A respected institutional investor sends the following note describing an innovative new way an idiot manager is punishing him for betting against the company.
For what it’s worth, based on our years on Wall Street, the investor is exactly right: The stronger the reaction from the company, the more they’re hiding and the more likely the stock will crash.
One of the headaches (joys?) of being a short seller is the occasional (frequent?) vitriol from companies – and my experience is that the stronger the reaction from the company, the more they’re hiding and the harder the stock will crash.
For example, I found out recently that the CFO of a company we’re short told his child to end the friendship with my child because of what I’d said about his company. I am not making this is up – it’s psycho on so many dimensions!
Incidentally, we immediately shorted more, not in anger but because:
A) How bad must things be at the company if the CFO is so freaked out by a few passing mentions that we’re short his stock to react this way?; and
B) Knowing that a company has a psycho CFO makes it an even higher-conviction short.