comes at the expense of taxpayers. The combination of dishonest management and lapses on the part of the watchdogs is enough to make anyone mad.
  
  David's writing style and voice are excellent. The story told was exciting. I would recommend this book strongly to anyone who has ever looked at investing in a company in any capacity, especially those who have sat through the conference calls and taken management at face value. It inspires a healthy dose of skepticism which we should all have when we make investment choices, and as I see ALD indicated to open near to its lows seen since the Fall '07 credit crisis, it shows that real digging and sweating over research can result in picking the right names to be long or short in.
  
  
  
• A Compelling Story
  By A1IU9VPCBKZPE8 on 2008-06-27
  First I read When Genius Failed which was about the rise and fall of Long-Term Capital Management - a hedge fund. Then I read a book about the scandalous rise and fall of Enron called The Smartest Guys in the Room. And now I have just finished this book about a business development company (BDC) call Allied Capital. This was just not any BDC, but the second largest in the country.
  
  The things I have read in this book are truly incredible. Many times I just had to shake my head in disbelief. This is a book about a company that made, and continues to make it appears, unscrupulous loans to businesses, if that's what you can call some of the entities they loaned money to. This book details the corruption that took place in this business and its controlled company BLX. We also learn about the inaction at the Small Business Administration (SBA), and USDA loan program in the light of serious problems with the loans they backed. What is really sad about this is the hundreds of millions of dollars that these government organizations paid out, and when their reserves are exhausted, tax payer money foots the bill.
  
  It appears that David Einhorn has spent considerable time, effort and money to bring this information to the appropriate authorities, but the result reminds me of the title of Part Three of the book: "Would Somebody, Anybody, Wake Up?" As the book's jacket cover stated, "This revealing book shows the failings of Wall Street: its investment banks, analysts, journalists, and especially our government regulators."
  
  It was a very interesting read, and I would recommend the book.
  
  
  
• This Is Not Nigeria
  By A2F0UDKRWJ2I5J on 2008-07-07
  This is a complex story of hedge fund manager, David Einhorn, vs Allied Capital. Mr Einhorn wants corporate accounting transparency; Allied wants good quarterly numbers. The rules keep changing. The SEC looks the other way. How well the company is doing depends on who you ask.
  It takes a clear head to follow the details of Allied's accounting but you get the point. Reading about the Detroit area operations of one of Allied's investments, BLX (Business Loans Express), sounds like a Nigerian scam. The reader wonders why no stock analyst or government agency notices this or even cares when it is brought to their attention. This isn't Nigeria, this is happening in the USA. Luckily Mr. Einhorn is persistent and hopefully for investors he will keep it up.
  
  
• The Einhorn v ALD saga
  By A2Q74CEXHMD8S4 on 2008-07-07
  This is brief history of the dispute between David Einhorn, founder of Greenlight Capital, and Allied Capital (stock ticker ALD). Mr. Einhorn details his research into ALD that culminated in a speech he gave at a charity event. Since the speech ALD has been attacking not just Einhorn, but everyone and anyone who has said anything bad concerning their company.
  
  Mr. Einhorn details the lack of inquisitiveness on the part of the financial reporters and stock analysts who gave, and most who continue to give, ALD passing grades without a serious look into the financials. He also tells of the lack of responsiveness from the federal government to stop BLX (Business Loan Express, a company owned by ALD) from bilking the taxpayers out of hundreds of millions of dollars in bad (fraudulent) loans. And for all of his effort Mr. Einhorn was repaid with personal attacks. Since I started reading this I have looked into this a bit and I have not been able to find a single credible source to discredit what Mr. Einhorn has said about ALD. Despite what some may believe blogs and online forums are not credible sources, they are just opinions thrown out for the masses to read.
  
  I found this to be an excellent book. However, I would not suggest buying it for the explicit purpose of getting some investing insights into the market. That is not the intention of this book.
  
  
  
• Fooling Some of the People All of the Time
  By ARR69V2HXSQPR on 2008-05-27
  Fooling Some of the People All of the Time takes one on a remarkable journey through the failures of some of the financial institutions we rely upon. This is a wakeup call that now is the time to rejuvenate these agencies. While Enron spurred new laws, it turns out that enforcement of existing laws may be of greater significance. This book is both enjoyable and a must-read for all long and short investors. This is a great ride, and the story is not yet complete.
  
  
• An odd, depressing book
  By A1PWAWXS367JUD on 2008-06-16
  If, like me, you read this book because you know about Einhorn's record, you will probably find the beginning parts about the founding of Greenlight and some of their successes most interesting. Not because it offers any particularly useful insight, just because it's a peek inside a successful fund.
  
  The middle part of the book drags, because detailing the various accounting 'techniques' Allied uses, while necessary for completeness, gets repetitive. The last third of the book grabs your attention again when it takes its turn for the most appalling, with revelations about the endemic corruption at: the SEC, media, SBA, DOJ, Congress, Wall St, [insert your choice]. Allied's stock option conversion program was a nice finishing touch.
  
