I've ironically lost more money the more closely I've paid attention to my investments because I was naively confident in the market's ability (or as I've come to suspect, willingness) to react to evidence of fraud.
The amount of deceit put out into the world and gobbled up, on purpose, in business is obscene and seriously depressing. The magnitude of damage to psyches and thus economies that anyone acting in a fraudulent manner in finance creates is far-reaching and immeasurable. Punishment for financial crimes should be calculated based on the average lifetime earnings of a citizen -- if your victims are folks earning at or below the average wage, and you've scammed 100 lifetimes worth of average earnings, it's as if you've murdered 100 people.
Hindenburg's reports were a true pleasure to read, and their track record proves their positive contribution to society. Many self-important people online are quick to pounce on short sellers as being evil, and that will forever be a serious red flag to me thanks in no small part to Nate Anderson and the folks at Hindenburg Research.
> I've ironically lost more money the more closely I've paid attention to my investments
Money Magazine a few years ago compared various investment strategies in stocks. The #2 best performing one was investing in the S&P 500. The #1 best performing strategy was the "dead man strategy".
The dead man strategy comes into play when the investor dies, and his estate gets frozen until it winds its way through the courts. It turns out that doing nothing with your stock investments is (statistically) the best strategy.
I know for a fact that when I do nothing with my stocks, they also perform better.
A few years ago cost structures for managing one's investment portfolios were also significantly higher than today!
There's an even better alternative for someone willing to put in the leg work:
(1) Figure out your investment horizon. For many people, this is way shorter than suggested by generic advice, which makes some diversification beyond "stonks go up" meaningful.
(2) Figure out what costs you'll incur by rebalancing etc.
(3) Write a short script that optimises the amount of activity in portfolio management that improves performance over your investment horizon, given your costs.
Unsurprisingly, the result can vary a lot between people. The result is most likely going to involve a very low level of activity, but the process of finding it out is very informative.
What I've found out (and this is replicated also by more authoritative people like Carver) is that for almost everyone, mixing in some 10--20 % of a safer asset like 10 year bonds and rebalancing yearly outperforms a pure equity portfolio over most realistic investment horizons.
Doing nothing saves trading costs which are a major drag.
The standard advice for equities investors (at least in the UK) has been to invest in tracker funds for a very long time.
it is possible to beat the market. Many years ago I double my money in approx an year - but I invested heavily in I had been covering as a analyst (one of my previous careers) until immediately before. I am more cautious now.
Just yesterday it was announced that Bitfinex will be returned the 95,000 bitcoin that were lost in a 2016 hack. These coins will be returned to the account holders which were affected by the hack.
At the time the bitcoins were lost, they were worth ~$575 each.
Today those returned tokens are worth close to $100,0000 each.
I doubt anyone who was affected by that hack realized they just got involuntarily forced into the best investment of their lives.
The conventional wisdom is to sell your profitable stocks, to "lock in your gains", and sell your losers to "cut your losses."
I call that "minimizing your gains" and "locking in your losses", and just hold instead. If I "locked in the gains" I would have missed out on 10x returns.
Of course, I did ride Enron all the way to zero (!), but it didn't matter. Think of it this way - buy 10 stocks. 3 go to zero. 6 have modest returns. 1 is a 10x winner, that more than makes up for the failures, and becomes the tentpole for your assets.
This reminds me of that Mythbusters episode in which they test what is the fastest strategy in a traffic jam or congestion - switching lanes or keeping your lane. IIRC the result was that it's the same, but zigzagging makes you feel it's faster
So invest in s&p 500 and do nothing, right? That's a good strategy for someone young, because it makes sense to be risk tolerant then. As you age you want more and more of your portfolio in bonds/cash, because you want the reduced fluctuation in purchasing power (i.e. comfort) that that brings you. These are the bare fundamentals of portfolio management.
This is the same for cryptocurrency. The people who lost accessa and subsequently regained it usually made more than those with ready access who sold earlier or played the market.
How can I use the 'dead man strategy' if I've just started investing and don't own any stocks?
Because if I already need to have some stocks, than this being the #1 strategy feels like those advice that you get on the internet where if you want to be rich just get born into a wealthy family.
Statistically probably true, but not really doable. :/
I feel like you can only do the 'dead man strategy' when your already dead, since before that it's probably better to keep adding money into the portfolio.
Keep in mind, fraud isn't necessarily a big deal for the shareholder, not all fraud is Enron-tier. For example, I fully believe they were right about Adani, but it was basically just skimming money off the top. If Adani is an embezzler, but also good and funneling bribes to get gov't contracts, then the overall effect on profits may just be breakeven or even positive. The losers would be the Indian citizenry. The company isn't doing so well now possibly due to a culture of corruption, but that kind of long-term culture analysis is hard for traders. But generally, fraud isn't severe enough to enough to endanger the company, it's just taking some money out of shareholders' pockets, but dispassionate traders don't usually sell out of retaliation.
