Wednesday, June 5, 2013

Short selling and misrepresenting the truth - Infitialis edition

I am a short-seller by inclination. Moreover I short mostly frauds and stock promotes.

If you are going to call these publicly you need to be purer than Snow White. Alas I am finding some shorts I respect to be drifting.

I am going to pick on one - Infitialis - an anonymous group. This group (I am assuming there is more than one of them) have been pretty good getting more than a few things right. I read them because some of the analysis is good.

But they are also into the misrepresentation game. This table from a recent report is just slimey:


It purports to show a track record - but it measures everything against the "subsequent low".

Hey - wouldn't you love it if you could be paid performance fees on your long versus their "subsequent high" and performance fees on your shorts versus their "subsequent low"?

This is misleading accounting. Infitialis knows better and should behave better.




John

11 comments:

Anonymous said...

I think more importantly if you want to go after their record (and the stocks they have written up are down a lot period), it's that they started by exposing a lot of penny stocks that were unactionable and this gave the appearance of a record incomparable with going after shorts like MLNX BNNY CYBX CP.

That said, I think they've done some excellent work and overall have been straight shooters. Just being promotional on that regard to get more attention (and their work deserved it)

Anonymous said...

You say it's false and misleading. It's accurate to call it misleading but not false.

John Hempton said...

The words "false and" have been removed.

But the statement that the track record is unmatched is false.

Anonymous said...

John, you mention performance fees. Out of interest what is Bronte Capitals performance fee? What is the return target / objective? What is the hurdle rate for charging your performance fee?

On Infinitialis they say they are not trading so they are probably just bloggers. But I get your statement on 'unmatched' - that is likely misleading without proof. Would be a significant worry if Infinitialis was using this statement to raise capital to invest in their strategy.

Robert in Chicago said...

I had never heard of Infitialis. I don't have a problem with the "subsequent low" metric. They are not saying everyone who followed them made that percentage. It is meaningful that a stock ultimately fell 95% (or whatever) even if they and most people covered after 50%; it helps show just how fraudulent the company was.

I'd also say "unmatched track record" is such obvious fluff as to be unobjectionable.

Simon Forrest said...

Your post is actually quite charitable to infiniteialsis... ask @investorslive he knows a bunch about their misrepresentations. It's a shame when they come across as promotional as the promoters/frauds they target.

It's a shame that it distracts from the scumbags they do sometimes target.

John Bird said...

John-

And the issue is whether they meet SEC reporting standards? Or is the issue that they exaggerate the returns they provide to the non-existent investors? Or is the point you don't like the puffery of inflated success. OR and a big OR...are you feeling a bit put out by the Hempton vs Infantalias scorecard over the last 6 months? (Santander? Linn? Focus Media? anyone?)

Give them some props which are well deserved. They have knocked it out of the ball park based on any rational measurement.

The bigger issue is whether voices on the short side can get heard. Any group that shines some light and understanding on the alley where these cheats lurk needs encouragement.

John Bird

Simon Forrest said...

John Bird,

You're a good man. I have respect for your work. I agree that short sellers need to be encouraged... so long as they don't resort to the very tactics that their targets engage in.

Noble ends, require noble means.

The ends don't justify the means...

buyersstrike said...

Seeking Alpha and Twitter are just the newest incarnations of stock message boards like Raging Bull and Silicon Investor from the late 90s.

So it should be no surprise to see the rise of individuals and groups trumpeting track records using the most generous metrics possible.

But trying to convince retail investors of the merits of the short side, regardless of the track record, is a fruitless exercise, most are either buy-and-hold or momo sheep. The media, retail, and most professionals) are myopically long-biased.

The best short sellers are born from only one thing...getting burned on a fraud and vowing to never let it happen again. Not from following any gurus.

Donald Schmuck said...

You're pretty much on target and it doesn't require an Albert Einstein to figure out what's a pump and dump or not. 80% of this group's "research" on penny stocks was taken off the Investors Hub message boards anyway so I suppose that is called "plagiarism." On their larger cap "shorts" much of that is someone else's research, too.

Their track record, overall, with larger cap short positions is abysmal. They've relied upon rumor and innuendo rather than hard facts. They've also solicited disgruntled former employees for not quite "factual" information.

Much too close to Citron's Andrew Left who has misled many a young short seller.

Correct on it not being just one person. Try 3. The one who Tweets all the time has ego problems. Must be tough getting one's nuts crushed all the time on a squeeze.

Aharon said...

I left a note on their Seeking Alpha bit on CP and got from them what I think is a haughty and misleading reply which didn't address most of the substance of my criticism. Ah well; take the good with the bad. I think the only people who get convinced by promotional cherry picking are people you probably don't want to convince.

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