  Sadly, I find it laughable that a hedge fund manager and 18th-in-the-world ranked poker player could be as naive as Einhorn presents himself in this book. His conclusions about the govt are vastly beyond the comprehension of the average human, and in many ways this confession has meant nothing. How many other little know three letter agencies are out there wasting taxpayer money? How many more will be launched in 2009?
  
  
• How is Allied Capital still alive?
  By A2G8I07AM2ZUR4 on 2008-07-08
  Great book.
  Einhorn does an excellent job of laying out his bear case on ALD which, after having read the book, completely stuns me to know that this company is still a going concern. It's unfortunate to see just how biased our regulatory infrastructure is and the institutional bullishness that permeates every aspect of our capital markets is a sad development.
  Fooling some of the people all of the time is a good book and a fascinating read. I was amazed at some of the things Mr. Einhorn had to endure just because he dare speak his mind and back up his assertions with cold hard facts. This book affirmed many things that I've known about our capital markets, and many of those things are not pretty.
  
  
• A Good Investment
  By A3TY2CROXBSSW9 on 2008-07-16
  I picked this book up as a light summer scandal read and it turned out to be anything but. This is a tremendous book. As someone with limited knowledge of the world of investing, I was a bit behind the curve in muddling my way through what is a very complicated story told using the language of the world of finance, but the author took the time to explain the concepts he used throughout and I learned an incredible amount from this case study. I imagine it will be one used in many academic Business/Finance classes. The best part of the book is that it paints a very vivid picture of life on the "inside" of the world of finance to a broad audience that typically is limited only to an outside perspective. However, the story is quite unsettling as it presents a scenario where the system (SEC, the media, Department of Justice, etc...) fails to protect investors and taxpayers and instead looks the other way while politically well-connected corporate bigwigs work the system and amass millions in part by defrauding said investors and taxpayers. I came away from the story depressed and appalled but ultimately with a better understanding of some of the reasons the country is likely facing the mess we are today. Are you a taxpayer? Do you have a bank account, an IRA a 401K or plan to fund part or all of your retirement through some sort of investment? If so, you will benefit from reading this book. Bottom line, it's not an easy or pleasant read, but it's a must read. Think of it as a good investment. :)
  
  
• A Revelation for Those Who Believe Efficient Markets and Good Regulation Exist
  By A1K1JW1C5CUSUZ on 2008-07-31
  David Einhorn is a man who believes in checking out companies carefully. When he saw that Allied Capital wasn't following accounting rules and was making lots of bad loans, he smelled an opportunity to make money as the company collapsed. After investing, he had an opportunity to share his idea at a charity event. Allied Capital's stock quickly dropped in response.
  
  This book describes six years of battling to get the story out of what he had learned, to persuade regulators to crack down on Allied Capital so the rules would be followed, and to stop any illegal activities at Allied Capital. The book is written from Mr. Einhorn's perspective.
  
  Along the way, Allied Capital decided that it had to discredit Mr. Einhorn's allegations and his motives.
  
  After many years of battling, Mr. Einhorn learned a number of important lessons:
  
  1. Policing small capitalization companies is a low priority for reporters, analysts, institutional investors, and regulators.
  
  2. If a company keeps paying a dividend (even if it's not smart to do so), many individual investors will be attracted and will be loyal.
  
  3. The Small Business Administration is more interested in shoveling out money to small businesses than it is in ensuring that fraud isn't being perpetrated on the tax payers.
  
  4. Wall Street investment banks will help defend any company that pays a lot of fees.
  
  5. With enough new capital, large mistakes can be smoothed over.
  
  I'm sure that if he were faced with the same investment opportunity today, Mr. Einhorn would run rather than take a short position.
  
  I highly recommend this book to people who learned about perfectly efficient markets and active, honest regulators in school. "Let the investor watch out for himself or herself" would be a better motto in describing the capital markets.
  
  This book will be boring to those who want to a quick take. But you need to read all of the misrepresentations, misstatements, and personal attacks to get a true sense of how the game is played.
  
  If you want a more recent version of this problem, just look at securitized mortgages.
  
  Thanks for sharing, Mr. Einhorn!
  
  
  
• Good writer, Great Investor, Superb Revisionist Historian
  By A2R84C32NBP0XU on 2008-08-09
  David Einhorn's book contains quite a lot of good advice, but its subtitle "A Long Short Story", says it all; this book does not need to be 350 pages long. In fact, I can give you a good portion of its wisdom here: 1) Avoid losing positions, as it takes winners to offset them just to get back to even; 2) Avoid "evolving hypotheses", which means that if you buy a stock for a reason, the catalyst occurs, and the stock doesn't respond as you wanted, don't sit around and create a new reason to own it; rather, sell it and move on. 3) A company's paying of a dividend does not necessarily signal financial strength..in fact in the case of Allied Capital they frequently raised capital in the equity markets in order to pay the dividend (which Einhorn accurately likens to a Ponzi Scheme).
  
