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2022 Update: Addresses Eisman’s correct call that Zillow would struggle with its “Zillow Offers” business and the subsequent fallout for Zillow stock.
You may not have the capital of professional Wall Street investors but you can learn lessons from their successes and failures. Below we profile Steve Eisman, who shot to fame from being one of the few professional investors who not only recognized the housing bubble that culminated in the Great Financial Crisis, but actually acted and profited from it.
Who is Steve Eisman?
Steve Eisman doesn’t have the most famous name in finance, despite being a major protagonist in the most notable recent Wall Street movie: The Big Short. Part of the reason is because Steve Carrell, who played him in the movie, was given a fictionalized name, “Mark Baum,” apparently for privacy reasons. The film tackles some heavy emotional personal details, in addition to Eisman’s heroics in shorting the subprime mortgage market in 2008, so it’s understandable why this change was made.
However, Eisman is well-known and still feted across much of the financial world, especially for those looking for the next “big short” opportunity. Eisman now runs a long/short fund at a major fund firm and regularly appears on major financial news networks such as CNBC and Bloomberg TV.
In recent interviews, Eisman is almost always asked about the health of the financial system and whether he sees another opportunity to short the US economy. As of 2021, Eisman has not sounded major alarms about the major banks, the real estate sector or expressed particular concerns about the macroeconomic environment. In fact, in April 2020, following the coronavirus sell-off, Eisman told CNBC’s Fast Money:
“I actually think long-term, the best cyclical play out there are the very large banks. Post the great financial crisis of 2008, the regulatory apparatus spent years working on the banks … the banks were forced to de-lever and to wield multiples more liquidity. Now that we have a second crisis, the banks are fine.”
The lesson here might be that truly amazing “big shorts” only come around once in a generation, despite our collective fascination with looking for bubbles to profit from.
Steve Eisman: Professional Background
Steve Eisman grew up in New York City, attended the University of Pennsylvania and then went on to Harvard Law School. After leaving a brief career in law he joined Oppenheimer Partners. For more on his early life and how Eisman became a savvy analyst of stocks, we recommend the book “The Big Short: Inside the Doomsday Machine” by Michael Lewis. The book details how Eisman learned to analyze stocks and develop a keen analytical skill for appreciating details that his peers might ignore.
Steve Eisman’s big moment came after he joined FrontPoint Partners LLC, a hedge fund owned by Morgan Stanley. After analyzing and becoming concerned with distortions in the housing market, particularly at the subprime level, he began to bet against, or “short” collateralized debt obligations or CDOs.
It’s difficult to know exactly how much FrontPoint profited from Eisman’s call on CDOs, but a telling indication is that the fund more than doubled in size from $700 million to $1.5 billion, according to a CNBC article that summarized information from the book.
Eisman left FrontPoint Partners LLC in 2010 to start his own fund, Emrys Partners, in 2012. His fund struggled, as did many of his peers who also nailed the subprime call. While the fund’s performance was far from disastrous, Eisman may have suffered from his own sterling reputation and the weight of investor expectations hoping for another home run.
After shutting down Emrys Partners, Eisman joined major asset management company Neuberger Berman as a portfolio manager in 2014. His current title is senior portfolio manager with the Eisman Group, part of the firm’s Private Asset Management Division. One of Eisman’s responsibilities at the firm is running the NB Absolute Alpha Fund, a long/short strategy which is available to both US and UK investors. A version for European investors was closed in 2020 due to lack of assets, according to Citywire Selector.
Steve Eisman’s Biggest Calls Since The Big Short
Despite not calling for a major collapse akin to the GFC, Eisman has not been shy about calling out industries and individual companies for being overvalued or even fraudulent. Below we recap some of Eisman’s most notable calls after The Big Short.
Short: For profit education providers – The closest thing to a crusade that Eisman went on after subprime was a high-profile call against for profit education companies, which he launched with an investor presentation called “Subprime Goes to College,” which was presented at the Ira Sohn investment conference in 2010. The presentation opened with a chilling declaration:
“Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task.”
