Below is Herbie's article in Fortune Magazine.
Keep in mind that his little routine is to rip up companies and try to indicate how smart he is and how stupid the rest of the world his. He has been doing this for years. His smug, arrogant, and sometimes amusing attitude and approach is all part of his little game. (Have you seen him do his schtick on CNBC?) It is all entertainment to him. Research, proof, who needs it? Let's just talk to a couple of short sellers (who may or may not have done their homework) and have a little fun.
I would think that by now most of the street in on to his game and take him for what he really is.
I remember s few years ago, when he was with a San Fran. newspaper, he used to attack C-Cube on a regular basis. For some reason or another he had a personal vendetta against the company and would repeatedly attack them. He would then taunt the CEO into responding, who of course knew better than to lower himself to respond to such a person. He would keep offering him space in his regular column to respond, continuing his little fun through his final columns. Now, what kind of professional would act this way? An entertainer! Don't take the clowns in the circus seriously.
Short-Sellers: The Market's Real
Heroes
Opinion
Herb Greenberg
Go ahead--call me the chief apologist for those
scoundrels, the short-sellers. Tell me I'm carrying
water for them. Allege I'm on their payrolls. Charge
me with collusion. I've heard it all before, during the
nearly dozen years I've openly identified
short-sellers as sources for my daily financial
column. I've heard the shorts referred to as
immoral, unethical, and even un-American, and by
quoting them I've been lumped by some investors
into the same category.
Still, I've never backed away from tapping into the
short-selling pipeline, because from what I've seen,
it is the short-sellers who really wear the white hats
on Wall Street. Who do you think gave me the early
heads up to the troubles at dozens of
companies--including Sunbeam, Boston Chicken,
Snapple, and Planet Hollywood--long before their
stories, and stocks, unraveled? (Investors who
heeded those warnings saved themselves a
bundle.) Where do you think my competitors get
most of their ideas for stories about companies that
are up to no good? (Hint: Chances are, they didn't
get them from Securities and Exchange Commission
documents.) And where do you think the SEC gets
the first round of research for many of its cases?
Going short means borrowing shares, then
immediately selling them with the hope, if all goes
according to plan, of buying them back later at a
lower price. As a cross between private detectives
and forensic accountants, short-sellers make their
living ferreting out fraud, debunking hype, and
spotting businesses that are about to turn bad.
"Shorts serve as a check on excessive promotion,"
says Mike Long of Rockbridge Partners, who tracks
their performance. It was a rough business
throughout much of the bull market, when
momentum investors bought some stocks merely
because they were going up, but that kind of
behavior created opportunities for the short-sellers.
"These companies have one characteristic in
common," says money manager Doug Kass of Kass
Partners, who has taught a course on short-selling
at Yale University. "At the height of their short
interest, the momentum itself is created by the
strength of the bull, which carried these stocks to
ludicrous levels."
Yet nobody, and I mean nobody, wants someone
coming along and telling him his stock will soon be
worth a lot less than it is today--not even if there's
a truckload of evidence. Several years ago, when he
was putting out bearish reports at a small
investment firm in Florida, Kass was denounced by
analysts at the big investment banks for issuing a
"sell" recommendation on casino stocks when, as it
turned out, they were at their peak. Similarly, Mike
Harrold of Avalon Research didn't make friends last
February when he issued a short-selling report on
Ciena. He warned that competition could put
pressure on Ciena's earnings. Investors and other
analysts ignored him, and the stock continued to
rise another 50%, thanks to a takeover offer from
Tellabs. But that deal fell apart, and the stock has
lost 90% of its value. "Every issue we brought up six
months ago came true," says Avalon's Alan Jacobs.
That's not unusual, nor is it surprising. There's little
argument that the shorts do some of Wall Street's
best research. "You develop a certain discipline,"
says Jacobs. "Some things just don't make sense."
And because shorts often put their own money at
stake, they tend to dig deeper for details. For
example, some years ago several firms shorted
U.S. Surgical, in part because of a switch by
hospitals from disposable equipment--like the
products made by U.S. Surgical--to reusables. To
prove it, "we made 1,100 telephone calls to
operating room nurses, purchasing organizations,
and hospital administrators," says Jacobs. U.S.
Surgical, which peaked at 100, tumbled to less than
20 two years later.
Inevitably, many companies blame the shorts, and
some even wage public battles. The classic was CML
Group, a favorite of shorts several years ago. During
a panel discussion at a Montgomery Securities
investment conference in the mid-1990s, Chairman
Charles Leighton suggested in front of the entire
room that all of the money managers in attendance
gather later in the back room and squeeze the
shorts. CML's stock was at its peak of around 30 at
the time; it now trades for pennies.
I rest my case.
Herb Greenberg is senior columnist for The
Street.com. His E-mail address is
herb@thestreet.com. |
