In an interview with Benzinga TV on June 4, Tilson said that he did not think of himself as a market prognosticator and his style is mostly bottom-up stock picking. He said that his portfolio is split in a 2:1 long to short ratio where his shorts are much more volatile. Tilson said he is fairly cautious with a net exposure of 50% in his portfolio. Even though Tilson has been shorting stocks left and right in the past few quarters, he said he is still finding more opportunities on the short side than the long.
Whitney Tilson not short Tesla anymore, long Samsung
He said at the time he shorted Tesla Motors Inc (NASDAQ:TSLA) in late 2012, it was burning cash and on the brink of bankruptcy. He thought it was unlikely that Tesla would successfully launch its new model and ramp up production, however, to their credit they did get out of that period and the stock skyrocketed. Tilson said that he is not short Tesla anymore and the trade was one of his biggest losses ever in both long and short positions.
Tilson said that since Steve Jobs’ passing, Apple Inc. (NASDAQ:AAPL) has been scarce on real innovation. He said due to the iPhone’s small screen, he switched to other companies years ago. Tilson said he bought a small long position in Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) and that Samsung is the cheapest high quality global stock he is aware of. They have a very strong balance sheet, and the company is the top or the second best brand in almost every gadget or appliance it sells.
Short-selling is hard, better not do it
Tilson’s advice for those who are scared of shorting was simply not to short at all. He said it is exceptionally hard to short:
“I can show you many scars on my back from a dozen years of doing it myself and learning lessons the hard way. Being short one Tesla could undo a dozen good short positions.”
His advice for those who still want to short stocks was to establish small positions amounting to 1-2% of the total portfolio. Speaking of the 3D printing sector, Tilson said that these businesses are disconnected from economic reality, which makes them hot candidates for shorting. He disclosed that he was not just short 3D Systems Corporation (NYSE:DDD) but also Voxeljet AG (ADR) (NYSE:VJET), Stratasys Ltd (NASDAQ: SSYS), Organovo (NYSE: ONVO), and, until recently, ExOne Co. (NASDAQ:XONE).
He said he got out of his ExOne Co (NASDAQ:XONE) short because the cost to borrow the company’s shares reached an outrageous 62% annually. However, while he was shorting ExOne, the position played out to his benefit, and he made a 50% profit.
Tilson is wary of stock options
While answering a question about using stock options as an indirect way to short when the cost to borrow is very high, Tilson said,
“I am very very wary of options. One of my smartest friends once said that options are like heroin, they make you feel so good but they will kill you. With options you just don’t have to be right on the stock but right on the timing as well. It is hard enough to be right on the stock, it is almost impossible I find to be right both on the stock and the timing.”
Mall-based retail and alternative energy shorts
Tilson also said that the mall-based retail sector is getting crushed these days. Every other chain store company is posting bad numbers. Tilson said his luckiest trade has been in Quiksilver, Inc. (NYSE:ZQK), which he shorted the day it posted Q1 earnings, and then it declined 40% the next day. He said he is not going to cover yet, as he sees further downside. Tilson said Quicksilver is on the road to bankruptcy if it keeps reporting terrible earnings.
Another company he said he considered shorting but didn’t was Five Below Inc (NASDAQ:FIVE), which is a teen- and pre-teen-focused retailer. Tilson said that mall traffic is going down as more and more people buy things online. He said it is a good idea to short mall-based retailers that are richly valued or companies that sell to them.
Another sector in which he thinks current valuations are foolish is the alternative energy space. Tilson mentioned Plug Power Inc (NASDAQ:PLUG), Ballard Power Systems Inc. (USA) (NASDAQ:BLDP) and FuelCell Energy Inc (NASDAQ:FCEL) as examples of companies with hyped equity value. Tilson is short all three and said that he is not going to cover because he thinks the stocks are all worth less than a dollar.
High dividend stocks mean increased cost to borrow
Tilson also talked about his long in Howard Hughes Corp (NYSE:HHC). He said the company has multiple exciting projects lined up in New York, Houston, Las Vegas and Honolulu. While commenting on shorting mall REITs, he said that these stocks pay high dividends, so when you are short, the cost to borrow increases because the short-seller has to pay the dividends. Tilson said shorting the retailers directly is a much quicker and cheaper way to make money.
Tilson said that he regularly gets humbled in his trades, even though he has been doing it for over a decade now. He said stock picking is hard and that if you want to play it safe, you should put money in index funds. He said there is extensive paid promotional material out there that misleads novice investors. These materials are meant to pump up completely worthless stocks, so new investors have to be cautious.