True. Small frauds are common. I know people that have gotten away with pump-dumps. I know people that have raised obscene money for terrible ideas. I even helped close one customer while at one company, and then when I moved to another company, I had to meet the same buyer and he chewed me out in front of my rep because of the shady deal from my last company. And I even had a customer that kinda defrauded us! And when I was younger, I saw a lot of tiny behaviors that might be considered fraudulent if looked at from the angle of a transaction. I had to stop working for a while because it was destroying my soul. Nate says there was no danger or specific reason to close, but I very much doubt this.
zombie companies suck all the oxygen out of the room and away from productive companies, the victim is society and civilization at large and the damage is measured in lost exponential progress of unbound time axis, potentially millennia. Medical technology, longevity, scientific advances that we could have had but will not for another 10^N years - all retarded by malinvestment and misallocation. Theworldif.jpg
> Which also means being careful of short selling.
There are a number of businesses I know are badly run and will eventually fail, but I cannot find a way to monetize that safely without knowing the timeline for failure.
> It can put you at unlimited risk even if you are absolutely right.
The risk is in borrowing, not short selling. How many momo jockies out there think about the "unlimited risk" from buying Tesla on margin? In that case, you're shorting USD, but no one talks about that because it always will be fashionable to short USD.
Just like it always will be fashionable to short JPY, for carry and more. Until it's not.
> The amount of deceit put out into the world and gobbled up, on purpose, in business is obscene and seriously depressing.
In business, politics, everything. It almost seems like everyone is quietly agreeing that "if we pretend the pesky truth doesn't exist for long enough, we can literally change reality to be what we want".
I feel like I'm going crazy. There's no way that's how things can work for long, right?
You're not going crazy, they are. But even once things start falling apart, inertia alone can give the appearance of productive movement for years to come.
This is probably why when somebody looks to try to find the cause for e.g. the collapse of the Roman Empire there were a surprisingly large number of potentially serious issues all happening simultaneously.
The reason is that the empire probably collapsed decades before its fall and so the stupid decisions and actions all continued to pile up, seemingly without consequence. All until the inertia finally ran out and suddenly the entire house of cards came crashing down.
By all accounts it was like this at the end in the USSR too: infinite nepotism, no accountability, crashing standard of living near the median, deaths of despair attached to crazy levels of dangerous substance use.
This is what happens when bad people capture the levers of power.
It's not about pretending. Truth is the first casualty of war. If someone is trying to deceive you, they are actively exposing you to some kind of risk, usually for their own benefit, which is a hostile act.
This sort of thing is part of my personal motivation for getting into business. Lying is so rampant, so universal, so quietly accepted by everyone in a position of even mild power in business that it's easy to take for granted that you simply cannot succeed without it. I wanted to know if that was actually true - so far, it doesn't seem to be. But I don't blame people for worrying that it might be. People in positions of high power almost universally suck, and "just copy whatever really successful people do" is far from the worst strategy one can use in life.
(As always, you should trust what a founder says publicly about their company approximately not at all. If you want the answer for yourself, you gotta do it yourself, because you only know if you're lying or not. But I have my answer, I think.)
I hear what you’re saying, but it feels a bit too cynical to expand it to all business. Did you tell your boss you’d finish some task today? If something comes up, as often does at work, and you don’t finish, did you lie? Predicting the future is hard even as soon as what will happen today, now do that for the next quarter or 4 quarters. Of course there are fraudsters out there, but I view most founders as rampant optimists instead of liars. And you kind of have to be an over top optimist to be founder.
This is a common thing among investment professionals especially in areas where you need strong domain knowledge such as biotech. Your conviction can become stronger the more you learn and collect supporting data. Conviction is a dangerous thing. This also extends to what’s broadly happening today in increasingly data-rich environment because we make data-dependent decisions.
Buffet has this saying: "the stock market in the short term is a voting machine and in the long-term it's a weighing machine." I think a modern version of that is, in the short term the price is narrative and in the long-term it's accounting.
With Berkshire, Buffet figured out early, and firms like Hindenburg capitalized on the strategy of showing both sides of the story.
In basically every other era of investing since 1930, you would probably have benefitted from that approach. While I think you're right to set aside the prudence you were targeting in favor of a passive investment approach, I also think that once the Fed ZIRP era ends, the knowledge you amassed will again become useful.
I won't name names but a very popular so called "app growth king" launched recently and it's just full of dark patterns. Even going so far as giving out a "free month", when it's just a way for the user to lock into a yearly plan after a one month trial.
Even without fraud, the markets seem incredibly forgiving. For example, one would think that what Crowdstrike outage did to the airlines and businesses worldwide (and the levels of incompetence displayed) in 2024, would have destroyed the company. Instead, the stock has recovered nicely and it's business as usual. Or the massive security breaches - same outcome, it's as though nobody cares.
People don't invest because they think a company is competent. They invest because they are looking for a return.
The mistake CrowdStrike made will likely have little to no effect on their revenue. Since the stock dropped a bit (emotional investors getting out) it became a good value proposition, so people bought it cheap.
The reasons companies use CrowdStrike haven't gone away. Existing contracts can't just be terminated. By the time it comes up for renewal few will remember the incident, fewer still will care.
What you see as "levels of incompetence" others see as "made a mistake". You don't fire suppliers for a mistake- that's experience to them, and they're unlikely to make that mistake again anytime soon.
Plus of course, replacing anything like that at scale is a lot of work, expensive, and career-risky. Who, in the enterprise, is taking on that task? Who is advocating for it?
The market is forgiving because the outlook remains strong. The outlook remains strong because the business fundamentals remain strong.
