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.
Agree with you 100%, I did the same simulations and found the same result.
I would suggest a step beyond though, because rebalancing your portfolio is fun year 1-5, but not so fun year 5-20: have a look at e.g. Vanguard retirement target funds.
Essentially, it's an ETF with a rebalancing rule included for a specific target date. For instance if you buy the target 2050 (your hypothetical retirement age), the ETF rebalances itself between bonds/monetary fund/stocks until it reaches that date, u til it's pretty much all cash in 2050.
Lowest hassle diversified retirement scheme I found.
Nope not all cash, it goes down to around 50% stocks at the target date (and actually continues to get slightly more conservative after). Just look at the current portfolio of the Vanguard 2025 fund: https://investor.vanguard.com/investment-products/mutual-fun...
That fund is currently at 50% stocks. It does get more conservative as you get past the target date, but I was mainly referring to the stock percentage at target date, which the parent poster implied was almost zero.
You mean VFIFX? What a disaster. My retirement plan put me in that until I realized investment advice for young people is a tax on the inexperienced and vulnerable. VFFSX (S&P 500) does 2x better returns every time. I feel guilty saying it on Hacker News. Like pension funds I bet Vanguard is one of these so-called LPs who give money to VCs like Y Combinator to help ivy league kids follow their dreams. Without these heroes I'm not sure there'd be a startup economy. I just don't want to be the one who pays for it. I think the future Wall-E predicted with Buy N' Large is probably closer to the truth.
> VFFSX (S&P 500) does 2x better returns every time
US large cap has certainly recently outperformed the other parts of the target date fund (international stocks, bonds). But there is certainly no guarantee that it will happen "every time". In the last 10 years, US equity has been the best overall performing asset class for the past decade but 7 out of those 10 years at least one other category outperformed it: https://www.blackrock.com/corporate/insights/blackrock-inves...
> Like pension funds I bet Vanguard is one of these so-called LPs who give money to VCs like Y Combinator to help ivy league kids follow their dreams.
You can look up the holdings of VFIFX or any other Vanguard fund. There is no private equity or private credit.
And now GLD with its 1 year return at 40% is outperforming them both, which is a really scary thought. How bad do things have to be, that all our blood sweat and tears scurrying off to work each mourning earns less than a piece of metal dug out of the ground that sits around doing nothing? I thought inflation was supposed to be a tax on poors, but even rich private equity which gets ahead by sucking the blood out of Americans digging themselves out the grave can't save itself.
This is one of those things where again, one will have to weigh the costs of both alternatives. A rebalancing ETF usually has higher costs (management fees, but possibly also internal trading costs that show up as performance beneath benchmark index), but of course, manually rebalancing also has a cost – the cost of one's time and effort!
There are scenarios where these target date funds are not good.
Rebalancing into bonds and mmmfs is a form of insurance against catastrophic losses equities. But if you have a sufficiently large account then catastrophic losses that affect your life are extremely rare, if they do occur they will likely affect your bond portfolio as well, and the expected loss vs 100% equities over 15-20 years is significant, something like 10x the value of the insurance you are buying.
If you want insurance for a large account then long-dated put options 20% of the money are much cheaper.
I want to learn more about how to rebalance my portfolio. I started with ETFs and MFs and then bought some good stocks when they were low. But I have never rebalanced it. Would you be able to share some resources about it? Also, if possible, some pointers about your script.
Rebalancing is just selling the high performers and buying the low performers. In his example, you'd keep your "safe asset" allocation at say 15% - if your other stocks did well one year, you'd sell some and buy more "safe assets" so they again constitute 15% of your total value. If stocks tanked, you'd instead sell some "safe assets" and buy more stocks, again until your "safe assets" are back at 15% of total value.
Mediocre performance is better than your top performers dropping 30% or 60%.
I can point couple companies that suddenly dropped from $90 a share to below $10 and then they never got up “Just eat takeaway.com” between 2018 and 2022 it was looking like they would go to the moon. In 2022 you can see hell of a drop and it is not going back.
If you would sell parts of it before 2022 you would lock at least some of the gains.
But I think you know better when to switch companies ;)
I have only read half of Carver's Smart Portfolios yet but I find myself agreeing with much of it. I have started writing up a review of it sometime soon, although I might not publish it for free in a while!
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.
Not what I meant, but capital gains are another issue, but I am not in the US. In the UK we pay a 0.5% tax on ever transaction and often around £10 per transaction, so its quite substantial. I should probably have said costs, not fees.
How much are total costs in the US?
If you trade frequently even low costs add up. If its 0.1% and you trade monthly it ends up being 1.2% over the course of an year.
AUM, managing high wealth clients, running their own funds with expense ratios (also some of the lowest in the industry), uninvested cash, etc... Retail trading is commoditized now.
Anyone who really cares about spreads will be using limit orders. Otherwise you're talking about pennies on highly liquid shares.
The fact that we're even discussing the possible spread differences between market makers shows just how commoditized retail trading has become.
What you described is how you bet against retail traders. The bet is that they have no edge so it’s safe to run tight spreads and nice pure market making algos that assume random behavior at volume.
Nope, this is one of the counterintuitive things about people paying RH for order flow. Market makers can offer tighter spreads when they know it’s a pool of dumb money.
All the major US brokers started doing free trades for stocks and etfs. For Vanguard, most of the index expense ratios are really low, like %.05 percent, but that’s not a trading fee.
You can Google it, but AUM at scale means .03% is a significant amount of money. There's also uninvested cash that the broker can invest in t-bills and take the spread.
I bet the uninvested cash product drives some weird incentives - kpis around increasing ratio of sells to buys and increasing pain around removing cash.
If you’re trading US large-cap stocks at low frequency these are not really material costs for even a wealthy retail investor. Certainly not next to taxes.
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.
> These coins will be returned to the account holders which were affected by the hack.
I haven't seen any reporting on that. Bitfinex, the corporate entity, is receiving the coins recovered from the feds. It's up to Bitfinex how they device to dole out those funds, if at all.
When these things happen, often times exchanges will make their customers whole by giving back the monetary value of the coins at time of loss. It's very rare they repay them 1:1 in bitcoin.
IANAL but it seems like whoever is running Bitfinex should endeavour to make all the creditors whole in whatever medium their debt was denominated, according to seniority. So if they owe users X BTC and other creditors Y USD, and the BTC debts are senior, they should hand out the BTC to users regardless of its dollar value and, if there is any left, auction it off for the benefit of the (junior, in this scenario) USD creditors.
They could, but there's nothing requiring them to do so.
AFAIK the only crypto company who have been hacked (and there are a lot) and returned funds as BTC and not in dollars is, ironically, Mt. Gox. Users got repaid in Bitcoin 10 years after the fact. FTX bagholders were compensated ~120% in "equivalent value" dollars. Lost crypto was not repaid.
> I treat buying individual shares as yuppie gambling at this point. It can be fun, but it’s usually a bad strategy.
I would actually recommend the opposite - buy shares of a few companies that you know exceptionally well. That is, not just the companies, but also the market, the industry trends, etc. Charlie Munger recommends holding 5 stocks at max, while Peter Lynch suggests industries that are tangential to your work and daily life. Both solid advice. Revisit the list every year, and you'll already do better than most of the blind duds investing in the S&P500 (which arguably contains a lot of duds).
The problem with most ETFs is that you'll still be investing in a bunch of dud companies, whose only reason for staying in the market is by virtue of being big (think HPs and IBMs, for example).
That's why I am partial to the Vanguard funds. If you look at VUG and VTI and VOO, the fees are on the order of ~0.03-0.04%.
I know that passively-managed ETFs aren't necessarily "optimal" (as your parent comment mentioned, there's a risk of them having a few duds there for legacy reasons), but I think the value that they provide come down to the fact that they're automatically rebalanced and diversified, and 0.04% seems like a pretty reasonable cut for them doing that for me.
I think there's value in having things diversified and rebalanced automatically, especially if you don't have any confidence in your own ability to do so. Yes, you sometimes get stuff that's overvalued and thus over-represented, but in theory if the stock tanks the portfolio will be rebalanced and thus become a smaller percentage of the total holdings.
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.
I have a friend who retired, and decided to go into day trading. He spent hours each day glued to the trading portal, making trades. After a year, he ruefully admitted that he'd have made significantly more money if he'd simply done nothing.
Sometimes I ask GPT to run Bayesian analyses on varying hypotheses. I just did that for the several parent comments to see if we could get some reasons as to "why day trading doesn't work." Perhaps this will amuse you as well: https://chatgpt.com/share/67888cf4-1aa4-8011-b46b-77e5e9da12...
Oh there's more luck required than that. You have to get lucky many times to win at a 10x stock.
- You have to be lucky enough to find it when it's cheap.
- You have to be lucky enough to hold on to it even if it loses money
- You have to be lucky enough to not sell it when it's at only 5x and hold off for the top
- you have to be lucky enough to have bought enough initially that the return is meaningful to you
These are the thoughts that made me clean up how I invest and stop thinking I'll get lucky at some point just rolling the dice. It's way more luck required than just buying in early.
The 4th point (bought enough that the return is meaningful) is the killer one. There’s always “that guy” that brags about buying TSLA or NVDA in 2015 and having 100x his money. Then it turns out he only bought like $500 worth. Sure, $50K isn’t nothing, but it’s not going to be meaningful to the retirement of someone making tech worker wages.
Of course, the reason he didn’t buy more was because he knew it was a lottery ticket and putting most of his money in the S&P500 in his 401k was obviously more prudent.
Isn't it the case that a few large cap stocks have the vast majority of the growth? If you didn't like Tesla, didn't like Nvidia, didn't like big 5 tech, you might have had very mediocre returns.
They actually use the word 'identical' instead of 'similar', if that matters. It seems to be a grey area with ETFs, and I'm not a financial advisor, so won't make any further claims.
> You might want to talk to your tax accountant.
Absolutely agreed. You can also just let a reputable robo do it for you if you don't have the time or energy for it, there are multiple. It is what I ended up doing. It's modest but every bit helps.
Indeed, the wording is “substantially identical”, which is important. 2 different ETFs that track similar, but not identical indices (e.g. S&P500 vs Russell 1000 large cap, for example) are clearly not substantially identical, and make great tax-loss harvesting pairs. There’s tons of case law, opinions from tax experts, and automated tax-loss harvesting tools from a variety of brokers that agree with this viewpoint.
IIRC they have never defined "substantially similar" and they don't actually go after people who sell etf X and immediately buy etf Y with an identical price graph
I've done it repeatedly over the past ten years while DCA'ing. I basically made my own custom funds with 5-10 stocks, set daily purchases for a specific amount, and didn't think about it. Unfortunately I didn't invest enough each time for the amount to be significant, and I also stopped DCA'ing as soon as I couldn't resist checking, saw that I had reached or was approaching a 10% loss in my overall DCA portfolio, and stopped the auto-buys because I felt like I was starting to burn money, when this was actually the best time to continue investing. I haven't sold anything either though. Overall I'm up 80%, which is only $50k.
I think DCA is the most effective investment strategy. Unfortunately I don't have the discipline to keep it up during a downturn. Next time I try it again with picked stocks will be my 4th time, but for now, I'm doing it with index funds. I'm not going to feel as inclined to pause my purchases during an index fund downturn.
