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Chris DeMuth Jr.
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Chris DeMuth Jr. is the founder of Rangeley Capital LLC. Rangeley is an investment firm that focuses on event driven, value-oriented investment opportunities. Rangeley Capital and his value investing forum, Sifting the World (StW), search the world for misplaced bets. Rangeley exploits them for... More
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  • Welcome, Shorts 10 comments
    Mar 25, 2013 10:25 PM | about stocks: L

    Dear Shorts,

    This is a friendly invitation to please short any of my long positions at any time for any reason. Additionally, please take apart my argument, disprove my thesis, and put capital at risk according to your convictions. I will always be happy to lend my shares as desired. I will always listen to your case. It should go without saying that this is only business and I don't take it personally one bit.

    I love being underappreciated by the capital markets because it allows for buying back shares at a discount to intrinsic value. Some of the most honest and aligned management teams, such as the Tisch family that runs Loews Corporation (NYSE:L), appear to delight in their company being constantly undervalued by the market. They act as if they are in on a secret, only disclosing the bare minimum amount of detail. If someone hates Loews, they will simply let them hate it. If the market spurns the stock, they will grow ever richer along with other holders by buying back shares at a discount to intrinsic value. If a business becomes overvalued on their watch, they will sell it. They are so focused on excellent operations and asset allocations, that they have completely neglected the task of promoting their stock. They are rational and they behave how honest people behave.

    Come to think of it, wouldn't it be suspicious if I attacked you for shorting my stocks? Unless I was running a stock promotion, why would I worry about shorts? It is interesting to watch stock promoters attack shorts, because they may reveal more of their desperation than they intend to. If you look at companies that attack short sellers, they tend to engage in certain other behaviors that look shady.

    If I am a shareholder, I hope that my managers are not too worried about short-term stock movements. If I'm not, then why should they be? Some companies, on the other hand, appear to put out a lot of press releases. Some even appear to put out cheery press releases specifically to buck up sagging stock prices. Why? Another thing that I hope to avoid: goosing the stock based on incomplete hype only to issue more shares and other securities. If you are about to announce wonderful news, why issue shares first? Why not just tell us the great news.

    In conclusion, unless you are a newswire, your business is not issuing press releases and unless you are an investment bank, you business is not issuing securities. And unless you are a ninja assassin, your job is not attacking short sellers. Since I am not a newswire, i-bank, or ninja assassin, I will get back to work and hope to make short sellers in any of my investments feel welcome to do as they please.

    If you would like to learn more about shorting, you might consider reading The Art of Short Selling. For an entertaining book regarding history's greatest short, you might like The Big Short: Inside the Doomsday Machine.

    Stocks: L
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Comments (10)
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  • sheldond
    , contributor
    Comments (1457) | Send Message
    Without the shorts how would I take advantage of the short squeeze?


    I personally am not a fan of going short even when I'm sure of the outcome. I leave shorting for bankruptcy candidates and wonder why people short with little evidence.


    So if the short comes into my trade be prepared for some jujitsu, ninja or samurai action. Joke


    Typically, I thank them and buy more shares then warn them of their imminent doom. It is only fair since most of my choices end up crushing the shorts. If you have a solid investment thesis, the shorts are no worries they are your friend in the end.


    That being said I take offense at shorts trying to manipulate weak hands and slandering companies that are solid. Some of these people deliberately hurt small retail and add to the bad perception some have of the investment community.


    Fear is a powerful motivator but not in my dojo.


    25 Mar 2013, 10:38 PM Reply Like
  • Adam Gefvert, CFA
    , contributor
    Comments (1448) | Send Message
    Completely agree. Short sellers are just part of the game. They in fact help a stock keep its value because they have to cover.
    26 Mar 2013, 12:19 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11447) | Send Message
    Author’s reply » If a company management and that company's boosters authentically believe in their case, then they should welcome scrutiny and favor price discovery. That has always been my attitude. While getting attacked is probably none too pleasant for short sellers, it can also be a data point that they are onto something.
    26 Mar 2013, 12:28 AM Reply Like
  • sheldond
    , contributor
    Comments (1457) | Send Message
    I respect a person who has a well thought out investment thesis short or not. Adam and I for example, have differing views on a stock currently but I think he is a stand up guy because of how he represented his position. No slander or made up facts no incessant copy posting the same three lines everywhere. He might be right I might be right but the discourse is good regardless.