Has anyone actually fired Crowdstrike over the incident? Heck, did Delta fire Crowdstrike?
I think the stock market is accurately realizing that it takes a lot of effort to fire a company embedded in your security infrastructure and that the incident probably won't change sales.
> Punishment for financial crimes should be calculated based on the average lifetime earnings of a citizen -- if your victims are folks earning at or below the average wage, and you've scammed 100 lifetimes worth of average earnings, it's as if you've murdered 100 people.
This seems like utilitarian ethics. I don't subscribe to these. I'd say most people don't either. So why "should" we calculate punishments for crimes this way if we don't use the same ethical framework as you?
Money grants you the power to influence others' lives. You take that from people illegally, and give it to yourself, you're creating an extreme negative effect on economic efficiency that should not be taken lightly and should be heavily discouraged.
Bill Hwang had settled insider trading charges a decade or so before he caused 30 billion dollars of liquidations after engaging in multiple forms of financial fraud. His insider trading punishment was likely lax and he committed crimes again, causing even more economic damage.
18 years in prison is nowhere near the amount of economic damage he caused. He amassed a net worth of 10-15 billion dollars. That's ten thousand average lifetimes worth of average American work. The punishment should reflect that. The expected value of fraud should be negative so that not even a degenerate gambler would consider it.
Can you explain your views as to why incentives to harm the economy massively via fraud to benefit yourself need to exist?
Not to take a position on those particular accusations but a problem with activist shorting in general is the people running the companies in question are often pissed of and aggressive and will try to take legal and PR action against the shorters.
That article says nothing that suggests Hindenburg is "part of the problem", only that they had received requests for information in line with an investigation.
> Punishment for financial crimes should be calculated based on the average lifetime earnings of a citizen -- if your victims are folks earning at or below the average wage, and you've scammed 100 lifetimes worth of average earnings, it's as if you've murdered 100 people.
Can this precedent be extended to the money wasted with failed government projects? But maybe on lifetime taxes rather than lifetime earnings, to be fair.
That's not even close to comparable. You vote for elected officials to pass bills that are attempted and sometimes failed. And often failed projects produce things of value to society so I'm not sure how you would factor that in, for example if you'd like a refund on the Challenger explosion. You don't vote for criminals to take your money.
> I've ironically lost more money the more closely I've paid attention to my investments
Without insider knowlege market investments are pure gamble. The best you can do is to bet randomly. Once you deviate from random bets because you are mistakenly think you know something then your investments will underperform.
That isn't guaranteed, because if so you can always do the opposite of what you think and you will overperform. Even if you think you know something, you are, at best, still being random. Anything perceived decrease in return from taking actions is itself just chance (and confirmation bias), because otherwise you could inverse it.
> Hindenburg's reports were a true pleasure to read, and their track record proves their positive contribution to society. Many self-important people online are quick to pounce on short sellers as being evil, and that will forever be a serious red flag to me thanks in no small part to Nate Anderson and the folks at Hindenburg Research.
Short sellers taking positions and then putting out report and marketing to bring a company’s price down can also be perceived as market manipulation. It’s not about people being “self important” but conflict of interest and the incentive to lie or exaggerate for those short sellers.
For example months after Hindenburg’s report on Supermicro, the independent committee investigating alleged issues found nothing wrong (https://www.morningstar.com/news/marketwatch/2024120275/why-...). The company ultimately confirmed that no prior or current financial reporting would need to be stated. So that makes the allegations false, or at least exaggerated, right? And doesn’t that mean profiteering through short positions and allegations of bad accounting would be market manipulation?
> Short sellers taking positions and then putting out report and marketing to bring a company’s price down can also be perceived as market manipulation.
Sure, in the same sense that releasing a 10-K can be perceived as market manipulation. In fact, if we define "market manipulation" to mean anything that might affect the market, many things can be perceived as market manipulation!
The question I think is more important is, is it bad? Sharing investment information you believe to be true and material to investors seems good to me.
> Many self-important people online are quick to pounce on short sellers as being evil, and that will forever be a serious red flag to me thanks in no small part to Nate Anderson and the folks at Hindenburg Research.
Credible arguments can be made however that short-selling itself, especially naked short selling, is an unethical thing to do as the pure possibility of short-selling makes some forms of crime possible in the first place, such as a criminal shooting up the road bus of a German soccer team to profit from falling stock prices [1]. Especially in the era of anything being credibly fake-able with widely available AI tools, short-selling can look to criminals as a very profitable way to make money.
Also, short-selling incentivizes large stock holders to be lazy and not do their jobs. Imagine a huge ass pension fund - they can (and do) make money as the counterparty in short-selling deals. Some see this as a necessary part of stocktrading life (because it provides liquidity), but personally I think that it removes incentives for the pension fund managers to do their job and audit the stock they hold for their shareholders in turn themselves.
Besides: enforcing securities code and auditing companies should not be the job of vigilantes. I applaud the efforts of ethical short sellers, but in an ideal world, that job would be done by the authorities.
1. Naked short selling basically doesn't happen anymore. To the extent that it does happen it's a mere technicality and the borrow is found after a couple of days.