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.
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.
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.
Yes, they will automatically exercise if your dead, the same way they auto execute when you are alive. I have sold many options over the years, with many of them exercising. If they expire ITM, you don't have a choice (whether dead or alive) past expiration.
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
> 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.
I didn't watch this talk but I read the article it's based on.
When an Iraq War supporting Tory like Niall Ferguson criticizes the US military for being both bloated and stretched thin by underfunding, it gives away that the critique is just disingenuous contrarianism.
... and look how well that has turned out for the average Russian citizen (or journalist, or competing business-person who stands too close to a window anywhere but the first floor)...
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.
> 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.
If you are the only person who thinks that it might fail, one cent put options will be free and you can buy them until the price hits zero, and then you can make a cent.
For example, the opportunity to sell $TSLA for $180 in one month costs about thirty cents right now. Keeping this up for ten years would cost $36.
It doesn't work like this. The stock might fall around $10-$20 every month in the worst case scenario. In which case the premium of $180 will keep rising every week, 90% of which will expire worthless.
You have to buy really farther out or really far off strike both of which have nearly zero probability ( delta is nearly zero and less than 1)
With Sears like companies you can take a very small short position and then reinvest the money from the sale going long S&P500 type stuff. That's roughly what Chanos did. It has to be small position as a percent of your portfolio in case it decides to go up 10x when you are not looking. I think Chanos's results over a decade were something like 0% on the shorts, 50% on the longs the money was reinvested into.
Put options are worthless once the price of a stock hits $0. At that point, the stock will be frozen and/or de-listed and your ability to exercise your put will be gone.
Per grok it's not true and per me it's not a problem in practice.
A put option is a contract between buyer (me) and a seller of the option. The contract guarantees me a right to sell stock at a strike price to the seller of the option.
If current stock price is lower than put contract strike price, I can exercise the contract and make money: I buy the stock from market at e.g. $78 (current price) and sell at e.g. $128 (strike price).
If stock is delisted the contract is still valid and enforced by the clearing house. They'll just assume that current price is $0 and force the option seller to just fork me cash without receiving the (unavailable) shares.
But it doesn't happen in practice because stocks are not just delisted without warning.
For example, Bed Bath & Beyond announced bankruptcy in April 23, Nasdaq announced delisting in April 25 and trading stopped in May 3.
So there was a week for option holders to settle their trades.
Grok is not a reliable source. What will happen is that if you are lucky, some institution with worthless shares will buy them from you at a very big discount OTC. If you are not lucky and your broker sleeps on you (since that deal comes from your broker calling someone on the phone, it's not automated), you will lose the options.
> 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.
In either case, your broker will liquidate you around $0. Not guaranteed, but very likely. This is the key risk.
Tether provides a good illustration of the principle I mentioned-- which I concede is a bit theoretical in the case of USD:
Tether is supposed to trade at $1 and gets press when it trades below. But, sometimes it also trades above, at $1.01, $1.02 and even perhaps $1.03. So, if you sold a lot of it thinking trading higher was impossible, you can be surprised.
Stocks are generally not considered tied to currency- if the company has some fundamental value, that should be inflation proof.
So technically buying almost any stock can be a way of shorting the USD in that you are selling it now and will buy it back later.
The risk - besides that of the company itself- I suppose is that if you have massive deflation you will end up with less USD. I don’t think anyone is worried about massive deflation of the USD, since the Fed can and would prevent that.
Stocks have been a great inflation hedge in the long term since they’re usually backed by hard assets and people, not numbers in computers. Short term obviously some businesses are hurt by inflation and some benefit.
Buying BTC is shorting money printing by your government.
Today the only government (that I know of) committed to not printing money is Argentina but they have other issues affecting their economy and therefore inflating their currency.
Given that governments don't seem to have desire stop money printing any time soon, buying BTC is sound.
The 2010s called, they want their talking points back. The Fed has been doing quantitative tightening for the last couple of years while raising rates. Only towards the end of last year did they start lowering the rates again, but they are still doing QT. So, there is no, what you call, "money printing", which in itself is a complete misnomer as it ignores the complexities and actual transmission mechanisms of "quantitative easing". In either case, Bitcoin has proven that it offers no hedge against anything; it is merely a risk asset with no intrinsic value that tends to rally with all the other rubbish like meme stocks.
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.
> 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?
No. A good-faith failure is different from a lie.
The rule of thumb I use to handle ambiguous situations is "if my incentives were different, would I be saying something else right now?"
> Of course there are fraudsters out there, but I view most founders as rampant optimists instead of liars.
Most founders are both.
They're rampant optimists in the sense that they believe in their thing so much that it overrides all other concerns. But that often makes them liars via an argument of the form "my thing is so important and will change the world so much that I have to lie now to make sure it can be so great".
I'm not saying founders are ogres. The kind of lying they do derives from fairly ordinary human failures. But it's still lying, it's still normalized, and it still has terrible consequences all the time.
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.
> 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?
> Can you explain your views as to why incentives to harm the economy massively via fraud to benefit yourself need to exist?
I never said that I hold that view nor do I believe it.
Between you falsely ascribing views to me I do not hold and/or lying about my words, avoiding answering my question, and your emotional manipulation, it's clear that you're a troll and I don't have any need to respond to you beyond pointing out your logical fallacies.
If you don't support the current punishments, which evidently don't deter the crime, what's your idea of how they should be strengthened to adequately deter financial crime? I'm not trolling.
I'm not OP, but the obvious question here is whether tougher punishments would be more of a deterrent given that this is something that hasn't been true in many other cases going way back.
In particular, there seems to be substantial evidence that, at least past a certain point (and we can argue whether we are at that point or not, but it's not something self-evident either), what matters more is how likely the punishment is to be applied than how harsh it is, so increasing it further doesn't really do anything productive, just provides a public spectacle.
When people see Milton getting locked up for four years, it's in no way proportional to the upside of making out with thousands of lifetimes worth of average honest work. If others who had done similar crimes before him had received more severe punishments he may have chosen not to.
That's not to mention the court's complete lack of concern for recidivism. Look at Bill Hwang. Slapped on the wrist for insider trading -> billions of dollars of later economic damage. Likely chance we'll see the same pattern of behavior from Milton. I'm generally for forgiveness and second chances, but not in the realm of steering thousands of lifetimes worth of honest economic influence.
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.
There are consequences, with significant financial impact, not necessarily world ending for them.
There are already lawsuits filed around this incident. If a court sides with the customers or if CrowdStrike settles them, it will not be cheap.
Even if they don't end up loosing or settling, the lawyers will not be cheap with so many suits , I don't think there is a major class action, every contract is unique after all, customers can easily afford their own lawyers and don't need to share.
Beyond that, in next renewal cycle, customers are likely to demand much stronger penalty clauses in the contract, they won't let the mistake of not putting strong financial penalties slide while they may not change the vendor. This will make insurance for CrowdStrike much more expensive, another mistake would be far more financially expensive even if this one doesn't turn out to be.
The insurer will also want a stronger internal process controls and paperwork which also won't be cheap.
Consequences in B2B are never immediate but over time they do happen, larger an org longer it takes, but eventually it does catches up, look at Intel or Boeing today.
There will absolutely be consequences. And that'll cost real money.
But that is just a 'cost of doing business'. And ultimately will just work it's way into the price.
Intel and Boeing are not "one off mistakes". The root problems there are structural, cultural and fundamental.
If CrowdStrike have more issues this year, then that'll have an impact because it suggests there's a root problem. But a single bad rollout is just a bad rollout.
CrowdStrike problems are also structural the incident timeline hardly seemed like a fat finger mistake, but series of fundamental poor practices a org in their position should not have. We only get to see the one newsworthy incident like the door blowing off the airplane.
The "cost of business" will catchup to them is the point, Unlike Intel or Boeing it is not duopoly business with little to no options for CrowdStrike's product. It is notoriously brutal for large organizations in tech to stay competitive over 20-30 years time horizon.
Most likely trajectory for a company in their position, their growth slows - this incident being a key contributor to that slow down, then stock starts to fall, it will eventually become attractive for a company to acquire them, perhaps rebrand the product and keep the customers and cash flows.
Companies settle much faster typically to reduce some of this costs, it ends up being cheaper.
Also many of these will be resolved through their arbitration clauses that would be present in the contracts. Arbitration is much faster and usually appeal proof
That is just one customer, and also it is not just lawyers, Contingent liabilities(potential amount for settlement) when it escalates from possible to probable, in GAAP that means it changes from mere footnote to a line item in P&L which needs to be financed and managed and affecting their margins well before the actual settlement is decided.
There was a case of food contamination in a fast food joint (can't remember which, let's say it was burger king). The stock fell as a result, but recovered relatively quick afterwards - you would've made bank buying it low.
The thing is, individual, one off events usually don't break a company, but the stock falls temporarially as a result of some people expecting it to. Of course, it's possible that one event breaks a company, and this is the risk you do take buying it low after the event.
> There was a case of food contamination in a fast food joint (can't remember which, let's say it was burger king). The stock fell as a result, but recovered relatively quick afterwards - you would've made bank buying it low.
I think this was some years ago and it was Chipotle. They had to remove some menu items altogether IIRC.
Exactly. There's news every day. It takes a lot of bad news to break a company.
And frankly unless it's criminal (Enron, Theranos etc) it's not a big deal. An oil spill here, a data leak there, these are not things that affect customer behavior.
The market is only interested in results. It doesn't care about the news. Those stock dips you see are uneducated emotional investors making bad decisions for the wrong reasons.
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.
We work closely with them and I've been impressed with how broad their product reach is. Whether they should be in business or not is a question for regulators, but the market rewards their unique position. If you to own something valuable that everyone else needs or wants, they will pay you for it.
There's a bigger question about how to properly price and penalize negative externalities. From a business perspective there isn't much difference between an oil spill and a mass data breach — "Whoopsie, we'll try not to do that again. In the meantime don't you need gas for your car?"
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.
> Even if you think you know something, you are, at best, still being random
Technically true. But somehow in practice you are random in worse ways. Psychology of most people makes them generate very bad randomness.
But you are right. What I said is just good first approximation. Sometimes you can do better. For example listening to most popular financial influencers and doing exactly opposite of what they recommend gives slightly better returns (it was researched). I don't quite remember if better than fully random though or just better than following their advice.
> 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.
That’s because several people (and also EY, their auditor at the time) resigned in the wake of that report. Probably under pressure and lots of stress but also because of all the things that the initial independent investigation suggested needed to be reviewed. But now multiple investigations have completed those reviews and found nothing. And Supermicro has to fill vacant positions.
EDIT: since I am rate limited, here’s my reply to the child comment by gmd63
> Why would an investigation committee need to recommend that a company fill vacant financial and accounting executive positions? What you're saying makes no sense.
There are many reasons this can make sense. In this case, the most likely reason is that the allegations called into question the integrity of the executives and the board. New executives would be hired and approved by the same group, and it would look strange for them to do that while under investigation. The most important finding from the investigation is neither management (executives) nor the board acted improperly, which led to them making the recommendation.
Why would an investigation committee need to recommend that a company fill vacant financial and accounting executive positions? What you're saying makes no sense.
