Robert Wilson & Resorts Intl.-A Catastrophic Short Play Cymer Parable.
Robert Wilson was one of the most successful big money investors of the 1970s until he met his Waterloo by going short Resorts International which advanced from a split adjusted $2 to $200, a modest 100 bagger. His favorite activity was to short hot stocks of the hour that retail investors and the brokerage fraternity were enchanted with. He made millions by shorting the latest new fad companies that the public was rushing into like uranium stocks, diet fads, cancer cures and anti-pollution schemes.. he would wait until the public rushed in puffing up the stock price and would even join in the buying to put up the price while attracting weakhanded speculators into the stock and also obtaining an initial load of long stock that he would then dump wholesale onto the market while at the same time shorting huge amounts of stock in the bargain.
As the stock would start down, he'ld begin a campaign of telling brokers, reporters, analysts, anybody who would listen why the stock was absurdly overpriced, why the outlook was grim, the plant was antiquated, management insincere, competition intensifying, costs are rising, the market is drying up, a better product is arriving from Japan, the company owes a lot of money to bankers, there are regulatory headaches and legal snafus, etc.. Sensing the kill he would short 100s of thousands of shares more, causing brokers and reporters to invent explanations for the decline, sinister intimations in Wall Street clubs, margin calls, the works. The stock would go into a free fall and he would proceed to cover at much lower prices making a fortune along the way.
Mr. Wilson and other members of his club would regularly feed ideas to Alan Abelson, whose front page Barron's articles are exceedingly influential. This led to criticism from a number of quarters, including the SEC. A story in the July 1977 Institutional Investor quoted Mr. Wilson's reply when asked if he tried to "use Abelson and Barron's to promote his positions": "I use everybody. I am always trying to get my longs up and my shorts down, so I am constantly using everybody. I feel perfectly free to tell Alan anything I have in mind." Abelson, in turn, as quoted in the Institutional Investor, commented: "Is it unethical to short the stock and call the press? I think it is. Is it done? You bet. But if the SEC doesn't like it, let them do something about it. I'm a reporter, not a policeman."
It was all very successful, albeit at public investors expense, *until* Mr. Wilson had the misfortune to short Resorts International which he promptly began deriding to the press including one widely noted interview in a national magazine where he claimed that Resorts would have to hire the Mafia to help them collect on gambling debts. He shorted hundreds of thousands of shares at a split adjusted $15 after it had run up over 7 fold from $2.
Unfortunately for Mr. Wilson, he and his associates had failed to realize what a long, slow fight the other casinos would have before they could enter the market, and they forgot the huge size of the market. While the entire state of Nevada did $1.5 billion in gambling business that year, Resorts did $350 million all by itself.
Resorts started to pick up momentum and promptly jumped to $30 - double his cost, then to $40, to $50, to $60 - four times his cost. Resorts continued to report brilliant earnings and writers in the financial press began to speculate openly about the short's plight.
Wilson began to crack. Deep down he knew he was doomed because the underlying fundamental merits of Resorts had gotten him. It was one of the biggest success stories in business history as the company went from earning nothing to $50 million in eighteen months.
Resorts reached $120. "Cover some Resorts" Wilson ordered his broker Neuberger & Berman. Now he was in the position of squeezing himself like he had done so often in the past to the retail investors. His own purchases forced the stock up further, increasing the pressure. The catastrophy gathered steam. Every day Resorts surged forward. In a week and a half it rose from $120 to $180. Wilson was losing huge amounts of money on a bad day; $100,000 each hour the exchange was open. He couldn't stand it. He sent a message to Neuberger & Berman: "Cover all Resorts". That was it. But it wasn't. Neuberger didn't get him out until the next day at $190 per share, a $30 million personal loss (about $100 million in today's dollars).
Eventually much, much later the competition got their casinos open in Atlantic City, Resorts' stellar earnings growth slowed and the stock price went down. But that was way too late for Mr. Wilson, who had misjudged the earnings growth and the public's tenacity in continually buying more of Resorts' stock.
I believe Cymer, with its pristine earnings growth and 90% market share in a humungous growing market could parallel Resorts' story. A 100 bagger on Cymer's IPO projects out to a $600 eventual stock price, of course it could fly a lot higher if the current huge >30% of float short interest panics the stock higher trying to get out.
Good Luck To Each And All
Curly
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