2. There is very little money in shorting. Pumping and dumping by making up positive news is much more lucrative. "to the moon" has been a trope for years, and there is no equivalent on the short side. Even the world's most successful short seller Jim Chanos was successful because the short portfolio functioned as a hedge that enabled a leveraged long position on broad indices. It's pretty hard make money net short when the market goes up for two straight decades.
3. The authorities don't have the resources nor the dogged inclination to hunt down fraudsters. The authorities can't and shouldn't base an exhaustive investigation on vaguely shifty CEO behavior. Short sellers can and do start their investigation based on gut feeling.
Truly perverse incentives such as one the one you linked aside I think it's mostly fine. Naked short selling is already illegal and the deck is heavily stacked against short sellers to begin with. A position betting on growth is by far and away the safest investment, the market directly incentivizes "irrationality" on the side of prices not going down, and it's infeasible to hold a short position for very long making it (mostly) noise to long term investors which are the ones we typically care about.
I completely agree about the dangers and am disgusted by the story you shared and others like it.
In an ideal world nobody would commit a crime. Sadly we're far from an ideal world, and the US authorities in my experience are not well funded enough to adequately cover the ground they're responsible for. We also have a populace that voted for a felon who hates the IRS and has cronies who have floated dismantling the Consumer Financial Protection Bureau, so short sellers will have to do.
And the betting markets like Polymarket are worse. They had bets as to whether the fires in LA would be contained by certain dates. You can imagine the perverse incentives that creates.
"just feeling like it" seems insufficient explanation for dismantling a successful organization rather than transitioning it
they just completed their "pipeline of ideas" with "the last Ponzi cases" - seems like a surprisingly clean and abrupt end for an investigative organization
the team members are "brilliant" and "family to me" but heis disbanding rather than transitioning leadership
He mentions some team members are starting their own research firm but he "will have no personal involvement" That emphasis seems noteworthy
Claims there's "no particular threat" but takes pains to emphasize this multiple times
instead of maintaining the organization and training successors directly, he's planning to release videos and materials about their methods
No mention of the firm's financial position or client relationships
Not buying it, there's a story but it doesnt seem like he wants to tell it
And in that same vein it makes sense not to sell because if they ever see another great idea 5-10 years down the line I'd assume they might want to get back together under the same name and publish again. Selling would preclude them from doing that under the same name.
Short selling is extremely stressful and mindspace-heavy, especially if you're going with a global approach like these guys. It makes sense to exit once you've made your cheese.
Some of the team members clearly want to continue, and have his blessing in it. Still others want to get hired elsewhere too. All of these are normal. The Hindenburg name will carry them far.
Him open-sourcing them (for free) is so that others may continue the fight against unscrupulous market players. That's just his Principles.
What he's doing is the smart thing. The employees are likely worth a few millions and debt-free, while he has made enough to fund a small family office. The smart thing would be to leave the game, especially when as an outsider like him, you don't have the connects to fundraise (which is what most fundmanagers tend to spend most of their time on these days). IIRC even DeepFuckingValue did the same.
Honestly? That feels like a more genuine explanation. Business say they reasons for doing things, but I've not seen a high level decision maker that isn't eventually just "going with his gut."
Is this a decision to avoid litigation? I’ve seen people post analyses that disprove Hindenburg’s claims. And recently Supermicro’s independent auditors didn’t find the same issues Hindenburg claimed. Is it possible they’ve basically got rich from misleading attacks on stocks and are now shutting down to avoid something bad? Basically cashing out on their short positions?
EDIT: since I am rate limited, here’s my reply to the child comment from peepeepoopoo100
When EY resigned, it was because there was a long list of things that the independent review said needed investigating. But none of the issues had been actually investigated yet. Since then, my recollection is that there have been at least two independent reviews that have been fully completed and confirmed that the financial reporting of the company was accurate. And nothing had to be restated to the SEC, nor has the SEC asked for any changes.
Basically the big 4 auditor jumped off the ship, based on allegations and potential issues and nothing concrete, and they did not stick around to do the actual work they should’ve done. Instead of seeking answers, they made a vague accusation that the company might not be acting with integrity and ethics and left.
> And recently Supermicro’s independent auditors didn’t find the same issues Hindenburg claimed.
What are you on about? Their Big 4 auditor resigned and said that nobody should trust anything that the company's board says. Are you referring to the one (1) person they hired and paid to clear themselves of wrongdoing?
> In May 2022, Hindenburg took a short position in Twitter, Inc. following the announcement of its acquisition of Twitter by Elon Musk. After Musk's attempted termination of the deal, Hindenburg took a significant long position on Twitter, betting against Musk on the acquisition to close.
Something about that individual coming to power along with the other oligarchs? The coming political climate looks to be one where money is more important than the rule of law (even more so than usual), which might be bad news for a business like that.
>The coming political climate looks to be one where money is more important than the rule of law (even more so than usual), which might be bad news for a business like that.
I think this is the correct answer for explaining the timing of this announcement at least. It's one thing to use your media to fight your short sellers, it's another thing when you become the government and start fighting your shortsellers with the entire political and "judicial" apparatus in order to keep the market irrational. Or force it to accept the new reality.