> 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.
> The authorities can't and shouldn't base an exhaustive investigation on vaguely shifty CEO behavior.
Moral hazard. We are in this thread, where many people complain about the irrationality of the market, of bad choices having no ill effects, and at the same time it is argued that authorities should prioritize and only investigate and prosecute large cases where the ROI is good.
I think the ethical landscape created by this "selective investigation and prosecution based on ROI" is part of the problem. We officially abandon the concept that wrong-doing will get caught and punished as a rule and then we marvel that the markets are irrational and that bad actors profit and keep profiting over large time horizons. Who could have expected such?
I think over a longer time period these effects will compound and there will be larger and larger problems. You can't just abandon the rules because enforcing them is not cost-efficient and hope everything will be alright. But it does take time to see the effects so who knows when the larger problems will show up.
I broadly agree, except I think the greater moral hazard is in failing to prosecute the plain-as-day cases of fraud (regardless of size). I'm not arguing in favor of abandoning rules but given limited resources you have to prioritize somehow, and every prosecution strategy has significant externalities like those you touched on.
1. FTDs are at an all time high. Naked short selling is an epidemic. This is provably false.
2. Operational shorting as a part of market making and derivatives strategies is an enormous part of the market. This is also demonstrably false.
3. The DOJ has the resources, not the jurisdiction. Self regulation will always be underfunded. Trying to argue that short selling is an effective form of privatized self regulation is laughable.
By “cheque kiting”. Trading back and forth perpetually with colluding firms to perpetually “deliver”, eventually landing these phantom shares in offshore swap agreements where reporting has conveniently been perpetually delayed.
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.
> Truly perverse incentives such as one the one you linked aside I think it's mostly fine.
Well, the thing is, with AI being widely available the threat model explodes as the difficulty goes down drastically - imagine someone deepfaking a video of a C-level executive being involved in illegal or "extreme" sexual acts; we already have "nudifier" apps, the steps to cross for the mentioned scenario aren't that large. The number of potential threat actors explodes as the group is now "everyone with a smartphone", and it also explodes as the likelihood of getting caught (and sentenced to decades in jail, if not death) for shooting someone in public is significantly higher than getting caught "leaking" a faked video which at worst risks you a year or two for defamation.
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.
no amount of funding can compensate for inappropriately aligned incentives.
the ability to spend other people's money will always be the breeding ground of corruption (which includes not doing your job while accepting the salary).
"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 sellers are built on their reputation, and Hindenburg has a lot of that. Even if you fired the people, you'd keep the name.
That said, it would be wrong to automatically assume that they try to maximize gains; at this point, it's likely most of the team has enough money to retire, and at that point, making even more might not be their primary goal.
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. :)
I remember listening to the theme song for "The Social Network" often when I was frustrated at work about 12 years ago in a different job in a different state in a different life.
Scala & Kolacny Brothers -- Creep
It's a haunting choral cover of the Radiohead song.
Glad to know there are other folks that found The Social Network soundtrack as impactful.
I have listened to Hand Cover Bruise first through university and hundreds of times since, often to calm my nerves before some of the biggest milestones of my life.
I was working at a dead-end IT job that was eating away at me because the company was a terrible fit, and I couldn't help but wonder if I could put my skills to better use than clearing paper jams and running mail merge reports. But the easy path was to just keep doing the same thing every day.
Don't live another day unless you make it count
There's someone else that you're supposed to be
There's something deep inside of you that still wants out
And shame on you if you don't set it free
And that was the day I quit.
That being said, I had the same reaction to the link at the bottom of that post; I recognize anything can be transformative to the right person at the right time, but I struggled to identify the message in an instrumental DJ set.
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.
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
I wouldn’t be surprised if the sum of it is “has the company been caught doing fraud more than once and haven’t been shut down? They’re still doing fraud”.
I doubt that's the whole of it, but I'm sure a past pattern definitely comes into play. As someone once said, we are faithfully true to our defects - we tend to repeat our mistakes.
Someone who plays fast and loose with the law to get their sales bonus doesn't just find Jesus and give up one day. More likely he gets promoted and does it all over again.
But some of the short seller research I've heard of like interviewing ex-employees about internal irregularities is quite clever.
In another case (I think it was a different short seller) he went to the actual physical locations declared on paperwork as "offices" and found them to be empty warehouses.
So this kind of interviewing and boots on ground stuff is next level.
But the Indian regulator was going after the short seller suggesting they used non public info. Turns out India is corrupt which we already knew as a fact and one of the chiefs owned the stock.
The source is their research. Much of which was publicly available.
You can draw your own conclusions but a company worth hundreds of billions of dollars being audited by a mom and pop shop is more evidence than anyone needs that their books are made up.
The fact that the Adani group couldn’t refute any of their claims was pretty telling as well.
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.
Carvana stock didn’t seem to react much at all to that Jan 2 report (higher today than on Jan 1, even)? I wonder if, and possibly how much, Hindenburg lost on that trade.
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.
It's a hard business to make money in.
Shorting tends to be intrinsically harder because the market goes up over time and Americans are generally optimists. Plus the last 2 years we've seen 20+% market moves upwards.
Despite it being a necessity for functioning markets, when you are short, seemingly everyone is against you - business management, regulators, media, etc.
Not surprised to see them bow out. Chanos did so last year.
This is one of the reasons frauds go on so much longer than you'd expect - no one wants to hear the truth.
People have this idea that short sellers are market manipulators who conspire to wipe out innocent day traders' life savings and trigger mass layoffs with the stroke of a pen (hence the term "financial terrorism," which is absolutely comical in its hyperbole but used with complete sincerity by the anti-short crowd), but like tines said, it's a risky business that requires lots of research that frequently goes nowhere with limited upside and uncapped potential losses. The amount of times they and other short sellers publish damning evidence on a company only for the stock to shoot back as soon as the company releases a "nothing to see here" non-response really shows the difficulty in making money in the space (and how much people want to bury their heads in the sand).
Given the regulatory environment we are heading into, I expect short selling will become an even riskier business since the SEC isn't going to be prosecuting fraud anymore (or rather, they'll be doing even less than they are now), making it much easier to sic the lawyers on firms like Hindenburg. Even though this isn't their stated reason for bowing out, I wouldn't be surprised or hold it against them if it was a factor.
I think the prospect of an impending SEC or other investigation is only one factor in stocks losing value.
They highlight inflated sales and financial irregularities like a chain of companies that engage in self-dealing, but are portrayed as independent to hide their real ownership, and so on.
If you believe what they say, your faith in the company is shaken because they're pulling a con job on you to invest in them and believe their story. If the SEC investigates that just supports the claim that it's a con.
If they don't investigate - for whatever reason - it doesn't mean that it's not a con and you won't lose all of your money believing it.
So a change in the regulatory environment is only one element.
For example, the Modhi/Adani thing is outside the reach of the SEC. And after watching a piece on it, apparently shorting it was amazingly tricky, and they had to go through some Singaporean markets to arrange a short position.
Matt Levine always has the good stuff, but he had commentary on a profile of Jim Chanos (the lesson not necessarily being specific to Chanos) that always sticks with me.
The profile that discussed the idea that the real sort of 'secret sauce' was that the combination of Chanos' main funds were like 190% long, and then 90% the short stuff he wan known for.
On its surface, nothing crazy for long/short funds, the notable part was that basically all the effort was on the short side, and the long side was implied to be very humdrum. And the short book had like negative returns over a long period.
It just struck me as a really elegant (if extreme) example of what uncorrelated returns can do if you do somehow have some edge over time.
And I'm not sure what Hindenburg's holistic picture is, but whether rightly or wrongly now I usually assume most of the kind of very public shorts operate similarly.
I was never really on board with the "short sellers are evil" train of thought, but I did believe, "oh these very public short sellers only short things, they just go around all the time thinking everything is awful".
And my assumption now is that they are like, kind of really theatric long/short funds.
Matt had some line like if you extremely good at something, you can get rich doing it, even if it loses money. As long as it's not correlated.
I’d wager a big part of how they make money is as SEC whistleblowers. It’s not as huge of money as shorting is - but it’s typically a single digit percentage of the recovered fines. Considering these guys nailed a company that defrauded people of $3 BILLION dollars, they’d net $30 mil from turning that company in even if the payout is only 1%.
The SEC has a policy of paying out part of recovered fines as bounties to whistleblowers to align incentives. If your company is doing something sketchy, you get a payout by doing the right thing.
I’m not a lawyer but I think that mechanism works just as well if you’re an external reporter of fraud. SEC makes money and pays you for your diligent forensic auditing.
where did you get 1% from, its a really good bounty system to clean up the markets and you get to be anonymous if you use a lawyer, the trick is to get the SEC to prioritize it. They are now inundated after some large payouts made the news in financial circles
Do you have any evidence/links that discuss this? I'd be surprised that they'd get any whistleblower fees, because they themselves aren't actually the whistleblower. E.g. a whistleblower usually refers to actual insiders with private knowledge that then "blow the whistle". In Hindenburg's case, they basically just did research anyone is capable of doing (although in many cases, after they became known, they did have whistleblowers reach out to them).
> Shorting tends to be intrinsically harder because the market goes up over time and Americans are generally optimists
Also, with shorting the best you can do is double your money (if the stock goes to 0), while you can lose an unlimited amount (as there’s no cap on a rising stock); whereas with going long, you can only lose all your money (again, if it goes to 0), but you can gain an unlimited amount.
This is incorrect. The way shorting works is you borrow a stock (and keep paying premium for the duration) and sell it
Premiums are usually small, so you can make many multiples of paid premium
And since their business model is releasing the findings, which in turn makes the stock drop, they can time their short position very well and don't need to pay premiums for long
I think you misunderstood what I meant by "your money" in "double your money" (and I was unclear). You can only earn the value of the stocks you borrow. When trading long, the gain is unlimited.
According to Investopedia, "the Federal Reserve Board requires all short sale accounts to have 150% of the value of the short sale at the time the sale is initiated" so it's the same principle as going long with margin. You can leverage yourself but there's a limit.
Yes, but borrowing short is fundamentally leveraged. As long as the stock doesn't increase in value, you don't need much of your own cash to secure it - because you're holding the cash from selling it.
But, of course, that gets ugly when the stock goes up; that's when you have to start putting your own money in against the borrow.
Isn't this a bit like arguing that you can make infinite money by borrowing infinite money and going long? You have to maintain margin requirements which limits how many shares you can borrow so again, you can really only double your money (not even double, iiuc your account has to have 150% of the value of your short), unless there's something I'm not seeing.
> your account has to have 150% of the value of your short
yep, people who aren't professional traders, and don't actually have an account with a broker to do shorting with, and dont know the margin requirements.
The thing is, a broker will _never_ put themselves at risk of losing money. If they offer you a shorting service, they require a method to make themselves whole. If you short, they will guess some sort of margin of safety for said short (calculated based on the liquidity of the stock) - if it's very liquid, the margin could be lower, but for illiquid stocks, it's even higher. This margin of safety is what the broker will use to close your short position if the market moves against you - you don't get a choice in the matter. You don't even have access to those funds from the sale of the short - the broker holds onto it until the short is closed.
uhh, no. When trading long your gain is limited by the depth of the order book. Stock price isn't relevant if there are 3 buyers out there looking to buy 2 shares each and you're sitting on 100,000 shares
The song remains the same - the stock can only go to zero. The upside of a put is effectively capped at (strike price minus stock price) * 100. Going long via shares or calls is unlimited.
