Business

Elon Musk Enron, WorldCom, Tyco, Lehman Brothers, And Valeant Versus Short Sellers

Whitney Tilson‘s email to investors discussing his free seminars in Asia and defending short sellers from Elon Musk’s attacks.

Defending Short Sellers

1) I’m looking forward to my barnstorming trip in Asia next week, during which I’ll be doing free investing seminars in Shanghai this Sunday (Oct. 14), Singapore next Tuesday (Oct. 16), and we just added Hong Kong on Thursday (Oct. 18). If you or anyone you know would like more information or register to attend, please click here, here or here, respectively.

2) I was on Yahoo Finance’s lunchtime TV show today, defending short sellers against Elon Musk’s wrongheaded and self-interested attacks. Click here to watch the 8-minute segment.

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I argued that short selling is healthy for markets, especially long, complacent bull markets like this one, as markets need both buyers AND sellers.

But it’s not all short sellers Musk is attacking – just those who dare to share their views and research publicly. I think it’s especially important to encourage these brave investors because they offset the incessant promotion of stocks by managements (e.g., Musk) and Wall Street analysts.

That’s why I’ve organized a unique conference dedicated solely to short selling, in which 20 brilliant investors share their favorite, actionable short ideas. Our first one was a huge success so we’re doing it again at the NY Athletic Club on Monday, Dec. 3 (for the first time, we’ll also be livestreaming it for those who can’t attend in person). Additional information, including a list of confirmed speakers, and registration links are here. The early bird price of $2,495 expires on Monday, so register now – and save 20% if you use discount code WT20.

Short sellers have proven, over and over again (think Enron, WorldCom, Tyco, Lehman Brothers, Valeant and Lumber Liquidators, which I exposed), to be like the boy who says the emperor has no clothes – and Musk is looking mighty naked right now so no wonder he’s lashing out against those who are raising legitimate questions about major problems at his company. They threaten the story he’s woven about the ultimate story stock.

I think Musk is a tremendous entrepreneur and visionary and have great respect for what he’s accomplished at Tesla and even more so at SpaceX. But he’s behaving in an increasingly erratic way that leads me to believe that Tesla needs to find a new CEO and let Musk be something like Chief Innovation Officer before it’s too late. With nearly $10 billion in debt and a huge cash burn, this is smelling more and more like Valeant, the last great bull-bear battleground.

In my 15+ years of short selling, it is almost always the case that when CEOs attack short sellers, it’s because they have something to hide and the stock is due for a big fall (this observation is reinforced by one study which showed that such stocks underperformed by 2% per month).

3) In sharp contrast to Musk, this is how Netflix CEO Reed Hastings responded to the lengthy short report I issued in Dec. 2010: Netflix CEO Reed Hastings Responds To Whitney Tilson: Cover Your Short Position. Now. It begins:

A great investor and a wonderful human being, Whitney Tilson recently posted an article about why he is short Netflix (NFLX). Whitney, who is a major co-donor with me to charter public schools like KIPP, writes that he has lost money betting against Netflix, and that he is still short Netflix in a big way.

At Netflix we mostly focus on building our business and letting the numbers do the talking. But Whitney is such a big-hearted donor to causes that I care about that I am writing this open letter for him to try to get him to cover his short now. My desire is to increase his odds of making money next year so he can donate even more to the charter public schools that we both think are important to our country's future. For the record, I think short sellers are a positive force in capitalism, and I acknowledge that CEOs are generally biased in their bullishness on their respective firms.

Thank goodness I listened to him, eventually went long the stock, and it was my biggest winner ever. There’s a lesson for all short sellers here: if the CEO of a company you attack responds by calling you “a great investor and a wonderful human being,” cover your short position immediately!!!

4) For more on Musk’s misguided behavior, here’s Joe Nocera with one of the best articles I’ve ever read on him, What Steve Jobs Might Say to Elon Musk. Excerpt:

Musk is five years older than Jobs was when he returned to Apple. He has done some truly remarkable things — more remarkable than Jobs, when you think about it. He built one company that not only sends rockets into space, but also lands the first stage of the rocket on what amounts to a giant trampoline. It is an astonishing feat, something that NASA could never do, and, because it allows the first stage to be reused, saves most of the cost of building a new rocket.

Here are Mark Spiegel’s comments on this article:

a) Jobs was a money-making SHARK: Apple was profitable every single year (both before his departure and after his return) that he ran it as a public company (with the exception of his partial return year). Musk has NEVER run a profitable company.

b) Musk is a pathological liar and security fraudster (going far beyond the "420" tweet); Jobs wasn't.

Those are two very big differences that have nothing to do with "maturity."

5) Gabriel Grego exposed the $1 billion fraud at Folli Follie at our last shorting conference – the stock was halted less than two weeks later and will never trade again. He’s speaking again at our conference on Dec. 3 to expose what he promises me will be an even bigger and more actionable fraud. Here’s a recent article in the FT about what investors can learn from this debacle: Folli Follie: $1bn of fake sales, and what to learn from the debacle

Again, you can learn more and register for our conference here.

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