BR Shetty: The rise and fall of a billionaire
m.economictimes.com
m.economictimes.com
That's the most interesting 'event study', as it were, I've heard of since the Challenger or Alchian's nuclear bomb market study.
It's amazing the things that the market 'knows'. I sometimes wish that event studies could track down the specific traders responsible and understand what exactly they know and how they learned it, because it otherwise is such voodoo.
When Muddy Waters first put out the tweet, were they:
(a) planning an investigation of NMC, and the market validated their suspicions when the stock dropped?
(b) planning an investigation of another firm, but then when NMC stock dropped thought "Hey, did we just freak out a bunch of in-the-know traders that something fishy is going on with NMC?" and then start the NMC investigation based on that? If this is the right answer, what was the other firm they were planning to investigate?
(c) not really planning an investigation of any firm in particular, but threw out that tweet in the hopes that someone would bite, and when NMC traders "bit" by selling, that's when they started their investigation?
In this case they just mentioned the Company is listed in LSE, and the traders figured out by themselves who was it.
Because they need to build their short positions before making everything public.
In this case maybe they lost profits if the market adjusted before they finish setting up their positions
https://twitter.com/muddywatersre/status/1159009866020618241
Pretty amazing that they went through and took a look at all the companies whose stock prices dropped from Aug 6-7th on LSE as a sort of "business development" opportunity.
It's like the old trope where the accuser says to a group of people "I know what you did!", and then everyone in the group confesses to various misdeeds even though the accuser was only talking about one of them.
I wonder how much of this stuff goes undisclosed in various parts of the world.
Is there a site / publication that maintains a rogues gallery of such financial misadventures ( to put it lightly )?
American Greed on CNBC [1] covers some petty ( in the scheme of things ) frauds and fraudsters. Netflix's Dirty Money [2] is another good show. But there is good reason to speculate that much bigger whales never really get caught if they get their accounting / creative financing ducks in a row.
Surely there are other publications / shows that get into the nitty gritty & gory detail of how they pulled these off.
[1] American Greed https://www.cnbc.com/american-greed/
[2] Dirty Money https://www.netflix.com/title/80118100
Here’s the list for federal-incorporated orgs:
https://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/h_br02281.html
In other parts of the world, HK being a good example, this happens and can go undisclosed for a long period of time. But in the US, actual fraud is almost always discovered quickly, and there are no bigger whales who never get caught (the reason these frauds work is the difference between what you can get away with temporarily and the long-run...in the long-run, you won't get away with it). There are books (and now reports) on pretty much all the big frauds.
The exception to this are all the earnings management and reporting shenanigans (for example, choosing to close an acquisition on a certain date) or managers/bankers who list shitty companies constantly. None of this is illegal of course, it isn't damaging in itself but it is also not particularly ethical. Knowing about this is usually market knowledge i.e. following a company for a while, and seeing that the CEO is constantly changing strategy/lying, etc. This happens far more often than people think, and is almost never punished (in fact, these people are usually feted in society...they go after fame, they know how to claim reward and divert blame).
GE would be good example of this. It was never really "caught". Maybe because it was too big to fail. Jack Welch who started it all still has huge fan following among Process/MBA types.
He doesn't blog as much as he used to ( http://brontecapital.blogspot.com/ ), but there's loads of great older stuff in there.
The interesting question here would be - Who should foot the bill? The shareholders can only take action based on data they have in public. It's the job of govt agencies along with the corporation to ensure that the data is appropriate. Now, you have people investing into equity based on data ... which was falsified.
It’s really several short and long term feedback loops. If the market is efficient then excessive due diligence is a waste and a low overhead ‘dumb’ investment strategy is ideal. However, should everyone take that stance company management has huge incentive to cheat and fleece that dumb money.
If dumb money is being fleeced that pushes for regulations while ‘smart’ money has higher profit. But, should those regulations work they get torn down as excessive wastes.
There are rules around audits, and it’s illegal to do specific things in the US. But enforcement is reactive not proactive.
I am surprised they still haven’t used that as a way to justify surveillance policies.
Ask yourself this: who made Enron shareholders whole after the scandal? Who compensated Bernie Madoff's victims?
I think the problem some folks have with short selling is that it creates for the market an illusion of willing sellers where there may not be supply.
Short selling typically involves the sale of borrowed stock, mediated through dealer-brokers, so the stock that's sold short does exist. So there's no issue with supply.
Is there a similar model for common investors to benefit from such research instead of just hedge fund (big) investors alone.
Before the short is announced, the research is private information. Once it is announced, everyone knows about it, and so much of the profit potential is gone. There’s still some profit potential to following them, but it is much riskier.
The only real way to benefit from this would be to do your own research.