  Where the book falls apart is the many dealings that Einhorn claims to have had with various agencies, most of which Einhorn claims wronged him. The reality is that only Einhorn and the counter-parties know for sure whether these dealings truly happened as he portrays, but there are strong signals that his book is a self-serving diatribe; for example, when Harvard Business School wrote a case about the Einhorn/Allied Capital issue, Einhorn says that the case was biased in favor of Allied, and that he wasn't offered the chance to comment on the case as was customary because of his conspiracy theory that the research assistant had formerly worked at Capital Research, which owned Allied Capital stock. Futhermore, he implicates esteemed Harvard Business School professor Andre Perold in his revisionist history account, claiming that Greenlight was denied the right to offer input in the case. That, I can state with great confidence, is factually incorrect. The fact that the one claim in the book that I chose to attempt to verify proved untrue makes me quite suspicious about the balance of its contents.
  
  In sum, there is some good financial advice from a great investor, but the book is twice as long as it should be, and there are too many self-serving stories of questionable veracity.
  
  
• Valuing securities
  By AQLSTVQ3W7G6A on 2008-06-02
  Real eye opener...makes you question the value of your IRA / 401 K nest egg
  
  Jim T.
  
  
  
• Great book
  By A3NFT553MJJK59 on 2008-08-06
  This is a great book to read through. It disclosed how a hedge fund conducted detailed research to valuate a company and fighting the management of the company for some fraud accounting practices. Very informative, detailed and interesting!
  
  
• A brilliant (but FRIGHTENING) book
  By A38XUO3UW5BRD2 on 2008-08-06
  This is an investment book that should not be missed (as long as your accounting and financial analysis skills are well-honed -- the critical analysis is detailed). This would be excellent reading for a CFA/MBA/CPA.
  
  David Einhorn writes the detailed story of his investigations into malfeasance at Allied Capital. He makes the case, with all the back-up detail, that this company is essentially a "Ponzi" scheme (like a financial chain-letter). Allied books SBA (and other Federal Agency) guaranteed loans, violating origination-risk criteria, front-ending income, managing and delaying loan write-downs while inflating earnings on the pretext of lack of objective value impairment (though they do manage to write-down their equity investments earlier!), increasing portfolio size which hides higher bad-debt experience on seasoned loans which they do not disclose, and distributing capital (if the accounting had been more conservative) through increasing dividends funded by new equity. All this, as well as documented fraud.
  
  These technical details and analysis are worth the price of admission alone. However, the most frightening thing about the book is the lack of interest in the Allied malfeasance shown by the SBA and the SEC, Congressional oversight committees, sell-side analysts and journalists, all for their own self-serving reasons. If you had any faith in government by-and-large acting in our best interests before, this book could well destroy that act of faith.
  
  As well as the Allied Capital story (most of the book), the early chapters describe how Greenlight Capital (David's Hedge Fund) works. That's a fascinating revelation in its own right. What is most impressive, though, about the book is the quality of analysis David has done. Why are Hedge Funds who sometimes run short-positions so reviled these days by regulators? David is anything but a shoot-from-the-hip trader, neither is there any indication whatsoever he is trying to manipulate the market in Allied stock with rumours (everything is backed up with hard evidence and detailed analysis). By the way, David is the person who publically took on the ex-CFO of Lehman and won. If you are a financially sophisticated shareholder in Allied Capital, please do read this book -- you most probably won't be afterwards.
  
  At the end of the book, I was left with one puzzling question: why has David devoted so much of his time to researching and telling this story (early on in the events, he even says he thought of quitting because it was becoming so time-consuming)? It's almost as if he is now a dog with a financial bone and just can't let go any more. Admittedly, he's doing us all a big favor in the process (and has agreed to give any proceeds from his short position to charity, so he has no personal conflict of interest).
  
  If anyone from the management of Allied Capital or SEC enforcement reads this review and thinks of bringing a lawsuit, do think again. I am only summarising David's book, which is in the public domain, and I never have had, neither do I, nor will I ever have any position in Allied Capital's stock. But then, of course, as David makes the point near the end, the SEC only seems to be interested in high visibility enforcement when a big company has actually failed (Enron, Worldcom), unlike Allied Capital (yet!), or it involves a well known figure (Martha Stewart). Where is the justice that we are all supposed to put our faith in?
  
  Many congratulations, David. I hope there can be more financial books of this quality in the future.
  
  
• Perception and Reality
  By A185BD72CMYXWH on 2008-08-22
  This is an excellent read with great insight into the way true hedge funds try to add value and how publicly traded companies can make perception into reality.
  
  

• The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means
• When Markets Collide: Investment Strategies for the Age of Global Economic Change
• The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash
• The Snowball: Warren Buffett and the Business of Life
• Hedge Hunters: Hedge Fund Masters on the Rewards, the Risk, and the Reckoning