{"id":110509,"date":"2021-01-28T06:28:59","date_gmt":"2021-01-28T06:28:59","guid":{"rendered":"https:\/\/precoinnews.com\/?p=110509"},"modified":"2021-01-28T06:28:59","modified_gmt":"2021-01-28T06:28:59","slug":"analysis-short-sellers-face-derision-death-threats-and-unexplained-pizza","status":"publish","type":"post","link":"https:\/\/precoinnews.com\/business\/analysis-short-sellers-face-derision-death-threats-and-unexplained-pizza\/","title":{"rendered":"Analysis: Short sellers face derision, death threats and unexplained pizza"},"content":{"rendered":"

(Reuters) – Making money by betting a company\u2019s shares will sink in value has become more challenging in recent weeks as markets rocketed higher and a growing wave of investors became ready to take on short sellers at almost any cost – even threatening their lives.<\/p>

FILE PHOTO: A GameStop sign is pictured in Pasadena, California March 27, 2013. REUTERS\/Mario Anzuoni <\/figcaption>

Short sellers – contrarian investors who bet against rising stocks, such as Jim Chanos\u2019 Kynikos Associates, Carson Block\u2019s Muddy Waters Research and Andrew Left\u2019s Citron Capital – have been called accurate forecasters of stock market returns by academics and market manipulators by critics.<\/p>\n

This week, they\u2019ve stepped into the limelight as bets against stocks including GameStop Corp, AMC Entertainment Holdings and BlackBerry crumbled in the face of huge demand from retail investors and algorithmic traders.<\/p>\n

The rhetoric has escalated, with warnings online to \u201cwatch out\u201d and even death threats, said people familiar with the matter, who asked to remain anonymous for their personal safety. Managers have asked authorities to investigate, the people said.<\/p>\n

The most prominent battle this month has raged over the fortunes of video retailer GameStop, with prominent hedge funds betting its stock would fall while waves of retail investors sent the stock up more 1,774%.<\/p>\n

Left, whose Citron Research is widely credited with inventing the practice of publicly posting research that supports short bets and who has been at the center of the GameStop drama, said he was being trolled online. In addition, he said, one night pizza he hadn\u2019t ordered showed up at his door and someone had created a fake Tinder account in his name.<\/p>\n

Short-sellers borrow stock in the hopes of buying shares back later at a lower cost to repay the loan and pocketing the difference.<\/p>\n

\u201cShort selling is inherently difficult and made more difficult because of low interest rates and government stimulus which have sent stocks roaring higher recently,\u201d said Ben Axler, whose Spruce Point Capital specializes in forensic research that uncovers companies\u2019 vulnerabilities and often bets their stock price will fall.<\/p>\n

But 2021 has seen a new dimension, short sellers agreed, with platforms like Reddit and Robinhood becoming powerful communication and trading tools for retail investors, making it imperative for short sellers to expand their vision past investment banks\u2019 research and established sites like Seeking Alpha and Twitter.<\/p>\n

Data from Harvard College Consulting Group, which surveyed more than 230 investors under the age of 24 this month, show that \u201c31% of young investors are looking to make \u2018quick cash\u2019 and 30% of young investors use Reddit.\u201d<\/p>\n

Now the cost to short has also surged, because with only a small GameStop ownership base among mutual funds there are fewer investors available to lend shares, said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.<\/p>\n

Shares of GameStop carry a fee of 30.58% to short. That makes them more than 100 times more expensive to short than shares of electric car maker Tesla Inc, which has the largest short position, as measured in dollars, of any U.S. company, according to S3 Partners data.<\/p>\n

The relentless surge upwards by stocks, including AMC Entertainment and Bed Bath & Beyond Inc, has created an expectation among investors of continuing gains.<\/p>\n

Citron\u2019s Left acknowledged that the wilder trading this year has had a real impact.<\/p>\n

\u201cI could take on a single 5-year-old,\u201d Left told Reuters this week, but \u201cfaced with 1,000 5-year-olds, they could take me out,\u201d he added. As GameStop\u2019s stock galloped higher he exited his short positions. \u201cI have respect for the market,\u201d he said.<\/p>\n

This short-squeeze illustrates tough lessons.<\/p>\n

\u201cOur job is to explain that companies are not what they are saying they are and what investors thought they were, and there is definitely a market for that at a time more people aren\u2019t doing a lot of diligence on their investments,\u201d said Sahm Adrangi, whose hedge fund Kerrisdale Capital often publishes research and makes short bets.<\/p>\n

But \u201canything you get wrong will be amplified and you have to be very, very careful,\u201d he added.<\/p>\n

Spruce Point\u2019s Axler said, \u201cThe bar for short sellers keeps getting higher.\u201d Still, he expects short sellers will find their footing.<\/p>\n

\u201cWe\u2019ll have our time in the sun,\u201d especially when interest rates start to rise again and government stimulus wears off, Axler said.<\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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