Hedge fund manager David Einhorn took a bruising in the markets last year, but at least one of his apparent strategies is now paying off handsomely: being short a basket of U.S. oil drillers.
At the annual Sohn Investment Conference in New York last May, Einhorn made a detailed case for selling, or going short, the oil company Pioneer Natural Resources. He argued among other things that a combination of low energy prices and overly optimistic accounting methods meant the driller was overvalued. Joking that Pioneer was the "motherfracker," Einhorn, known for his acerbic presentations, showed dozens of slides emphasizing his point.
"These companies have negative development economics, meaning that aside from a few choice locations, they don't earn a positive return on capital, but have a nearly infinite supply of negative return opportunities," one stated, referring to Pioneer and some of its competitors. "What should such a supply be worth? Not much. Yet, the share prices are very high and we believe are poised for a fall."
Now, just days before this year's Sohn conference next Wednesday, he's proved correct: Pioneer has fallen 1 percent and was down considerably more before the recent energy rally. Several other fracking companies he pooh-poohed (EOG Resources, the "fatherfracker," Continental Resources and Concho Resources) are down substantially as well, making them some of the few public stocks that behaved as Sohn presenters predicted they would.
Einhorn declined in an e-mail to comment for this story.