Carson Block of Muddy Waters Research made a name for himself and his short calls back in 2011 when he called out then-hedge-fund darling, Sino Forest.
Now his reports are a regular part of Wall Street’s conversation.
So we asked him some questions.
Linette Lopez: Can you tell us a little bit about the investment landscape as you see it now? Are you having a hard time finding shorts in this market?
Carson Block: Developed markets are as target rich an environment as emerging markets were five years ago. QE has led to an abundance of poor businesses with real market caps and valuations, unsustainable leverage, omnipresent financial engineering, and dangerous investor complacency.
Lopez: Different kinds of markets bring out different mistakes. Are there any mistakes you see or hear from investors in the market now that you would consider particular to our current environment… maybe some classics you’re seeing take on a fresh twist?
Block: One of the mistakes that these markets will probably be remembered for is the extreme crowding in trades and even into illiquid investments. The crowding into illiquids can avoid short-term mark-to-market pain, but will cause real losses when the unwind occurs.
Lopez: 2016 is almost over, is there anything you regret doing (or not doing) as an investor?
Block: We regret not having shorted Intrexon (XON).
Lopez: What are your clients really worried about these days? Is there anything they keep asking about?
Block: Lack of attractive risk / reward profiles.
Lopez: You’ve been doing a lot of work on hacking through your St. Jude short, and it’s certainly made an impact on the US Presidential election. Is there anything you’ve learned through your research that you think everyone should know/is overlooking?
Block: Traditionally only longs have been labelled “ESG investors” (environmental, social and governance), but there are a number of opportunities for short sellers to make a positive social impact, including by exposing potentially unsafe products — from flooring made in China to implanted medical devices.