The statement by Nate Anderson does not contain any explicit or implicit connection to Elon Musk, Donald Trump, or the political climate. It's disappointing that you believe "money in power" is a new phenomenon uniquely exemplified by Elon's burgeoning interest in politics. Cuomo's monologue during the DNC about the falseness of "grass roots political power" in the United States is right on the mark. Biden's warning about "oligarchs" was awkward and insincere.
Think this type of organization is a bit different. The very nature of their MO means it's only a matter of time before there is a big miss and you get sued into oblivion.
...so bowing out gracefully while ahead seems like a sound move
I'll just pipe in as a reply to your comment that, despite never having known this org until now (unfortunately for me, they seem cool as hell), the statement reads as a bit inexplicable.
The first connection my brain made was to the moderator of /r/IAMA who, thirteen years ago, in the midst of its massive success, randomly and unilaterally decided to shut it down [1] (although on a retrospective reading, I actually understand their reasoning more than Hindenbergs).
Wow, this made me really emotional. And even though I definitely did not expect a chill Bali DJ set as the motivational link, it also resonated with me in some way.
I can't think of a more honorable way to move through life. I liken the act of closing shop at this point for Hindenburg to the legend I know of Cincinnatus, the Roman emperor who did the job of emperoring and went back to his fields when it was done.
It also moves me how the team is described, as being from whatever background, but all moved by the same fire. I wish that I could be a part of something like that. What the hell am I doing with my life?
Did he... link the wrong URL at the end of the post? I thought for sure it was going to be some sort of heartfelt speech, or motivational message, or something. But it's an instrumental DJ set which seems totally out of left field
> P.S. If you are chasing something you think you want or need, or are doubting whether you are enough, take a minute and give this a listen. It had a big impact on me at a pivotal time.
He shared something that helped him at a pivotal time. Your expectations are your own. :)
And the highlighted comment on that video (because it's got a lot of upvotes) is "Who's here because of Hindenburg?"...
I suppose all the research work, that comment, and the 750+ thumbs-ups, and my cynical meta-comment all brought value to the world. But I'm only sure of one of those things.
It's funny, because your comment made me go back and click the link. If it was some motivational speech, I wasn't interested (that's why I didn't click initially). But I actually listen to instrumental DJ sets and Cercle is one of my favorite YouTube channels. So thanks! :)
I was pretty amazed to see him link this particular Lee Burridge set from Bali. I’ve watched/listened to it many times over and it never fails to put me in a happier state of mind.
But if you're into it, Ben Boehmer in Cappadocia, The Blaze atop the Aguile Du Midi in the French Alps are a couple of the many gems in that same series of Cercle sets.
Cercle is a gift to the world. For anyone that didn't receive the gift yet - they're organizing great DJ sets in special locations. Multiple times I've put something to listen to, and found myself watching the whole show.
For myself at least that was a wild behind the curtain reveal; for a group that's had such a profound impact exposing some of the better kept secrets of some of the worst people and companies, Nate presents himself and his associates as surprisingly ordinary day to day types armed with grit and determination.
In my experience, people tend to grossly overestimate the scale of publicly known organisations; the more publicly known, the vaster and more faceless people imagine it to be.
Hindenburg Research and Muddy Waters are like heroes to me. It's one thing to have an opinion about corruption, another to maybe be a whistleblower or activist, but to take levered bets against corruption and win is next level.
Almost every time I see a dark pattern in tech I think there should be an opportunity to bet against it. Certain companies I can think of who appear to be faking their MAU numbers with "urgent notices" to login to obviously abandoned accounts, or who won't let you close an account even though there's no way to get the balance out to close it, both seem like opportunities. Still others, who appear to gamify their notifications to drive DAU numbers seem as bad as twitter's pre-musk bot problem.
part of the case for breaking up some of the platform companies is that they protect some shitty practices from the market by having a behemoth to bail out products that wouldn't survive on their own, and they create a huge barrier to market entry against desirable products.
the page seems to be hugged to death, but whatever the case, congratulations. they are, and should be an inspiration to others.
Getting out while they are ahead is a smart move, especially considering multiple governments have started to take a closer look at their shorting tactics.
I'm assuming when he says "governments taking a look at" he means like the Indian government and it's more of a Mafia-type "taking a look at" than a serious inquiry with any actual merit. A strongarm type thing
They interview people involved with these companies, then based on these interviews write report that is privately distributed and take out coordinated short positions.
That’s almost the definition of insider trading. Almost. Now afaik what they are doing is nominally above board, but they are walking a very fine line.
In less than a week a president will take power whose chief advisor has a really big grudge against short sellers.
I wouldn't say they were ahead at least in terms of reputation. They targeted India's Adani group and failed. The Supermicro "revelation" was also a damp squib. I suppose they made plenty of money with their short-selling though, so in that sense they are, perhaps, ahead enough.
Only failed Adani because they misunderstood how deep the Indian government would go to join in the cover-up, instead of actually investigating it.
The Big 4 auditor for Supermicro literally quit, citing concerns. It's the SEC's job to do the investigating (and it's failed badly and likely to fail more with the coming admin).
I'd really recommend Matt Levine's various columns on this. Here's one [0] - it's paywalled, but if you sub to the newsletter you get the full texts for free. Not sure if you can get historical ones, but I'm guessing he'll talk about it again in the next issue this or next week. I added the excerpt here [1] too. Very entertaining and informative take on most things finance.