In particular Eisman singled out Strayer University, ITTEducation, Washington Post (previous owner of Kaplan University) and Apollo Group.
While Eisman didn’t profit quite to the extent of his subprime call, Business Insider reported that “If he’s stuck to his guns, Steve Eisman is probably rolling in it right now,” after the Department of Education introduced new regulations for the industry in 2011 that resulted in many of his targets tanking.
Short: Canadian banks – While Steve Eisman has not expressed concerns about major US banks, he has taken a much dimmer view of their counterparts north of the border. Since 2018, Eisman has been short a number of major Canadian banks, citing weakening economic fundamentals, a shaky housing market foundation and increases in non-performing loans. Specific targets included TD Bank and Royal Bank of Canada.
While Eisman has been consistently negative on Canadian banks (and real estate) he also told the Financial Times that “this is not The Big Short Canada — I’m not calling for a housing collapse.” He went on to state that a simple normalization of credit conditions would be enough to hurt overextended Canadian lenders. This negative call extended even to a short position on Canadian Tire, due to its high level of loans on their books. While it’s possible Eisman has made some profits on this position over the course of his multi-year bet, it’s safe to say this play has not yet been a roaring success.
Short: Tesla – Eisman announced to Bloomberg that he was short Tesla in 2018. While expressing admiration for founder Elon Musk, Eisman cited “execution problems” and coming competition in autonomous driving as reasons why he was short the stock. He also was concerned about executive turnover at a time when Tesla’s cash position was eroding. However, Eisman admitted defeat (also to Bloomberg) less than two years later, telling the network:
“Look, everybody has a pain threshold. When a stock becomes unmoored from valuation because it has certain dynamic growth aspects to it, and has cult-like aspects to it, you have to just walk away.”
Steve Eisman: Recent Long and Short Positions
More recently, Steve Eisman has made both long and short calls as part of his duties running the long/short NB Absolute Alpha fund, as well as other media appearances.
Please note: We cannot verify that Eisman currently holds any of the positions below, and it’s unwise to blindly follow any investor’s moves without doing your own research and due diligence. None of the below positions should be considered recommendations by Lean Investments and are strictly for informational purposes only.
Short…but then Long: Zillow (Z) – After mostly avoiding bearish positions on anything to do with US real estate since his famous short call, Eisman dipped his toe back into real estate calls with a high-profile short call on Zillow on CNBC in 2019. Eisman wasn’t bearish on the housing market per se, but more specifically Zillow’s business model of entering the home flipping business and selling homes that they buy directly to consumers. He told CNBC:
“Zillow has one of the most flawed business models I’ve seen in a very, very long time.
The part of it I find the most problematic is what they call, I believe, their iHome business, their internet buying business, where they actually go out and buy homes and flip them. I actually think the company doesn’t understand the real risks of this business, which are massive.
There are thousands of mini-markets all over the United States. They’re all local. They’re all extremely different. They all have incredibly different risks.
This is a capital-intensive business. I know only one thing for certain.
Between now and five years from now, assuming the company has some level of success, there will be massive problems that they will uncover. I’m sure there’ll be write-downs, I’m sure there’ll be impairments. And I’m convinced that the investor base doesn’t have a clue about what this business is really all about.”
After Eisman’s call initially tanked Zillow’s stock by nearly 50%, the stock went on a major run in part thanks to the coronavirus pandemic, which sparked an obsession with single family homes combined with historically low housing inventory. These conditions would juice Zillow’s stock price in the months and year following Eisman’s call.
However, in a major update to his position, Eisman told the Tangent podcast in December of 2020 that he is now LONG Zillow, after closing his short position in April 2020. Eisman cited that he recognized residential real estate trends had been “turbocharged” by the pandemic and that Zillow is a major beneficiary of the nation’s real estate obsession, calling the company “a major disrupter to the real estate industry” and that the position “has done better than my wildest dreams.”
Quite the agile move from Eisman and a great example of why you simply can’t model your own trades off of headlines of other famous investors; very few major financial news outlets have reported on his reversal on Zillow in any depth.
