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Short sellers get a really bad rap. They generally release reports uncovering fraud or poor business practices (which seems like a valuable service) - why the hate?

We're not talking about your basic short sellers in the market here. They step in to restore order when the bulls get too horny and don't get much hate for it.

Nope. This is about the proper research firms that dedicate their professional lives to finding companies that are fraudulent and/or disconnected from any kind of economic fundamentals.

The process is pretty simple. The firm goes off and does exhaustive, and often unconventional digging, deep dives, due diligence, investigations and so on.

If that process turns up a negative view, they'll secure a short position against the company then release the report to the public. And people usually shout at them for it. It's disingenuous or bordering on stock price manipulation they cry.

Now, if the short position doesn't pay off, it's all for nothing. One of the most famous examples of this is Bill Ackman's catastrophic Herbalife short that Carl Icahn ended up taking the other side of.

Including some CNBC gold...

“I’ve really about had it with this guy”
“He’s like the crybaby in the schoolyard”

Then there was the Nikola instalment, when Hindenburg revealed that the innovative Nikola truck demo was all an elaborate illusion...

In hindsight, it's always oh so obvious. Milton was found guilty of fraud two years later. But scroll through the replies to that tweet and you can see what these firms are up against.

Claims that a company/individual hasn't been working with full integrity are shouted down, or dismissed as purely self-interest (seeking to profit).

Basically, spreading FUD (Fear, Uncertainty, Doubt) as the kids would say.

But what's a good short seller to do? Nobody's going to pay you (significantly) for producing this research. And if you don't take a position, then you clearly don't believe in your own thesis bruh. So why should I believe in it?

Damned if you do, damned if you don't...

So why are short sellers so hated?


“Truth is like poetry”

“And most people fucking hate poetry”
(The Big Short)

Everyone hates that guy who turns up with his ackshuallys, the one that starts spouting facts and ruining the story.

Especially if we're emotionally invested in the narrative. Even more so if we're emotionally and financially invested.

Sometimes, it can also highlight how people haven't been doing their jobs properly. When the Hindenburg report on Nikola dropped, General Motors had just announced a partnership with the firm.

Surely GM did their due diligence first. Right?

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Or how about Wirecard? A fraud that was hiding in plain sight, right under the noses of regulators and watchdogs.

After the FT ran an updated investigation into irregularities, this was the response from Commerzbank analysts... 👇


Three weeks later...

German regulator bans shorting of Wirecard shares

FEBRUARY 18 2019, BaFin cites ‘serious threat to market confidence’ following collapse in stock price

Two months later...

the German financial watchdog filed a criminal complaint against two Financial Times journalists and several short sellers, accusing them of potential market manipulation over reports about suspected accounting irregularities at payments processor Wirecard.

The entire chronicle is an ode to truth being stranger than fiction. Employees at the regulator were even suspected of insider trading, which amazingly wasn't even against the rules until late 2020...

As the company edged towards collapse, BaFin staff bought and sold its shares in ever higher volumes.
The regulator only banned such trades by its staff around four months ago, and it was not immediately clear why this employee alone had been reported to prosecutors.
German regulator reports Wirecard insider trading in own ranks
Germany’s financial watchdog has reported one of its employees to state prosecutors on suspicion of insider trading linked to Wirecard, shortly before the payment firm’s spectacular collapse.

And now, we've got Adani. Another Hindenburg special: "The Largest Con In Corporate History"

Now, it's not like any of this should come as a shock. There have been concerns around the legitimacy of various claims and valuations for quite some time, from various sources.

Take this tweet thread from October for example 👇

But Hindenburg hit the mark at just the right time 👇

Adani firms lose $65 billion in value as U.S. short-seller battle escalates
Led by Asia’s richest man, the Indian conglomerate’s rebuttal of a U.S. short-seller’s criticism failed to pacify investors, deepening a market rout.

Yet Adani still managed to shift $2.5 billion in shares today...

Adani investors rally to $2.5 billion share sale
Gautam Adani’s crucial $2.5 billion share sale was fully subscribed as investors pumped funds into his flagship firm, despite a $65 billion rout in the Indian billionaire’s stocks sparked by a short-seller’s report.

When all's said and done, short-selling is a valuable service, but it's a seriously tough business.

Do you want to be right or do you want to make money? springs to mind.

Sure. Sometimes you can do both, but you're going to be hated regardless. Nobody wants to watch a movie with anyone who's pointing out gaffes and plot flaws. Truth is like poetry...