Right, but the price of the put is much less than the price of the stock, and the price of the put is the denominator.
Right now, Walmart is at $91.34, and you can buy a put at $88 expiring on 24th January for $0.18 [1]. If you buy one, and the stock goes to zero by then, you spent $0.18 and gained $88, a 488x return. January 2026 at $86.67 is $5.35 - a mere 16x return.
You'd spend $0.18 per share, yes, but the option's price is $18, not $0.18. So your return would be roughly 4.1x, not 488x. Remember options contracts are counted in hundreds, so $0.18 is the price per share, not per contract.
If you're going to work it out per options contract, then you spend $18, and get to sell 100 shares at $88. 100 * $88 / $18 is still 488x.
(This number is large because Walmart is not going to go bust in the next few days! It serves to illustrate the arithmetic, but maybe it's not the most realistic example.)
> Shorting tends to be intrinsically harder because the market goes up over time and Americans are generally optimists.
... and the market can stay irrational longer than you can stay solvent.
I remember once I tried shorting a stock, of a market leader in my area. I knew the field well enough to see that they were trying to fudge some numbers and their quarter was _not_ as good as they had claimed it to be.
But sadly the market didn't see this and the stock went up. E*Trade started pushing me to cover my positions, and eventually I ended up losing a 5-figure sum (nothing earth-shattering, but still a good chunk of my cash).
After I had bought it all back, slowly the market realized what I had seen and the stock dropped as I had expected. Unfortunately I did not have the deep pockets to stick around long enough; all I was left with was a hole in the wallet and a hard lesson learned.
They are planning to release their methodology. Buried in the article:
> Beyond my own desire for relief, it also feels selfish to keep the knowledge we’ve accumulated trapped within our small team. I have more than enough. In the past several years we’ve been flooded with thousands of messages from many of you asking how we do what we do, or whether you can join the team. I read them all and I’ve been trying to figure out how to respond in a way that can answer everyone—so over the next 6 months or so I plan to work on a series of materials and videos to open-source every aspect of our model and how we conduct our investigations.
What they do isn't anything new or revolutionary. Short sellers have existed ever since public markets have existed. See Muddy Waters Research, Citron Research, Kynikos Associates, Pershing Square (famous for their crusade against Herbalife), Gotham Research, all of the Big Short folks. And these are just the active ones.
You need to have a very thick skin, because the shorted will come at full force against you.
I have read somewhere (long ago forgot where) that the only country this can work is America; in other countries, he would need to be scared for his actual life. Adani, for example, is in bed with India government.
The impact this organization had was incredible. I doubt they would have been able to do this work if they were based out of any other country, which makes me wonder how the US legal system, regulators and law enforcement in general are not extremely corrupt. What reasons or incentives make the system work in the US? Of course there are many instances of corruption and injustice, but in comparison to almost any other country, it seems to work surprisingly well.
I think there is a really nuanced check-and-balance system that has extreme visibility for the federal legal system:
- investigators need approval from a prosecutor to move forward with investigations, and ultimately have to present their evidence in sales calls to their boss/peers. It’s a lot of red tape.
- prosecutors have bosses and reputations to uphold, they don’t want to take on risk.
- judges act as a procedural review for the prosecutor and watchdog for civil liberties
- the defense is red teaming the prosecutor and investigators for fraud etc
- the appeals court acts as a second level review for everyone + original judge
There are many reasons for this but primarily its simply that it is a wealthy country with a functioning legal system. US courts are generally fair; if biased. This has changed with many recent rulings by the SCOTUS. But there exists a culture of generally respecting laws (and an apparatus to enforce those laws).
Usually big established companies that've been unfairly beaten down and financials don't have any red flags. I look at social chat/analyst chat also but mostly only to see if/how many people/bots are talking not really to see what they are saying.
For example, I hold oversized bags of Boeing, Pfizer, and Google right now (these are new-ish positions ~3-4m in)
If I'm wrong, I try to get out asap. If I'm right, I try to never sell.
What no one touches is that he used to unmask the devil and also let the regular folks (if they trust him) take short positions just like he did. Sort of Robin Hood with weak reference.
That's not how that works. They take out short positions and then release the info to profit off the drop when they announce. Announcing publically is how they make their profit, not them letting you in on it. Informational advantage is their entire strategy.
I mean that's the whole business of a short seller.
Take a big short position, then spread the bad news. Hopefully, it's true: the stock drops, and you make a mint. If you fail to spread the news, or you don't get the facts right, the stock goes up and you lose.
I believe Hindenburg Research's most notable expose was on Adani, yet he’s still standing strong. Perhaps the closure could somehow be tied to Trump’s comeback—just a thought. That said, corporate fraud is an endless cycle, and their work might inspire countless others to pursue similar research and investment ventures.
Literally every time I shorted (our bought puts) I lost money. One particular short of Beyond Meat (via puts) I was right about eventually, just not in the timeframe needed. I knew Beyond Meat was BS but unable to sustain the losses as it kept climbing in a complete bubble.
Oh, that's a shame---at least from my perspective as a reader---but Nate seems to be quite ok, and I guess it makes sense to quit when you're "winning". As a victim of burnout, I wish I had that insight too.
At least we still have Coffeezilla and Data Colada!
"...Hindenburg Research specializes in forensic financial research.
...we believe the most impactful research results from uncovering hard-to-find information from atypical sources. In particular we often look for situations where companies may have any combination of:
...
• Undisclosed related-party transactions..."
I would love to see whether Bayesian inference can be applied to quantitatively establish when "there's a there there' in any given situation. When is the unlikelihood of a coincidence transcend beyond the level of background noise?
No, it was being investigated by the DOJ and SEC for fraud and scheming just like its sister company Citron and Andrew Left, which has been indicted. So Nate has decided to shutdown before he gets subpoenas to preserve the records.
Correct me if I’m wrong but doesn’t short selling only harm bad companies? If a strong company comes under selling pressure from shorts, then it can buy its own stock back at a discount.
oligarchy has been going on for a long time, regardless of political affiliations.
to see why i say this, look at (no relation) https://quiverquant.com , and you'll see professional politicians with sub $180k salaries worth tens of millions of dollars, for just one example.
'X has been happening for a long time' is an old tactic to hide bad things behind some undefined excuse of inevitability, and discourage any action. Corruption has been happening for a long time, but that doesn't mean it can't get much worse or, through our action, much better.
What does it even mean? What does it matter if it's been 'going on for a long time'?
Andrew Left of Citron got indicted last summer for securities fraud (shorting, settling to cash in in the gains, and lying that he's still short). My first reaction was are they bailing before someone starts sniffing around, but have to say either the author is a total sociopath or he's sincerely just ready for something else in his life. Which I can understand.
Everything had its positive and negative side. Hindenburg sure made some bold calls that led to unraveling some frauds & Ponzi. But they're also in it for money.
No point applying a moral coat of paint. He took on listed Adani in India but I respect those that take on mining mafia & exploiters of slave labour where there's no pot of gold if you win & end up dead in ditch if you don't.
It was easy target to pick - Soros had openly painted a target on his back and his entire ecosystem was working overtime. Reasons purely political - his perceived closeness to Modi who is hated more than Orban + Trump put together by the ecosystem.
It was laughable anyway as Adani was very rich even before Modi was known outside his own state. And that was exactly like all other tycoons in Asia - greasing palms that needed it. These businessmen know who's in power, who's likely to & who's there to stay.
Yeah wish him good health to enjoy his wealth. And let us enjoy the collateral damage caused to "frauds" he thought lucrative enough to pick.
No offence to Mr. Andserson but it reads a bit like someone has done an 'Inception' on him - subtly planted the seed of a train of thought that would lead him to disband his efforts, all the while believing it was his own idea.
Given the number of ultrarich and powerful people that already hate the Hindenberg folks... my guess would be that there is some calculus here about the incoming U.S. presidential administration's enmity towards whistleblowers and their prior statements about changing libel laws in the U.S.
Starting next week, it's open season on suckers. It's going to be like the glory days of the Tel Aviv binary options scammers, who at one time were 40% of the Israeli finance sector and had good political connections.[1] Crypto deregulation is coming. No more CFPB enforcement! No more SEC enforcement!
There are still people who haven't lost money in crypto yet who can be targeted.
They're all little people. No one will help them.
Just pay off some influencers and start up your scam.[2]
>It's going to be like the glory days of the Tel Aviv binary options scammers, who at one time were 40% of the Israeli finance sector and had good political connections.
When I started at Goldman Sachs 25 years ago, I was told early on of an "Israeli discount" and "Canadian discount"; that is, investors were more skeptical of companies based in those countries.
I was not told of any more details than that at the time, but I now wonder if what you said is the cause?
Musk famously hates short sellers, the Trump Social CEO has done the "blame the short sellers" bit, Eric Trump is hyping crypto coins, Trump himself is eager to take credit whenever the market goes up... I think it's almost guaranteed that they'll target short sellers specifically at some point. They're a easy target to blame, and divert attention from the the fact that they are actually fleecing investors right at this moment.
Hindenburg exposes hucksters and frauds. Hucksters and frauds have now taken over the highest office. He just sees the writing on the wall and needs to get out now.
There is a very fine line between investigative journalism and market manipulation. They treaded it pretty carefully so far, but were bound to slip up sooner or later. Especially now that they are prominent enough that HFT bots are instantly shorting every company they mention in new posts. Quitting while they are ahead is a good move.
Off the top of my head the reporting about Block - CashApp was disgraceful and Hindenburg got sued for it. Not sure how that's going to play out with disbanding the "company."
I don't think Hindenburg is scared of being sued, otherwise they wouldn't have been in the business in the first place. Their investigations are extremely thorough, with everything fully documented, mostly from public records, for the specific purpose that if/when they show up in court, they can be confident of the basis of their findings.
P.S. where did you see Block suing Hindenburg? The closest thing I can find is 'Block said it intended to “explore legal action” against Hindenburg, who sought to “deceive and confuse” Block investors to “profit from a declined stock price.”' which is just PR speak
>I don't think Hindenburg is scared of being sued, otherwise they wouldn't have been in the business in the first place
They should be. If doesn't matter how well everything is documented or how above-board the company is when the courts turn into kangaroo courts for a thoroughly corrupt administration. They're right to get out now while they still can.
No, Nate is not afraid of being sued, he is afraid of being indicted for fraud. The difference being that you just pay your way out of lawsuits, but indictments are a bit more serious
The court finds them guilty of violating which laws, exactly?
Sorry I really don't get what you are trying to say. In order to lose in court, you need to first find a law where Hindenburg could be breaking. But I don't see that happening, especially as it's almost impossible for them to be found guilty of defamation due to the First Amendment.
> the committee confirmed previously stated findings that there was "no evidence of fraud or misconduct on the part of management or the board of directors."
After the external auditors resigned saying that the financials couldn't be trusted the fact that an internal report run from the board of the directors clears them mightn't be as generally reassuring as you seem to find it.