2022 Zillow update: Remarkably, even after switching his original short position due to the pandemic, Eisman’s original thesis on Zillow did play out, with the company exiting from its “Zillow Offers” iBuying program in the fourth quarter of 2021. The company reportedly lost more than $420 million in just three months as its algorithm failed to accurately forecast what the company could resell the homes it purchased. According to Wired, in the Phoenix market Zillow took losses on 9 out of every 10 houses it resold, echoing Eisman’s warning about the difficulties of applying a one-size-fits-all algorith to localized real estate markets. As a result of exiting this business line, Zillow laid off 25% of its workforce and its stock has more than halved since the announcement from $103 to its current trading price of just over $46 at the time of this update in March 2022. It’s unclear from publicly available information if Eisman still holds any position in the stock or if he benefited from his original call on Zillow’s iBuying vulnerabilities.
Short: Trex Co. (TREX) – Another recent short housing play from Eisman was Virginia-based composite deck manufacturer Trex Co. Eisman was bearish on Trex customers reliance on loans to afford their pricy decks. However, the coronavirus housing craze and “nesting” phenomenon turned into a positive for Trex throughout the pandemic, with the stock hitting all time highs in the summer of 2020, according to Bloomberg.
Cheaper products and a new management team also seemed to be tailwinds for the stock. Considering his moves around Zillow, it would not surprise us if Eisman may have closed or reduced his position early on this position, although it is difficult for us to substantiate this either way based on publicly available information.
Short: Credit Acceptance (CACC) – The most recent major short that major media have reported from Eisman is Credit Acceptance. This is perhaps the most compelling short on our list as it was announced in 2021, reflecting the dust settling on the pandemic. It also is strongly in Eisman’s wheelhouse as a company that focuses on subprime loans which Eisman accuses of “predatory” practices.
This short recalls Eisman’s most successful territory on his work in subprime mortgages and the for-profit education sector. Eisman debuted his short call on Bloomberg TV and cited a major regulatory problem for the auto lender in the form of a lawsuit from Massachusetts Attorney General Maura Healey accusing the company of allegedly making deceptive loans, misleading investors and engaging in unfair collection practices.
Long: General Motors (GM) – While most known for his short positions (for obvious reasons) Eisman’s work as a long/short portfolio manager means he has to find stocks he believes in, too. Just as he cited his concerns with Tesla for incoming competition, one such automaker that he likes is General Motors. He had this to say on the stock:
Eisman, a senior portfolio manager at Neuberger Berman Group, said the investment firm owns GM, which he called “reality on the ground” relative to the “dream” Tesla bulls have: that the company will continue to dominate the electric-vehicle market.
GM “used to be a poorly run company with a terrible balance sheet and terrible products, and today it’s got a great balance sheet, it’s got very good management and it’s no longer in Europe,” said Eisman, who was bullish on the company a year and a half ago. “It’s really not a car company anymore, it’s really a truck company that also sells SUVs very profitably and it has a real division called Cruise which is a real option on autonomous driving.”
–Big Short’s Eisman Ends Bet Against Tesla, Calling It Cult-Like, Bloomberg News
Long: Motorola Solutions (MSI) – Another outside-of-the-box long idea that Eisman highlighted to CNBC is Motorola Solutions. The company was spun off from the giant mobile phone company and now focuses on providing communications services to law enforcement and emergency first responders.
“It’s a little obscure, what I really like about it is that it has very good management…it’s an oligopoly, it’s lightly regulated, and its business has gotten better over the last couple of years. I don’t have to worry about China. I don’t have to worry that much about a recession. It’s about as idiosyncratic as long as you could imagine.”
–‘Big Short’ Steve Eisman has a long position, too, CNBC
The above is a summary of Steve Eisman’s recent positioning and thinking on the markets. It’s clear the pandemic has changed the investing landscape and with it some of his short ideas, but plays like Credit Acceptance show Eisman is still finding new ideas close to his wheelhouse.
For an even more in-depth explanation of Steve Eisman’s career and investing success, we highly recommend checking out the Michael Lewis book “The Big Short: Inside the Doomsday Machine.”
We will keep this article updated as Eisman makes more headlines with his long and short positions.