Interviews with David Einhorn and Warren Buffett Protege Todd Combs

because people are looking at things and saying the ownership of a company is something other than risk adjusted future profits of the company. Maybe it is the social disruption, maybe it is social desirability, maybe it is the charismatic value of the CEO or whatever it is that you have that is contributing in the market’s mind to the equity value of the companies. I would equate this to sort of from a decade ago when people thought that a company should be valued based on how many eyeballs were watching on their screen. And people would like to say it is different this time. Our philosophy is that it’s not different this time. And at some point this will revert. But, nonetheless, sitting watching the portfolio trade every day and watching companies that don’t make profits, don’t have real prospects of making profits, may not even exist for the purpose of making profits, you know, have the values of those stocks going up a lot while other companies that have the misfortune of actually trying to earn a return on capital and pass some of that on to their shareholders see their stocks derated and devalued in the present environment, it is a challenge to our strategy in as long as that persists. And our results over the most recent period have certainly suffered because we have been investing the more traditional way. At least that’s the way I describe it.”

Eirhorn didn’t mention the names of these companies with “social disruption, maybe it is social desirability, maybe it is the charismatic value of the CEO” characteristics but I am sure you can guess that he was thinking of Amazon.com Inc. (NASDAQ:AMZN), Netflix Inc (NASDAQ:NFLX), and Tesla Inc (NASDAQ:TSLA).

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