After the details of the sources on the absurd hitjob they did on Super Micro came out recently, they should be deeply embarrassed.
The whole thing was basically just the claims of a disgruntled sales manager, of very dubious character, fluffed up to seem like there was some legion of internal whistleblowers.
Not to mention relying heavily on mixing in details of long settled previous issues at the company to lend credence to the dubiously evidenced current claims of malfeasance. Shameful profiteering on the part of Hindenburg there.
They should have nipped that report in the bud instead of sloshing it out the door.
Can you say more about the Supermicro “hit job”? Last thing I saw was E&Y resigning as their auditor which certainly suggests some potential accounting issues.
Yea the Adani report already had me skeptical but the Supermicro hit job, and the fact that multiple independent auditors haven’t found the same claimed problems in their accounting, has made Hindenburg look a lot more shady. This to me looks like an incompetent firm that profited from big short positions and potentially false reports, now closing shop so there’s no assets to claim in a lawsuit.
The SEC is charging them with it (as did the DOJ in parallel) - but that’s not the same as a judgment. The way this works is the SEC accuses, and it will need to then go through the legal process of our justice system (or settle it separately). But as of right now, the Adani group hasn’t been found guilty of anything.
The main issue raised in Hindenburg’s report is around accounting. It is too early to draw any final conclusions since I don’t think independent audits have been conducted yet. The Adani group consists of many companies in many industries - some of them did switch auditors after the report came out and financial filings have continued normally since those changes. I don’t think any smoking gun has come out yet that actually proves the accusations from Hindenburg.
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.
Agree with you 100%, I did the same simulations and found the same result.
I would suggest a step beyond though, because rebalancing your portfolio is fun year 1-5, but not so fun year 5-20: have a look at e.g. Vanguard retirement target funds.
Essentially, it's an ETF with a rebalancing rule included for a specific target date. For instance if you buy the target 2050 (your hypothetical retirement age), the ETF rebalances itself between bonds/monetary fund/stocks until it reaches that date, u til it's pretty much all cash in 2050.
Lowest hassle diversified retirement scheme I found.
Nope not all cash, it goes down to around 50% stocks at the target date (and actually continues to get slightly more conservative after). Just look at the current portfolio of the Vanguard 2025 fund: https://investor.vanguard.com/investment-products/mutual-fun...
You still need to be invested in equities at retirement otherwise inflation just eats away at the value of the cash
That’s why these target funds go down to ~50% stocks [edit: at the target date] not 0.
At least at Vanguard the final stage of target date funds is ~30% stocks: https://investor.vanguard.com/investment-products/mutual-fun...
That fund is currently at 50% stocks. It does get more conservative as you get past the target date, but I was mainly referring to the stock percentage at target date, which the parent poster implied was almost zero.
My target date 2050 funds have performed 50% less than my S&P 500 and like 30/40% less than my total stock market fund.
You mean VFIFX? What a disaster. My retirement plan put me in that until I realized investment advice for young people is a tax on the inexperienced and vulnerable. VFFSX (S&P 500) does 2x better returns every time. I feel guilty saying it on Hacker News. Like pension funds I bet Vanguard is one of these so-called LPs who give money to VCs like Y Combinator to help ivy league kids follow their dreams. Without these heroes I'm not sure there'd be a startup economy. I just don't want to be the one who pays for it. I think the future Wall-E predicted with Buy N' Large is probably closer to the truth.
> VFFSX (S&P 500) does 2x better returns every time
US large cap has certainly recently outperformed the other parts of the target date fund (international stocks, bonds). But there is certainly no guarantee that it will happen "every time". In the last 10 years, US equity has been the best overall performing asset class for the past decade but 7 out of those 10 years at least one other category outperformed it: https://www.blackrock.com/corporate/insights/blackrock-inves...
> Like pension funds I bet Vanguard is one of these so-called LPs who give money to VCs like Y Combinator to help ivy league kids follow their dreams.
You can look up the holdings of VFIFX or any other Vanguard fund. There is no private equity or private credit.
And now GLD with its 1 year return at 40% is outperforming them both, which is a really scary thought. How bad do things have to be, that all our blood sweat and tears scurrying off to work each mourning earns less than a piece of metal dug out of the ground that sits around doing nothing? I thought inflation was supposed to be a tax on poors, but even rich private equity which gets ahead by sucking the blood out of Americans digging themselves out the grave can't save itself.
This is one of those things where again, one will have to weigh the costs of both alternatives. A rebalancing ETF usually has higher costs (management fees, but possibly also internal trading costs that show up as performance beneath benchmark index), but of course, manually rebalancing also has a cost – the cost of one's time and effort!
Vanguard's ETFs are really cheap. The retirement funds in question are like 0.24%, which is in the cheaper range for ETFs
There are scenarios where these target date funds are not good.
Rebalancing into bonds and mmmfs is a form of insurance against catastrophic losses equities. But if you have a sufficiently large account then catastrophic losses that affect your life are extremely rare, if they do occur they will likely affect your bond portfolio as well, and the expected loss vs 100% equities over 15-20 years is significant, something like 10x the value of the insurance you are buying.
If you want insurance for a large account then long-dated put options 20% of the money are much cheaper.
I want to learn more about how to rebalance my portfolio. I started with ETFs and MFs and then bought some good stocks when they were low. But I have never rebalanced it. Would you be able to share some resources about it? Also, if possible, some pointers about your script.
Rebalancing is just selling the high performers and buying the low performers. In his example, you'd keep your "safe asset" allocation at say 15% - if your other stocks did well one year, you'd sell some and buy more "safe assets" so they again constitute 15% of your total value. If stocks tanked, you'd instead sell some "safe assets" and buy more stocks, again until your "safe assets" are back at 15% of total value.
> Rebalancing is just selling the high performers and buying the low performers.
Guaranteeing mediocre performance. Not my cup a tea.
Not at all -- it uses volatility in one's favour, by cashing out on temporary peaks and buying in on temporary lows.
What you describe sounds like a kind of momentum/market cap investing, which is favourable in the short term, but suffers a lot when things go bad.
(This is assuming one cannot predict future returns better than the rest of the market. If you do that all the better!)
Seems like there's a lot of confusion on this. I'll see if I can get a fuller article up.
Mediocre performance is better than your top performers dropping 30% or 60%.
I can point couple companies that suddenly dropped from $90 a share to below $10 and then they never got up “Just eat takeaway.com” between 2018 and 2022 it was looking like they would go to the moon. In 2022 you can see hell of a drop and it is not going back.
If you would sell parts of it before 2022 you would lock at least some of the gains.
But I think you know better when to switch companies ;)
Oh, I've had my portfolio drop 90% once. And drop 50% at other times, and 30% drops.
It's not easy to suppress the panic.
I'd be interested in reading more literature (e.g. from Carver) if you have any links!
I have only read half of Carver's Smart Portfolios yet but I find myself agreeing with much of it. I have started writing up a review of it sometime soon, although I might not publish it for free in a while!
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.
Trading fees are at or near zero in the US now unless you mean capital gains.
Not what I meant, but capital gains are another issue, but I am not in the US. In the UK we pay a 0.5% tax on ever transaction and often around £10 per transaction, so its quite substantial. I should probably have said costs, not fees.
How much are total costs in the US?
If you trade frequently even low costs add up. If its 0.1% and you trade monthly it ends up being 1.2% over the course of an year.
10+/trade is going back to the early 2000s for the US.
Now it's effectively 0 for most common trades. Here is Schwab for example:
https://www.schwab.com/pricing
If someone is a big options trader they can probably find a better per contract price out there.
How do they profit? There must be a cost somewhere? Another reply mentioned spreads - still a cost (you lose money when you trade).
AUM, managing high wealth clients, running their own funds with expense ratios (also some of the lowest in the industry), uninvested cash, etc... Retail trading is commoditized now.
Anyone who really cares about spreads will be using limit orders. Otherwise you're talking about pennies on highly liquid shares.
The fact that we're even discussing the possible spread differences between market makers shows just how commoditized retail trading has become.
the sell order flow to market makers who gobble up the other side of bad retail trades
I highly doubt market makers are in the business of betting against retail traders.
I suspect they're in the business of collecting the spread on lots of small trades that they can assume are largely random.
What you described is how you bet against retail traders. The bet is that they have no edge so it’s safe to run tight spreads and nice pure market making algos that assume random behavior at volume.
Feels weird to call it a 'bet against' when the other side can (potentially) benefit from the tighter spread you offer.
But yes, the market maker doesn't run the risk of trading with someone with knowledge and a lot of capital to apply it.
Which means that your cost is market maker's spreads instead of fees. Still a cost to you.
Nope, this is one of the counterintuitive things about people paying RH for order flow. Market makers can offer tighter spreads when they know it’s a pool of dumb money.
tighter spreads are not zero spreads
All the major US brokers started doing free trades for stocks and etfs. For Vanguard, most of the index expense ratios are really low, like %.05 percent, but that’s not a trading fee.
Even for paid transactions that typically give better pricing (IBKR Pro), the prices are extremely cheap.
How do they make money from you as a customer?
Quite a lot of customers either have cash sitting in the account which they make interest on, or have margin debt which they charge for.
Interesting, thanks. For a minute I was expecting someone to say "ads"
You can Google it, but AUM at scale means .03% is a significant amount of money. There's also uninvested cash that the broker can invest in t-bills and take the spread.
Thanks for the lmgtfy :)
I bet the uninvested cash product drives some weird incentives - kpis around increasing ratio of sells to buys and increasing pain around removing cash.
Front-running your trade.
This is illegal and is absolutely the dumbest way to make money.
nice try buddy, that’s ILLEGAL
Oh no, I guess someone will be going to jail!
...No? Then, uh, a punitive judgment?
>Small fine that amounts to a cost-of-doing-business.
Ah. Hm.
You also pay a spread every time you trade, especially if you're using a retail brokerage like robin hood that sells order flow to market makers.
It doesn't show up anywhere in your statement, but it's a real trading fee nonetheless, so it's still better not to trade too much
Retail is offered tighter spreads because it’s safe to assume they have no edge at scale.
The explicit fees are near zero, but if you watch your trade you always get an adverse price.
what are you talking about. you're not going to fill worse than nbbo
You pay the spread and you also have impact in the market.
If you’re trading US large-cap stocks at low frequency these are not really material costs for even a wealthy retail investor. Certainly not next to taxes.
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.
> These coins will be returned to the account holders which were affected by the hack.
I haven't seen any reporting on that. Bitfinex, the corporate entity, is receiving the coins recovered from the feds. It's up to Bitfinex how they device to dole out those funds, if at all.
When these things happen, often times exchanges will make their customers whole by giving back the monetary value of the coins at time of loss. It's very rare they repay them 1:1 in bitcoin.
IANAL but it seems like whoever is running Bitfinex should endeavour to make all the creditors whole in whatever medium their debt was denominated, according to seniority. So if they owe users X BTC and other creditors Y USD, and the BTC debts are senior, they should hand out the BTC to users regardless of its dollar value and, if there is any left, auction it off for the benefit of the (junior, in this scenario) USD creditors.
They could, but there's nothing requiring them to do so.