Readit News
The amount of deceit put out into the world and gobbled up, on purpose, in business is obscene and seriously depressing. The magnitude of damage to psyches and thus economies that anyone acting in a fraudulent manner in finance creates is far-reaching and immeasurable. Punishment for financial crimes should be calculated based on the average lifetime earnings of a citizen -- if your victims are folks earning at or below the average wage, and you've scammed 100 lifetimes worth of average earnings, it's as if you've murdered 100 people.
Hindenburg's reports were a true pleasure to read, and their track record proves their positive contribution to society. Many self-important people online are quick to pounce on short sellers as being evil, and that will forever be a serious red flag to me thanks in no small part to Nate Anderson and the folks at Hindenburg Research.
Money Magazine a few years ago compared various investment strategies in stocks. The #2 best performing one was investing in the S&P 500. The #1 best performing strategy was the "dead man strategy".
The dead man strategy comes into play when the investor dies, and his estate gets frozen until it winds its way through the courts. It turns out that doing nothing with your stock investments is (statistically) the best strategy.
I know for a fact that when I do nothing with my stocks, they also perform better.
There's an even better alternative for someone willing to put in the leg work:
(1) Figure out your investment horizon. For many people, this is way shorter than suggested by generic advice, which makes some diversification beyond "stonks go up" meaningful.
(2) Figure out what costs you'll incur by rebalancing etc.
(3) Write a short script that optimises the amount of activity in portfolio management that improves performance over your investment horizon, given your costs.
Unsurprisingly, the result can vary a lot between people. The result is most likely going to involve a very low level of activity, but the process of finding it out is very informative.
What I've found out (and this is replicated also by more authoritative people like Carver) is that for almost everyone, mixing in some 10--20 % of a safer asset like 10 year bonds and rebalancing yearly outperforms a pure equity portfolio over most realistic investment horizons.
The standard advice for equities investors (at least in the UK) has been to invest in tracker funds for a very long time.
it is possible to beat the market. Many years ago I double my money in approx an year - but I invested heavily in I had been covering as a analyst (one of my previous careers) until immediately before. I am more cautious now.
At the time the bitcoins were lost, they were worth ~$575 each.
Today those returned tokens are worth close to $100,0000 each.
I doubt anyone who was affected by that hack realized they just got involuntarily forced into the best investment of their lives.
Most of my investing is just in passive S&P index funds, but I do occasionally buy individual shares.
Sometimes I make decent money, sometimes I lose money…turns out I consistently do worse than the S&P long term.
I treat buying individual shares as yuppie gambling at this point. It can be fun, but it’s usually a bad strategy.
I call that "minimizing your gains" and "locking in your losses", and just hold instead. If I "locked in the gains" I would have missed out on 10x returns.
Of course, I did ride Enron all the way to zero (!), but it didn't matter. Think of it this way - buy 10 stocks. 3 go to zero. 6 have modest returns. 1 is a 10x winner, that more than makes up for the failures, and becomes the tentpole for your assets.
"Most successful chimpanzee on Wall Street" - https://www.guinnessworldrecords.com/world-records/most-succ...
The only thing a small investor can control are fees. Minimising transactions minimises fees.
Because if I already need to have some stocks, than this being the #1 strategy feels like those advice that you get on the internet where if you want to be rich just get born into a wealthy family.
Statistically probably true, but not really doable. :/
I feel like you can only do the 'dead man strategy' when your already dead, since before that it's probably better to keep adding money into the portfolio.
Which also means being careful of short selling. It can put you at unlimited risk even if you are absolutely right.
There are a number of businesses I know are badly run and will eventually fail, but I cannot find a way to monetize that safely without knowing the timeline for failure.
The risk is in borrowing, not short selling. How many momo jockies out there think about the "unlimited risk" from buying Tesla on margin? In that case, you're shorting USD, but no one talks about that because it always will be fashionable to short USD.
Just like it always will be fashionable to short JPY, for carry and more. Until it's not.
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In business, politics, everything. It almost seems like everyone is quietly agreeing that "if we pretend the pesky truth doesn't exist for long enough, we can literally change reality to be what we want".
I feel like I'm going crazy. There's no way that's how things can work for long, right?
This is probably why when somebody looks to try to find the cause for e.g. the collapse of the Roman Empire there were a surprisingly large number of potentially serious issues all happening simultaneously.
The reason is that the empire probably collapsed decades before its fall and so the stupid decisions and actions all continued to pile up, seemingly without consequence. All until the inertia finally ran out and suddenly the entire house of cards came crashing down.
This is what happens when bad people capture the levers of power.
https://youtu.be/IUJMyTJ9gyI
(As always, you should trust what a founder says publicly about their company approximately not at all. If you want the answer for yourself, you gotta do it yourself, because you only know if you're lying or not. But I have my answer, I think.)
With Berkshire, Buffet figured out early, and firms like Hindenburg capitalized on the strategy of showing both sides of the story.
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The mistake CrowdStrike made will likely have little to no effect on their revenue. Since the stock dropped a bit (emotional investors getting out) it became a good value proposition, so people bought it cheap.
The reasons companies use CrowdStrike haven't gone away. Existing contracts can't just be terminated. By the time it comes up for renewal few will remember the incident, fewer still will care.