    I commend you on your no nonsense short position even if I think your wrong. I hope after hours action on MNKD didn't cause you concern.


    A question for Chris and Adam or any other people that short, I have made plenty of money going long on picks. When my thesis turns short, I liquidate and pick it up of the bottom. The market can stay insolvent much longer than me. Perhaps I do not understand the concept well enough and I believe many DIY investors are also out of depth shorting stock. They usually base it entirely on price or rumor and travel in packs. I'm pretty sure when you short something Chris, you have done as much research as on your longs.


    I don't see that from most and with margin accounts I see it as a potential big problem for many investors. One that I will try and take advantage of.


    I believe in return of capital and then return on capital. The risks of shorting something seem elevated compare to going long. Anyone want to help explain your process for finding a good short candidate. Do you think in a short or long time frame? What is your exit strategy? What is the biggest mistake a short can make?
    Thanks in advance.


    @adam lets see the mnkd action today :)


    For example, I knew CLF was going to tank because of iron prices and its costs.
    26 Mar 2013, 08:41 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11447) | Send Message
    Author’s reply » That is a high class way to think about investors long and short. Our average short thesis is probably more researched than our average long. In most cases, we will not discuss firm level shorts, but they are mostly corporate frauds. In many cases, our research is similar to what government enforcement agents are doing, although we are limited to publicly available information. Our process for finding short candidates is typically based on early stage government agency scrutiny.


    While we are quiet about most individual companies that we short, here are some references to short themes:


    Chinese frauds:


    Chinese leveraged equity derivatives:


    Japanese Yen:


    Volatility ETNs:


    The US long bond:
    26 Mar 2013, 11:57 AM Reply Like
  • Adam Gefvert, CFA
    , contributor
    Comments (1448) | Send Message
    I actually sold out of MNKD at a tiny gain. Didn't have enough of a strong bear conviction. I hope the drug gets approved, but I think the odds are against them. Everyone though it would get approved years ago. The FDA just doesn't seem to like inhalable insulin anymore after that other one flopped.
    26 Mar 2013, 01:13 PM Reply Like
  • rotfl
    , contributor
    Comments (4) | Send Message
    I never play short. My strategy is to find those diamonds, get in with a nice position before the herd does,wait for the positive cash flow and liquidity to be able to take my position to the bank.I don't like using the term long unless I'm talking about my life lol. Presently I own ZNBR a world calls mining company under the radar with a NYSE team assembled. I'm also in OPXA a small cap bio company with MS treatments
    26 Mar 2013, 09:32 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11447) | Send Message
    Author’s reply » If you are interested in MS, you might be interested in this idea:
    26 Mar 2013, 11:43 AM Reply Like
  • byslkwd
    , contributor
    Comments (114) | Send Message
    Chris, I begin with the proper reverence that is due an analyst of your caliber. I have just discovered you through a friend that I have respect for, and I look forward to reading your future articles.
    Although in an ideal world you are obviously correct, let us not forget that the stock price is the companies gauge to their cost of equity. If they wish to issue more shares, the stock price is what they will get. This, and other similar concerns, is a very real and legitimate concern that mgmt should have. Soros points out in his alchemy of finance that the make it or break it of a company is often dependent on the markets perception of it. So some defence from mgmt may be prudent or in fact obligatory at times.
    I will agree that the senseless rantings against shorts -always anonymous- are asinine.
    27 Mar 2013, 10:43 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11447) | Send Message
    Author’s reply » Thanks for the note. I agree 100%.
    27 Mar 2013, 10:55 PM Reply Like
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