AFAIK the only crypto company who have been hacked (and there are a lot) and returned funds as BTC and not in dollars is, ironically, Mt. Gox. Users got repaid in Bitcoin 10 years after the fact. FTX bagholders were compensated ~120% in "equivalent value" dollars. Lost crypto was not repaid.
https://support.bitfinex.com/hc/en-us/articles/115003282929-...
Apparently they created a token that entitles you to the lost bitcoin should they be recovered.
Interesting part of the story is the hacker who stole them is a YC alumni, he founded mixrank. Kid only got 5 years in prison for stealing $1B.
This doesn’t surprise me in the slightest.
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 treat buying individual shares as yuppie gambling at this point. It can be fun, but it’s usually a bad strategy.
I would actually recommend the opposite - buy shares of a few companies that you know exceptionally well. That is, not just the companies, but also the market, the industry trends, etc. Charlie Munger recommends holding 5 stocks at max, while Peter Lynch suggests industries that are tangential to your work and daily life. Both solid advice. Revisit the list every year, and you'll already do better than most of the blind duds investing in the S&P500 (which arguably contains a lot of duds).
The problem with most ETFs is that you'll still be investing in a bunch of dud companies, whose only reason for staying in the market is by virtue of being big (think HPs and IBMs, for example).
The problem with ETFs is that many of them have crazy management fees.
Don't just blindly buy an ETF that fits your investment goals. Many of those bespoke ETFs have 1%+ management fees.
You can look up how even a 1% fee can gobble up piles of money over years.
That's why I am partial to the Vanguard funds. If you look at VUG and VTI and VOO, the fees are on the order of ~0.03-0.04%.
I know that passively-managed ETFs aren't necessarily "optimal" (as your parent comment mentioned, there's a risk of them having a few duds there for legacy reasons), but I think the value that they provide come down to the fact that they're automatically rebalanced and diversified, and 0.04% seems like a pretty reasonable cut for them doing that for me.
I didn't mean buy any ETFs either. I was making the case for individual stock holding, as a response to my parent comment.
To your point though, even Berkshire Hathaway invests in VOO and SPY: https://www.morningstar.com/funds/spy-vs-voo-which-warren-bu...
I think there's value in having things diversified and rebalanced automatically, especially if you don't have any confidence in your own ability to do so. Yes, you sometimes get stuff that's overvalued and thus over-represented, but in theory if the stock tanks the portfolio will be rebalanced and thus become a smaller percentage of the total holdings.
> I treat buying individual shares as yuppie gambling at this point. It can be fun, but it’s usually a bad strategy.
Naw, that's boomer gambling.
Options are yuppie gambling.
I thought that was shorting biotech stock days before clinical trial results get announced?
For extra flavour, also invest solely using loaned money, preferably a student loan that never goes away!
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.
I have a friend who retired, and decided to go into day trading. He spent hours each day glued to the trading portal, making trades. After a year, he ruefully admitted that he'd have made significantly more money if he'd simply done nothing.
Sometimes I ask GPT to run Bayesian analyses on varying hypotheses. I just did that for the several parent comments to see if we could get some reasons as to "why day trading doesn't work." Perhaps this will amuse you as well: https://chatgpt.com/share/67888cf4-1aa4-8011-b46b-77e5e9da12...
Is there any reason to believe the probabilities involved in those computations are not just coming straight out of rand()?
Yes, thanks for posting it!
> 1 is a 10x winner
out of 10 stocks, 1 being a 10x winner is an absolutely rarity and the fact that you would manage to pick it is pure luck tbh.
Oh there's more luck required than that. You have to get lucky many times to win at a 10x stock.
- You have to be lucky enough to find it when it's cheap.
- You have to be lucky enough to hold on to it even if it loses money
- You have to be lucky enough to not sell it when it's at only 5x and hold off for the top
- you have to be lucky enough to have bought enough initially that the return is meaningful to you
These are the thoughts that made me clean up how I invest and stop thinking I'll get lucky at some point just rolling the dice. It's way more luck required than just buying in early.
The 4th point (bought enough that the return is meaningful) is the killer one. There’s always “that guy” that brags about buying TSLA or NVDA in 2015 and having 100x his money. Then it turns out he only bought like $500 worth. Sure, $50K isn’t nothing, but it’s not going to be meaningful to the retirement of someone making tech worker wages.
Of course, the reason he didn’t buy more was because he knew it was a lottery ticket and putting most of his money in the S&P500 in his 401k was obviously more prudent.
QQQ is up 5x in 10 years. Being an ETF, that means many of its components must be 10x.
I suppose it's dependent on your time horizon. MSFT is up around 10x since Nadella took over. It's more common over 20 years, obviously.
Are 'many of its components up 10x'??
Isn't it the case that a few large cap stocks have the vast majority of the growth? If you didn't like Tesla, didn't like Nvidia, didn't like big 5 tech, you might have had very mediocre returns.
The other neat thing about ETFs is that there are so many similar, you can effectively use them for TLH to help offset future gains.
The IRS disallows wash sale deductions if you reinvest in a substantially similar investment within 30 days.
I'm not an IRS agent and have no idea what they mean by substantially similar. You might want to talk to your tax accountant.
> substantially similar investment
They actually use the word 'identical' instead of 'similar', if that matters. It seems to be a grey area with ETFs, and I'm not a financial advisor, so won't make any further claims.
> You might want to talk to your tax accountant.
Absolutely agreed. You can also just let a reputable robo do it for you if you don't have the time or energy for it, there are multiple. It is what I ended up doing. It's modest but every bit helps.
Indeed, the wording is “substantially identical”, which is important. 2 different ETFs that track similar, but not identical indices (e.g. S&P500 vs Russell 1000 large cap, for example) are clearly not substantially identical, and make great tax-loss harvesting pairs. There’s tons of case law, opinions from tax experts, and automated tax-loss harvesting tools from a variety of brokers that agree with this viewpoint.
Robo advisors are intricately familiar with tax law? That's new to me.
US lets you claim $3k of capital losses each against income, so a robo advisor can optimize for this
IIRC they have never defined "substantially similar" and they don't actually go after people who sell etf X and immediately buy etf Y with an identical price graph
I've done it repeatedly over the past ten years while DCA'ing. I basically made my own custom funds with 5-10 stocks, set daily purchases for a specific amount, and didn't think about it. Unfortunately I didn't invest enough each time for the amount to be significant, and I also stopped DCA'ing as soon as I couldn't resist checking, saw that I had reached or was approaching a 10% loss in my overall DCA portfolio, and stopped the auto-buys because I felt like I was starting to burn money, when this was actually the best time to continue investing. I haven't sold anything either though. Overall I'm up 80%, which is only $50k.
I think DCA is the most effective investment strategy. Unfortunately I don't have the discipline to keep it up during a downturn. Next time I try it again with picked stocks will be my 4th time, but for now, I'm doing it with index funds. I'm not going to feel as inclined to pause my purchases during an index fund downturn.
Well, also the market has done almost nothing but go up over the last 10 years, correct?
I'm guessing "DCA" means "dollar-cost averaging": https://www.investopedia.com/terms/d/dollarcostaveraging.asp
Exactly. I started buying NVDA in 2020 and I still hold almost all of it.
If you do rebalancing then you might as well hold an ETF that does it for you at the lowest cost. If you hold individual equities, keep your winners.
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.
Did they include the Monkeys?
"Most successful chimpanzee on Wall Street" - https://www.guinnessworldrecords.com/world-records/most-succ...
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.
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.
> turns out that doing nothing with your stock investments is (statistically) the best strategy
The only thing a small investor can control are fees. Minimising transactions minimises fees.
You also get heavily taxed for the short term gains.
P.S. I'm not a financial advisor. Make your own decisions.
I can think of at least one situation, like expiring options, that you wouldn't want to have happening during your "court frozen" period...
I assume that in-the-money options are automatically exercised at expiration in the dead-man situation?
Yes, they will automatically exercise if your dead, the same way they auto execute when you are alive. I have sold many options over the years, with many of them exercising. If they expire ITM, you don't have a choice (whether dead or alive) past expiration.
Thank you for the confirmation!
Do you have a link to that article?
I wish I had clipped and saved it. I can't even tell you what year it was. Sorry. But what I wrote is all one needs to know about it.
Here's a similar article:
https://www.businessinsider.com/forgetful-investors-performe...
Thanks anyway, this is still interesting.
That's worked for me, for well over 30 years.
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
Some shareholders seek fraud as it has the potential for the highest short term returns. The sooner we exile those folks the better.
Some "investors" did "invest" in Ponzicoin after all.
> 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.
https://youtu.be/IUJMyTJ9gyI
I didn't watch this talk but I read the article it's based on.
When an Iraq War supporting Tory like Niall Ferguson criticizes the US military for being both bloated and stretched thin by underfunding, it gives away that the critique is just disingenuous contrarianism.
... and look how well that has turned out for the average Russian citizen (or journalist, or competing business-person who stands too close to a window anywhere but the first floor)...
There has never been a time in the history of the greater Russian Empire when good people captured 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.
We've kicked the can down the road for a while, but no worries, we will pick it up soon and recycle it ;)
The market can remain irrational longer than you can remain solvent. The market will tolerate infinite BS for arbitrary periods of time.
Which also means being careful of short selling. It can put you at unlimited risk even if you are absolutely right.
> 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.
If you are the only person who thinks that it might fail, one cent put options will be free and you can buy them until the price hits zero, and then you can make a cent.
For example, the opportunity to sell $TSLA for $180 in one month costs about thirty cents right now. Keeping this up for ten years would cost $36.
It doesn't work like this. The stock might fall around $10-$20 every month in the worst case scenario. In which case the premium of $180 will keep rising every week, 90% of which will expire worthless.
You have to buy really farther out or really far off strike both of which have nearly zero probability ( delta is nearly zero and less than 1)
That'd work well for a catastrophic Eron-style collapse, but many companies die a slow death, like Sears.
With Sears like companies you can take a very small short position and then reinvest the money from the sale going long S&P500 type stuff. That's roughly what Chanos did. It has to be small position as a percent of your portfolio in case it decides to go up 10x when you are not looking. I think Chanos's results over a decade were something like 0% on the shorts, 50% on the longs the money was reinvested into.
Put options are worthless once the price of a stock hits $0. At that point, the stock will be frozen and/or de-listed and your ability to exercise your put will be gone.
Per grok it's not true and per me it's not a problem in practice.
A put option is a contract between buyer (me) and a seller of the option. The contract guarantees me a right to sell stock at a strike price to the seller of the option.
If current stock price is lower than put contract strike price, I can exercise the contract and make money: I buy the stock from market at e.g. $78 (current price) and sell at e.g. $128 (strike price).
If stock is delisted the contract is still valid and enforced by the clearing house. They'll just assume that current price is $0 and force the option seller to just fork me cash without receiving the (unavailable) shares.
But it doesn't happen in practice because stocks are not just delisted without warning.
For example, Bed Bath & Beyond announced bankruptcy in April 23, Nasdaq announced delisting in April 25 and trading stopped in May 3.
So there was a week for option holders to settle their trades.
Grok is not a reliable source. What will happen is that if you are lucky, some institution with worthless shares will buy them from you at a very big discount OTC. If you are not lucky and your broker sleeps on you (since that deal comes from your broker calling someone on the phone, it's not automated), you will lose the options.
