Why David Einhorn is short St. Joe

October 13, 2010: 1:43 PM ET

The Greenlight Capital manager made his name by publicly shorting Lehman Brothers. Now he expects shares of the Florida real estate firm to fall.

By Scott Cendrowski, reporter

David Einhorn is double-dipping his short ideas.

At the 6th annual Value Investing Congress on Wednesday, the noted short-seller presented his 139-slide bearish case against The St. Joe Company (JOE), a Florida real estate firm that made a strong push into residential developments. Einhorn was publicly short St. Joe in 2007, when it traded at a high of about $53. He thought it would fall to about $12 a share. The stock bottomed around $14.50 in March of 2009 before rising to around $25 before today.

Einhorn's case against St. Joe boils down to accounting. He says the company should take drastic write-downs on its vacant property developments in Florida. In a notable moment, Einhorn played a video of driving through one of St. Joe's developments near Jacksonville. The company's plan was to develop 2,600 homes by 2011, Einhorn said. But it said earlier this year that only about 215 had been developed.

"It can't build, it can't sell, and it can't generate value to cover the operating costs," Einhorn said. Shares fell this summer as investors worried that the BP oil spill would ruin some of St. Joe's beachfront properties. As Einhorn sees it, "Joe went from way way overvalued, to way overvalued. "

Notable investors like Bruce Berkowitz of Fairholme Capital Management, St. Joe's largest single shareholder, added shares as recently as last year. When asked about Berkowitz's position, Einhorn said he recently sent a letter to the mutual fund manager but has not received a response.

Einhorn's speech was easily the most anticipated of the conference, where investors pay $3,000 or more to mingle over drinks with hedge fund managers like Bill Ackman and Lee Ainslie III and scribble notes on their investment ideas. Einhorn leads Greenlight Capital, a $7 billion hedge fund, according to Institutional Investor, that manages value-focused funds and a reinsurance company.

His famous case for shorting Lehman Brothers when its stock traded around $70 first gained attention at this conference three years ago—a fact that Whitney Tilson, the hedge fund manager and conference host, didn't let the crowd forget.

"When I did the Lehman thing, I wasn't thorough enough—the stock went up $5 that day," Einhorn joked before he began. Apparently he learned his lesson -- by the end of Einhorn's St. Joe presentation, shares were down 10%. It wasn't until after the 40-minute presentation that Einhorn told the crowd he has been researching St. Joe since 2006.

In a lighter moment, Einhorn displayed a picture of St. Joe's local office in Port St. Joe, Florida. A Small Business Association assistance sign was visible out front. After chuckles from the audience, Einhorn said of the coincidence: "These short ideas –they have to overlap."

More from the conference:

Why GM is a buy

Betting on a Japanese default

View from the hedge fund seat looks good

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About This Author
Scott Cendrowski
Scott Cendrowski
Writer, Fortune

Scott Cendrowski is a writer at Fortune based in Beijing, where he covers business in China. He moved there in late 2013 from New York, where he wrote about Wall Street and investing. Before joining the magazine in 2008, he was a Pulliam Fellow at The Arizona Republic and an intern for Bloomberg News. A Detroit native, he has a B.A. in public policy from Michigan State University.

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