On short stories

I thought I’d share this following the TTD development last week. Every now and then we get a short thesis on one of our companies either from a bank analyst or from dedicated short houses like citron. My rule of thumb is:

If the short story doesn’t contain anything an informed investor shouldn’t already know it’s a non-issue. (Or it’s a discount to buy more).

In this sense the TTD downgrade was one of the most ridiculous short stories I’ve read:

“I think other analysts are overestimating TTD and that’s why I’ll reduce my own target price”??? That does not make any kind of sense! I bought more TTD when it dropped 9%

Here’s another false flag example, this time more sophisticated:


This seems kind of threatening with an “official paper” structure and lingo and a bunch of colorful charts. However, when you actually read through it it does not contain anything you should not have already known - most Square merchants are small, volume may drop in case of a recession and a heavy-handed comparison to FitBit and GoPro (cashless payment processing is a niche market? really??) and other fluff you should already know.

So are there examples of short thesis that did contain something new? Yes!


In this paper from Prescience Point I’ve learned that:
a) STMP is using a certain bulk stampage scheme that is costing USPS a lot of money
b) USPS can cancel their contract with STMP with only 30 days notice

Which is something you wouldn’t learn from the financial statements or the conference calls where STMP liked to talk as if they were doing USPS a favor.

Another one which saved me a LOT of money:


This one goes into detail about how refrigeration reclamation works and how Hudson’s claims were so out of touch with the current state of the art of a mature technology that it couldn’t possibly deliver. HUDS is on the way to become a penny stock this year.

So be alert, don’t underestimate short reports, but also learn to spot the crappy ones to buy stocks cheaply. Also, don’t get too excited about shorting stock - see how it took two and half years for the STMP short thesis to come true.