There are otc buyers for these, but they probably won’t look at $36
> 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.
Short selling a stock means borrowing shares and selling them.
Short selling has unbounded downside. If you borrow $1,000 to short sell TSLA and then it soars you might end up losing $100,000.
If you borrow $1,000 to buy TSLA your downside is limited—you can’t possibly lose more than $1,000.
In either case, your broker will liquidate you around $0. Not guaranteed, but very likely. This is the key risk.
Tether provides a good illustration of the principle I mentioned-- which I concede is a bit theoretical in the case of USD:
Tether is supposed to trade at $1 and gets press when it trades below. But, sometimes it also trades above, at $1.01, $1.02 and even perhaps $1.03. So, if you sold a lot of it thinking trading higher was impossible, you can be surprised.
You can short USD by buying Bitcoin or a similar non-correlated asset but how could buying a usd correlated asset (TSLA) be shorting?
Stocks are generally not considered tied to currency- if the company has some fundamental value, that should be inflation proof.
So technically buying almost any stock can be a way of shorting the USD in that you are selling it now and will buy it back later.
The risk - besides that of the company itself- I suppose is that if you have massive deflation you will end up with less USD. I don’t think anyone is worried about massive deflation of the USD, since the Fed can and would prevent that.
Stocks have been a great inflation hedge in the long term since they’re usually backed by hard assets and people, not numbers in computers. Short term obviously some businesses are hurt by inflation and some benefit.
You can also short the USD by buying a different currency. BTC would be more like shorting all currencies.
Buying BTC is shorting money printing by your government.
Today the only government (that I know of) committed to not printing money is Argentina but they have other issues affecting their economy and therefore inflating their currency.
Given that governments don't seem to have desire stop money printing any time soon, buying BTC is sound.
The 2010s called, they want their talking points back. The Fed has been doing quantitative tightening for the last couple of years while raising rates. Only towards the end of last year did they start lowering the rates again, but they are still doing QT. So, there is no, what you call, "money printing", which in itself is a complete misnomer as it ignores the complexities and actual transmission mechanisms of "quantitative easing". In either case, Bitcoin has proven that it offers no hedge against anything; it is merely a risk asset with no intrinsic value that tends to rally with all the other rubbish like meme stocks.
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.
> 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?
No. A good-faith failure is different from a lie.
The rule of thumb I use to handle ambiguous situations is "if my incentives were different, would I be saying something else right now?"
> Of course there are fraudsters out there, but I view most founders as rampant optimists instead of liars.
Most founders are both.
They're rampant optimists in the sense that they believe in their thing so much that it overrides all other concerns. But that often makes them liars via an argument of the form "my thing is so important and will change the world so much that I have to lie now to make sure it can be so great".
I'm not saying founders are ogres. The kind of lying they do derives from fairly ordinary human failures. But it's still lying, it's still normalized, and it still has terrible consequences all the time.
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.
Isn’t that virtually every (mobile) subscription app in existence…?
> 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?
> Can you explain your views as to why incentives to harm the economy massively via fraud to benefit yourself need to exist?
I never said that I hold that view nor do I believe it.
Between you falsely ascribing views to me I do not hold and/or lying about my words, avoiding answering my question, and your emotional manipulation, it's clear that you're a troll and I don't have any need to respond to you beyond pointing out your logical fallacies.
If you don't support the current punishments, which evidently don't deter the crime, what's your idea of how they should be strengthened to adequately deter financial crime? I'm not trolling.
I'm not OP, but the obvious question here is whether tougher punishments would be more of a deterrent given that this is something that hasn't been true in many other cases going way back.
In particular, there seems to be substantial evidence that, at least past a certain point (and we can argue whether we are at that point or not, but it's not something self-evident either), what matters more is how likely the punishment is to be applied than how harsh it is, so increasing it further doesn't really do anything productive, just provides a public spectacle.
I disagree. Trevor Milton, the Nikola Motors fraudster CEO will be out after a laughable four years. That's a complete joke.
Do you think he wouldn't do what he had done if the punishment for getting caught would've been worse?
When people see Milton getting locked up for four years, it's in no way proportional to the upside of making out with thousands of lifetimes worth of average honest work. If others who had done similar crimes before him had received more severe punishments he may have chosen not to.
That's not to mention the court's complete lack of concern for recidivism. Look at Bill Hwang. Slapped on the wrist for insider trading -> billions of dollars of later economic damage. Likely chance we'll see the same pattern of behavior from Milton. I'm generally for forgiveness and second chances, but not in the realm of steering thousands of lifetimes worth of honest economic influence.
Some people think it’s just a number but the reality on the ground is that money is literally lifetime.
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.
There are consequences, with significant financial impact, not necessarily world ending for them.
There are already lawsuits filed around this incident. If a court sides with the customers or if CrowdStrike settles them, it will not be cheap.
Even if they don't end up loosing or settling, the lawyers will not be cheap with so many suits , I don't think there is a major class action, every contract is unique after all, customers can easily afford their own lawyers and don't need to share.
Beyond that, in next renewal cycle, customers are likely to demand much stronger penalty clauses in the contract, they won't let the mistake of not putting strong financial penalties slide while they may not change the vendor. This will make insurance for CrowdStrike much more expensive, another mistake would be far more financially expensive even if this one doesn't turn out to be.
The insurer will also want a stronger internal process controls and paperwork which also won't be cheap.
Consequences in B2B are never immediate but over time they do happen, larger an org longer it takes, but eventually it does catches up, look at Intel or Boeing today.
There will absolutely be consequences. And that'll cost real money.
But that is just a 'cost of doing business'. And ultimately will just work it's way into the price.
Intel and Boeing are not "one off mistakes". The root problems there are structural, cultural and fundamental.
If CrowdStrike have more issues this year, then that'll have an impact because it suggests there's a root problem. But a single bad rollout is just a bad rollout.
CrowdStrike problems are also structural the incident timeline hardly seemed like a fat finger mistake, but series of fundamental poor practices a org in their position should not have. We only get to see the one newsworthy incident like the door blowing off the airplane.
The "cost of business" will catchup to them is the point, Unlike Intel or Boeing it is not duopoly business with little to no options for CrowdStrike's product. It is notoriously brutal for large organizations in tech to stay competitive over 20-30 years time horizon.
Most likely trajectory for a company in their position, their growth slows - this incident being a key contributor to that slow down, then stock starts to fall, it will eventually become attractive for a company to acquire them, perhaps rebrand the product and keep the customers and cash flows.
Lawsuits will take years by which time the company will either be gone or swimming in cash.
Lawyers have to paid now till then.
Companies settle much faster typically to reduce some of this costs, it ends up being cheaper.
Also many of these will be resolved through their arbitration clauses that would be present in the contracts. Arbitration is much faster and usually appeal proof
Delta sued for what, $500M? These would have to be some expensive lawyers, even for lawyers.
That is just one customer, and also it is not just lawyers, Contingent liabilities(potential amount for settlement) when it escalates from possible to probable, in GAAP that means it changes from mere footnote to a line item in P&L which needs to be financed and managed and affecting their margins well before the actual settlement is decided.
Looks to me the market priced this in.
Meh- Delta sues for 500 million is just the headline. They'll end up settling for nothing like that.
So either way a non-issue for today.
There was a case of food contamination in a fast food joint (can't remember which, let's say it was burger king). The stock fell as a result, but recovered relatively quick afterwards - you would've made bank buying it low.
The thing is, individual, one off events usually don't break a company, but the stock falls temporarially as a result of some people expecting it to. Of course, it's possible that one event breaks a company, and this is the risk you do take buying it low after the event.
> There was a case of food contamination in a fast food joint (can't remember which, let's say it was burger king). The stock fell as a result, but recovered relatively quick afterwards - you would've made bank buying it low.
I think this was some years ago and it was Chipotle. They had to remove some menu items altogether IIRC.
It's a recurring thing. Back in the 90s it was Jack in the Box (https://en.wikipedia.org/wiki/1992%E2%80%931993_Jack_in_the_...)
Exactly. There's news every day. It takes a lot of bad news to break a company.
And frankly unless it's criminal (Enron, Theranos etc) it's not a big deal. An oil spill here, a data leak there, these are not things that affect customer behavior.
The market is only interested in results. It doesn't care about the news. Those stock dips you see are uneducated emotional investors making bad decisions for the wrong reasons.
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.
Equifax should not be in business anymore
We work closely with them and I've been impressed with how broad their product reach is. Whether they should be in business or not is a question for regulators, but the market rewards their unique position. If you to own something valuable that everyone else needs or wants, they will pay you for it.
There's a bigger question about how to properly price and penalize negative externalities. From a business perspective there isn't much difference between an oil spill and a mass data breach — "Whoopsie, we'll try not to do that again. In the meantime don't you need gas for your car?"
Here I was thinking Hindenberg was part of the problem and you seem to think the opposite?
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.
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.
> And often failed projects produce things of value to society
True, although also, criminals buy things and pay VAT.
> You don't vote for criminals to take your money.
I vote for elected officials who pass bills (if I were American) that allow/disallow criminal activity.
even if they were a beacon of truth, they were active market participant and would stand to benefit if the markets do react to their report.
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.
> 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.
> Even if you think you know something, you are, at best, still being random
Technically true. But somehow in practice you are random in worse ways. Psychology of most people makes them generate very bad randomness.
But you are right. What I said is just good first approximation. Sometimes you can do better. For example listening to most popular financial influencers and doing exactly opposite of what they recommend gives slightly better returns (it was researched). I don't quite remember if better than fully random though or just better than following their advice.
> anyone acting in a fraudulent manner in finance
the system incentivises this behavior, no one is punishing the rich guys playing with our livelyhood
> 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.
The first line of that article is
"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.
That’s because several people (and also EY, their auditor at the time) resigned in the wake of that report. Probably under pressure and lots of stress but also because of all the things that the initial independent investigation suggested needed to be reviewed. But now multiple investigations have completed those reviews and found nothing. And Supermicro has to fill vacant positions.
EDIT: since I am rate limited, here’s my reply to the child comment by gmd63
> Why would an investigation committee need to recommend that a company fill vacant financial and accounting executive positions? What you're saying makes no sense.
There are many reasons this can make sense. In this case, the most likely reason is that the allegations called into question the integrity of the executives and the board. New executives would be hired and approved by the same group, and it would look strange for them to do that while under investigation. The most important finding from the investigation is neither management (executives) nor the board acted improperly, which led to them making the recommendation.
Why would an investigation committee need to recommend that a company fill vacant financial and accounting executive positions? What you're saying makes no sense.
> 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] https://de.wikipedia.org/wiki/Anschlag_auf_den_Mannschaftsbu...
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.
> The authorities can't and shouldn't base an exhaustive investigation on vaguely shifty CEO behavior.
Moral hazard. We are in this thread, where many people complain about the irrationality of the market, of bad choices having no ill effects, and at the same time it is argued that authorities should prioritize and only investigate and prosecute large cases where the ROI is good.
I think the ethical landscape created by this "selective investigation and prosecution based on ROI" is part of the problem. We officially abandon the concept that wrong-doing will get caught and punished as a rule and then we marvel that the markets are irrational and that bad actors profit and keep profiting over large time horizons. Who could have expected such?