What you see as "levels of incompetence" others see as "made a mistake". You don't fire suppliers for a mistake- that's experience to them, and they're unlikely to make that mistake again anytime soon.
Plus of course, replacing anything like that at scale is a lot of work, expensive, and career-risky. Who, in the enterprise, is taking on that task? Who is advocating for it?
The market is forgiving because the outlook remains strong. The outlook remains strong because the business fundamentals remain strong.
I think the stock market is accurately realizing that it takes a lot of effort to fire a company embedded in your security infrastructure and that the incident probably won't change sales.
This seems like utilitarian ethics. I don't subscribe to these. I'd say most people don't either. So why "should" we calculate punishments for crimes this way if we don't use the same ethical framework as you?
Bill Hwang had settled insider trading charges a decade or so before he caused 30 billion dollars of liquidations after engaging in multiple forms of financial fraud. His insider trading punishment was likely lax and he committed crimes again, causing even more economic damage.
18 years in prison is nowhere near the amount of economic damage he caused. He amassed a net worth of 10-15 billion dollars. That's ten thousand average lifetimes worth of average American work. The punishment should reflect that. The expected value of fraud should be negative so that not even a degenerate gambler would consider it.
Can you explain your views as to why incentives to harm the economy massively via fraud to benefit yourself need to exist?
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To me they seemed like partners of shorting hedge funds (similar to CNBC) who just spit out bs articles so their hedgie friends can trade on it.
DOJ seems to agree with me?
https://www.forbes.com/sites/sergeiklebnikov/2022/02/16/doj-...
There are more and better sources.
Can this precedent be extended to the money wasted with failed government projects? But maybe on lifetime taxes rather than lifetime earnings, to be fair.
Without insider knowlege market investments are pure gamble. The best you can do is to bet randomly. Once you deviate from random bets because you are mistakenly think you know something then your investments will underperform.
how large businesses get away with things is true across markets and the precedence set let them be more fearless to keep committing them.
the reporting through the publication has an important place, but playing the market at the same time personally gets rid of any credibility.
the system incentivises this behavior, no one is punishing the rich guys playing with our livelyhood
Short sellers taking positions and then putting out report and marketing to bring a company’s price down can also be perceived as market manipulation. It’s not about people being “self important” but conflict of interest and the incentive to lie or exaggerate for those short sellers.
For example months after Hindenburg’s report on Supermicro, the independent committee investigating alleged issues found nothing wrong (https://www.morningstar.com/news/marketwatch/2024120275/why-...). The company ultimately confirmed that no prior or current financial reporting would need to be stated. So that makes the allegations false, or at least exaggerated, right? And doesn’t that mean profiteering through short positions and allegations of bad accounting would be market manipulation?
Sure, in the same sense that releasing a 10-K can be perceived as market manipulation. In fact, if we define "market manipulation" to mean anything that might affect the market, many things can be perceived as market manipulation!
The question I think is more important is, is it bad? Sharing investment information you believe to be true and material to investors seems good to me.
"New financial and accounting executives will be appointed, as recommended by the investigation committee"
I agree that harm is possible when short selling and lying about it.
Credible arguments can be made however that short-selling itself, especially naked short selling, is an unethical thing to do as the pure possibility of short-selling makes some forms of crime possible in the first place, such as a criminal shooting up the road bus of a German soccer team to profit from falling stock prices [1]. Especially in the era of anything being credibly fake-able with widely available AI tools, short-selling can look to criminals as a very profitable way to make money.
Also, short-selling incentivizes large stock holders to be lazy and not do their jobs. Imagine a huge ass pension fund - they can (and do) make money as the counterparty in short-selling deals. Some see this as a necessary part of stocktrading life (because it provides liquidity), but personally I think that it removes incentives for the pension fund managers to do their job and audit the stock they hold for their shareholders in turn themselves.
Besides: enforcing securities code and auditing companies should not be the job of vigilantes. I applaud the efforts of ethical short sellers, but in an ideal world, that job would be done by the authorities.
[1] https://de.wikipedia.org/wiki/Anschlag_auf_den_Mannschaftsbu...
2. There is very little money in shorting. Pumping and dumping by making up positive news is much more lucrative. "to the moon" has been a trope for years, and there is no equivalent on the short side. Even the world's most successful short seller Jim Chanos was successful because the short portfolio functioned as a hedge that enabled a leveraged long position on broad indices. It's pretty hard make money net short when the market goes up for two straight decades.
3. The authorities don't have the resources nor the dogged inclination to hunt down fraudsters. The authorities can't and shouldn't base an exhaustive investigation on vaguely shifty CEO behavior. Short sellers can and do start their investigation based on gut feeling.
In an ideal world nobody would commit a crime. Sadly we're far from an ideal world, and the US authorities in my experience are not well funded enough to adequately cover the ground they're responsible for. We also have a populace that voted for a felon who hates the IRS and has cronies who have floated dismantling the Consumer Financial Protection Bureau, so short sellers will have to do.
