In the last few months we’ve had attacks by Citron against Ubiquiti, Shopify and Hubspot. They are all now not only way above where they were attacked, but are all at new highs.
We also saw a short attack by someone else against Square which sent it reeling. It’s now back considerably above where it was attacked, and almost back to its exuberant highs.
Next time we should try to not get so worried about these short attacks, and consider them as opportunities, unless there is something in them that really makes sense and that we have previously overlooked, or were unaware of.
Remember, what Citron does is to sell shares to take its short position, then issue its short attack to push the stock down temporarily, immediately buy back the shares to close its short, and move on with a quick profit. It works for them just fine. But we shouldn’t let it scare us out of high confidence positions.
I feel very fortunate to have been a shareholder of each of Shopify, Hubspot, and Ubiquiti at the time of the Citron shorts. It made for a great forced learning experience. Each of those 3 “reports” ultimately seemed to show a lack of understanding by Citron/Andrew Left of the true business models of those 3 companies (along with the strong possibility of willful dishonesty). Knowing enough about the companies’ businesses and how their finances work was big in being able to quickly discern whether Citron’s claims had any merit.
I did not have any SHOP, so the Citron short report gave me a chance to get in at a lower price. It also helped to read this board and get the reactions from those more knowledgeable about the company to highlight the inaccuracies of the report. I also had a large portion in UBNT before the short report and I was able to buy more calls after the report came out. With UBNT, I felt very comfortable because I was very positive that their claims were not accurate. It helped that UBNT just issued their 10K (annual report with audit opinion), which showed that previous control weaknesses had been fixed and the risk of material fraud was largely reduced. It also helped that UBNT’s balance sheet is not complex and verifying cash is an easy audit procedure. Seeing how wrong Citron was on UBNT, gave me more confidence to buy SHOP when they were attacked. I would have considered buying HUBS if the price went down after the report, but that did not happen.
We also saw a short attack by someone else against Square which sent it reeling
The stock moved up on Bitcoin news and gave back some of it when an analyst downgraded on valuation concern. Calling that as short attack is incorrect.
Company announces Bitcoin news, which is going to be very small part of their business and still the stock goes up 25%, everyone is fine with that. However, an analyst comes out questions the valuation and makes a valuation call and the stock goes down, and it is described as “short attack”, the analyst has ulterior motives, etc.
We are in midst of a great bull market, companies that can show growth are doing great. But dont’ let that confuse with the fact there cannot be or should not be an opposite view that disagrees with yours.
Jim,
It was not all that long ago that I was the kind of investor you just described.
Let me explain the makings and mind of such an investor. First and foremost, this is a person relies almost entirely on “tips.” They follow TV stock advice (ala Cramer), maybe two or three investment newsletters and never look at a balance sheet or any other financial documents. They probably don’t even know that they can read transcripts of quarterly reports and probably wouldn’t read them anyway. Maybe they follow the recommendations or a broker.
In other words, they don’t do any analysis on their own. They consider financial analysis and stock picking as esoteric, bewildering and the solitary speciality of those who have the education and experience to perform this sophisticated task. It’s just too much for the layman to understand.
But, it’s hard to have confidence in your decisions when you’re completely dependent on others. In fact, you put all that confidence in others, so when one of them with a loud voice starts yelling sell, sell, sell your awfully prone to sell. Especially when you see that stock price tumble (which, as one of this type of investor is the main thing that holds your attention).
If the actual decision to hold one stock versus another is not truly your own, you always harbor doubts. Even Saul, who I consider a very confident investor, keeps a small, focused portfolio but generally keeps his highest confidence positions below 15%. In one way or another, that’s an expression of doubt. If he were 100% confident in his decision, he’d put all his money in the one company he felt was the best investment. Andrew Carnegie (19th century steel magnate) was quoted as saying, “There’s nothing wrong with putting all your eggs in one basket, just watch that basket.”
Andrew Carnegie (19th century steel magnate) was quoted as saying, “There’s nothing wrong with putting all your eggs in one basket, just watch that basket.”
Hi Brittlerock, that was a pretty silly thing for Andrew to say. No matter how confident you are something unexpected can always occur (a hurricane destroys your main plant, a chinese hacker steals you business secrets, someone invents something new that makes your business obsolete (buggy-whip manufacturer - after all, you were confident, that was a stable product for as long as anyone could remember), or even blackberry telephones, or Nokia. Putting all your funds in one of those, it wouldn’t help you to watch it carefully.
Saul
Agreed - I wasn’t defending Mr. Carnegie’s statement, just quoting (or paraphrasing probably). Yet, times were different in the late 1800s. May have made more sense as the primary steel producer in the country and probably the world at the time. Foreign competition was not a threat due to slow and costly shipping, etc, etc.
We are in midst of a great bull market, companies that can show growth are doing great. But dont’ let that confuse with the fact there cannot be or should not be an opposite view that disagrees with yours.
Oh, I agree with you (I did day it was debatable)… I value everyone’s opinion here no matter how contrarian to my belief it may be… otherwise we all just become lemmings and jump off the cliff.
B’rock: ‘"Andrew Carnegie (19th century steel magnate) was quoted as saying, “There’s nothing wrong with putting all your eggs in one basket, just watch that basket.”’
Saul: "Hi Brittlerock, that was a pretty silly thing for Andrew to say.
Carnegie did become one of the richest and most powerful men in U.S. history by putting all of his eggs in the steel basket.