And the betting markets like Polymarket are worse. They had bets as to whether the fires in LA would be contained by certain dates. You can imagine the perverse incentives that creates.
they just completed their "pipeline of ideas" with "the last Ponzi cases" - seems like a surprisingly clean and abrupt end for an investigative organization
the team members are "brilliant" and "family to me" but heis disbanding rather than transitioning leadership
He mentions some team members are starting their own research firm but he "will have no personal involvement" That emphasis seems noteworthy
Claims there's "no particular threat" but takes pains to emphasize this multiple times
instead of maintaining the organization and training successors directly, he's planning to release videos and materials about their methods
No mention of the firm's financial position or client relationships
Not buying it, there's a story but it doesnt seem like he wants to tell it
Some of the team members clearly want to continue, and have his blessing in it. Still others want to get hired elsewhere too. All of these are normal. The Hindenburg name will carry them far.
Him open-sourcing them (for free) is so that others may continue the fight against unscrupulous market players. That's just his Principles.
What he's doing is the smart thing. The employees are likely worth a few millions and debt-free, while he has made enough to fund a small family office. The smart thing would be to leave the game, especially when as an outsider like him, you don't have the connects to fundraise (which is what most fundmanagers tend to spend most of their time on these days). IIRC even DeepFuckingValue did the same.
At least they're honest here.
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It IS possible, that this person is doing it out of passion, rather than a typical idea of a job or firm.
TLDR: Within the realm of possibility, relatively unusual.
Hindenburg was anything but usual IMO so fits the picture.
There is a type of person who needs to re-invent themselves over and over.
EDIT: since I am rate limited, here’s my reply to the child comment from peepeepoopoo100
When EY resigned, it was because there was a long list of things that the independent review said needed investigating. But none of the issues had been actually investigated yet. Since then, my recollection is that there have been at least two independent reviews that have been fully completed and confirmed that the financial reporting of the company was accurate. And nothing had to be restated to the SEC, nor has the SEC asked for any changes.
Basically the big 4 auditor jumped off the ship, based on allegations and potential issues and nothing concrete, and they did not stick around to do the actual work they should’ve done. Instead of seeking answers, they made a vague accusation that the company might not be acting with integrity and ethics and left.
What are you on about? Their Big 4 auditor resigned and said that nobody should trust anything that the company's board says. Are you referring to the one (1) person they hired and paid to clear themselves of wrongdoing?
Something about that individual coming to power along with the other oligarchs? The coming political climate looks to be one where money is more important than the rule of law (even more so than usual), which might be bad news for a business like that.
I think this is the correct answer for explaining the timing of this announcement at least. It's one thing to use your media to fight your short sellers, it's another thing when you become the government and start fighting your shortsellers with the entire political and "judicial" apparatus in order to keep the market irrational. Or force it to accept the new reality.
https://youtu.be/mBGNOSWkrAU?si=Y5dlAFi1hTtut4Xr
Think this type of organization is a bit different. The very nature of their MO means it's only a matter of time before there is a big miss and you get sued into oblivion.
...so bowing out gracefully while ahead seems like a sound move
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I assume they have a good reason to have done it this way and I hope everyone on their team is safe.
The first connection my brain made was to the moderator of /r/IAMA who, thirteen years ago, in the midst of its massive success, randomly and unilaterally decided to shut it down [1] (although on a retrospective reading, I actually understand their reasoning more than Hindenbergs).
[1] https://old.reddit.com/r/IAmA/comments/ju5cf/goodbye_iama_it...
I can't think of a more honorable way to move through life. I liken the act of closing shop at this point for Hindenburg to the legend I know of Cincinnatus, the Roman emperor who did the job of emperoring and went back to his fields when it was done.
It also moves me how the team is described, as being from whatever background, but all moved by the same fire. I wish that I could be a part of something like that. What the hell am I doing with my life?
He shared something that helped him at a pivotal time. Your expectations are your own. :)
I suppose all the research work, that comment, and the 750+ thumbs-ups, and my cynical meta-comment all brought value to the world. But I'm only sure of one of those things.
Everyday, at the same time, in the same place, play that instrumental DJ set and with a blank document write down whatever comes to you.
Let me know what you find.
I can't explain, but yeah.
[1] https://www.youtube.com/watch?v=KxGRhd_iWuE
Some of the worst could be the most likely to make you an offer you can't refuse . . .
Almost every time I see a dark pattern in tech I think there should be an opportunity to bet against it. Certain companies I can think of who appear to be faking their MAU numbers with "urgent notices" to login to obviously abandoned accounts, or who won't let you close an account even though there's no way to get the balance out to close it, both seem like opportunities. Still others, who appear to gamify their notifications to drive DAU numbers seem as bad as twitter's pre-musk bot problem.
part of the case for breaking up some of the platform companies is that they protect some shitty practices from the market by having a behemoth to bail out products that wouldn't survive on their own, and they create a huge barrier to market entry against desirable products.
the page seems to be hugged to death, but whatever the case, congratulations. they are, and should be an inspiration to others.
That’s almost the definition of insider trading. Almost. Now afaik what they are doing is nominally above board, but they are walking a very fine line.
In less than a week a president will take power whose chief advisor has a really big grudge against short sellers.
Getting out now is on point for Hindenburg.
The Big 4 auditor for Supermicro literally quit, citing concerns. It's the SEC's job to do the investigating (and it's failed badly and likely to fail more with the coming admin).
[0] https://www.bloomberg.com/opinion/articles/2024-07-02/people... [1] https://telegra.ph/Hindenburg-01-16