I think over a longer time period these effects will compound and there will be larger and larger problems. You can't just abandon the rules because enforcing them is not cost-efficient and hope everything will be alright. But it does take time to see the effects so who knows when the larger problems will show up.
I broadly agree, except I think the greater moral hazard is in failing to prosecute the plain-as-day cases of fraud (regardless of size). I'm not arguing in favor of abandoning rules but given limited resources you have to prioritize somehow, and every prosecution strategy has significant externalities like those you touched on.
1. FTDs are at an all time high. Naked short selling is an epidemic. This is provably false.
2. Operational shorting as a part of market making and derivatives strategies is an enormous part of the market. This is also demonstrably false.
3. The DOJ has the resources, not the jurisdiction. Self regulation will always be underfunded. Trying to argue that short selling is an effective form of privatized self regulation is laughable.
An increase in failures to deliver does not imply an increase in naked shorting.
They are highly correlated. Most other causes are static processes which would not increase or decrease.
The few firms (market makers) that are allowed to short naked pretty much always deliver.
By “cheque kiting”. Trading back and forth perpetually with colluding firms to perpetually “deliver”, eventually landing these phantom shares in offshore swap agreements where reporting has conveniently been perpetually delayed.
As for 3. Looking at the HR targets they don't look like hunch targets to me.
They seem to be going after egregious high flyers with a pattern of grift who are vulnerable to a short.
Of course I could be wrong
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.
> Truly perverse incentives such as one the one you linked aside I think it's mostly fine.
Well, the thing is, with AI being widely available the threat model explodes as the difficulty goes down drastically - imagine someone deepfaking a video of a C-level executive being involved in illegal or "extreme" sexual acts; we already have "nudifier" apps, the steps to cross for the mentioned scenario aren't that large. The number of potential threat actors explodes as the group is now "everyone with a smartphone", and it also explodes as the likelihood of getting caught (and sentenced to decades in jail, if not death) for shooting someone in public is significantly higher than getting caught "leaking" a faked video which at worst risks you a year or two for defamation.
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.
no amount of funding can compensate for inappropriately aligned incentives.
the ability to spend other people's money will always be the breeding ground of corruption (which includes not doing your job while accepting the salary).
"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
It's 11 people. It's a band breaking up, not Microsoft choosing its fourth CEO.
I suspect he saw Hindenburg as "his" and didn't want to run it but also didn't want anyone else to.
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.
And all the bespoke vibes and thoughts that go with that. Remove the people and what is there to sell?
Short sellers are built on their reputation, and Hindenburg has a lot of that. Even if you fired the people, you'd keep the name.
That said, it would be wrong to automatically assume that they try to maximize gains; at this point, it's likely most of the team has enough money to retire, and at that point, making even more might not be their primary goal.
and very fairly, talks about sharing all the knowledge further so that more such organisations can crop up
They have a well-known brand with a large audience and reputation.
Like a band.
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."
At least they're honest here.
Even Buffet shutdown his first successful firm in 1969.
Being cautious is good.
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.
” 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.
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?
i've heard of EY cowardly doing the same thing to other companies. it is even mentioned in "the hard thing about hard things" iirc.
There’s a promise at the end, we’ll see if it’s kept.
> 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.
https://youtu.be/mBGNOSWkrAU?si=Y5dlAFi1hTtut4Xr
I said nothing about it being 'new' though, did I?
I did interpret your forecast as an observation of a new thing. I may have missed the nuance.
>successful organization
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 got the same impression.
I assume they have a good reason to have done it this way and I hope everyone on their team is safe.
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).
[1] https://old.reddit.com/r/IAmA/comments/ju5cf/goodbye_iama_it...
I’ll always remember them for exposing the Nikola motors fraud: https://news.ycombinator.com/item?id=24436721
I think their two biggest breaks a Nikola and WeWork. Jesus I still remember the days after the WeWork short report dropped, crazy times.
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?
Being pedantic here, but Cincinnatus was never Emperor. He was, though, twice given "Dictator" powers by the Roman Senate during the Republican era.
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. :)
The right music at the right time can be transformative.
I remember listening to the theme song for "The Social Network" often when I was frustrated at work about 12 years ago in a different job in a different state in a different life.
Scala & Kolacny Brothers -- Creep
It's a haunting choral cover of the Radiohead song.
Glad to know there are other folks that found The Social Network soundtrack as impactful.
I have listened to Hand Cover Bruise first through university and hundreds of times since, often to calm my nerves before some of the biggest milestones of my life.
It not only calmed my nerves but also made me even more determined.
I realized money can't buy happiness, but it can move you away from unhappiness.
The Social Network soundtrack is essentially mandatory to listen to when coding, I've heard it thousands of times by now.
Same, along with the Tron soundtrack from Daft Punk.
I was working at a dead-end IT job that was eating away at me because the company was a terrible fit, and I couldn't help but wonder if I could put my skills to better use than clearing paper jams and running mail merge reports. But the easy path was to just keep doing the same thing every day.
One day on the way in I was listening to Jonathan Coulton's "A Talk With George" (https://www.youtube.com/watch?v=AXk5dXYw728) and it kicked me in the face with:
And that was the day I quit.That being said, I had the same reaction to the link at the bottom of that post; I recognize anything can be transformative to the right person at the right time, but I struggled to identify the message in an instrumental DJ set.
For me that was hearing "Stellardrone - Breath in the light" a decade ago during a very stressful work period.
Now it is my go to, in stressful times, when I need to focus and gather my thoughts.
Like listening to “Lose Yourself” before every major interview. :)
I wonder if this is that blasted song a college roommate used to play on infinite repeat back in the day :/
Ha I guess that's fair. Were you expecting a DJ set?
I did have a guess that it was musical. I did not guess it was of the genre haha.
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! :)
Ok, I listened to half of the set and it's not my style. This is what I like: https://www.youtube.com/watch?v=n_LcVqqHSY8
I actually skimmed through looking for when the inspirational talk starts.
I had the same idea. Maybe it's a subtle message?
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 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.
I was fully expecting [1] but then I just listened for a while and honestly, I get it.
I can't explain, but yeah.
[1] https://www.youtube.com/watch?v=KxGRhd_iWuE
He only uses that one when he's getting short squeezed
the psychedelics are implied
It might just be the music... but there is also a Q&A at the end of the video.
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.
They are short sellers, were you expecting roided out pro-wrestlers with tats and wild hair or something?
Absolutely, it's well known that Jane Street and other major traders draw heavily on the former WWW stable for their short staffing.
>exposing some of the better kept secrets of some of the worst people and companies
Some of the worst could be the most likely to make you an offer you can't refuse . . .
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.
Their "shorting tactics" ? You mean doing extensive well sourced research that convinces other people that their position is correct?
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
I think its brought attention to numerous cases of accounting and other shenanigans.
What I've noticed, casually, is that they often target companies or management with a pattern of fraud and abuse, and surprise they keep doing it.
VP of Sales gets slapped on the wrist for illegal tactics?
A few years later he goes on to be promoted to CEO and.... does the same thing!
Amazing.
I’m interested in the materials they open source.
I wouldn’t be surprised if the sum of it is “has the company been caught doing fraud more than once and haven’t been shut down? They’re still doing fraud”.
I doubt that's the whole of it, but I'm sure a past pattern definitely comes into play. As someone once said, we are faithfully true to our defects - we tend to repeat our mistakes.
Someone who plays fast and loose with the law to get their sales bonus doesn't just find Jesus and give up one day. More likely he gets promoted and does it all over again.
But some of the short seller research I've heard of like interviewing ex-employees about internal irregularities is quite clever.
In another case (I think it was a different short seller) he went to the actual physical locations declared on paperwork as "offices" and found them to be empty warehouses.
So this kind of interviewing and boots on ground stuff is next level.
Pretty big allegations without any source.
But the Indian regulator was going after the short seller suggesting they used non public info. Turns out India is corrupt which we already knew as a fact and one of the chiefs owned the stock.
The source is their research. Much of which was publicly available.
You can draw your own conclusions but a company worth hundreds of billions of dollars being audited by a mom and pop shop is more evidence than anyone needs that their books are made up.
The fact that the Adani group couldn’t refute any of their claims was pretty telling as well.
Yeah not like Hindenburg researched a large Indian company with close ties to the BJP.
https://www.aljazeera.com/economy/2023/3/1/modi-govt-allowed...
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.
Getting out now is on point for Hindenburg.
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 wouldn't be surprised if Adani just asked "How much money will you make in your life time?" And just offered the same to close the firm.
He might have offered, but doubt these guys would have taken it up.
There's something different about these short sellers and the typical ones we've had in the past (Soros, Chanos, Ackman, etc.).
Yes, doubtful with the US investigation going on on Adani.
Supermicro stock is down 40% from the publishing of the report, hardly a damp squib.
Looks like the jury is still out on Adani.
Can someone give me the context please? I’ve never heard of this organisation before. What do they do and what are they known for?
https://en.wikipedia.org/wiki/Hindenburg_Research
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.
[0] https://www.bloomberg.com/opinion/articles/2024-07-02/people... [1] https://telegra.ph/Hindenburg-01-16
They published about Carvana 13 days ago and now are disbanding... https://hindenburgresearch.com/carvana/
Carvana stock didn’t seem to react much at all to that Jan 2 report (higher today than on Jan 1, even)? I wonder if, and possibly how much, Hindenburg lost on that trade.
It seemed to very positively react to the shutdown though
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.
Stone cold assassins indeed. We need more people like him.
For anyone needing an introduction to Hindenburg Research: https://nymag.com/intelligencer/2022/01/nathan-anderson-hind...
Has anyone else publicly copied the Hindenburg investigation/financial model? It's not proprietary AFAIK.
It's a hard business to make money in. Shorting tends to be intrinsically harder because the market goes up over time and Americans are generally optimists. Plus the last 2 years we've seen 20+% market moves upwards.
Despite it being a necessity for functioning markets, when you are short, seemingly everyone is against you - business management, regulators, media, etc.
Not surprised to see them bow out. Chanos did so last year.
This is one of the reasons frauds go on so much longer than you'd expect - no one wants to hear the truth.
People have this idea that short sellers are market manipulators who conspire to wipe out innocent day traders' life savings and trigger mass layoffs with the stroke of a pen (hence the term "financial terrorism," which is absolutely comical in its hyperbole but used with complete sincerity by the anti-short crowd), but like tines said, it's a risky business that requires lots of research that frequently goes nowhere with limited upside and uncapped potential losses. The amount of times they and other short sellers publish damning evidence on a company only for the stock to shoot back as soon as the company releases a "nothing to see here" non-response really shows the difficulty in making money in the space (and how much people want to bury their heads in the sand).
Given the regulatory environment we are heading into, I expect short selling will become an even riskier business since the SEC isn't going to be prosecuting fraud anymore (or rather, they'll be doing even less than they are now), making it much easier to sic the lawyers on firms like Hindenburg. Even though this isn't their stated reason for bowing out, I wouldn't be surprised or hold it against them if it was a factor.
I think the prospect of an impending SEC or other investigation is only one factor in stocks losing value.
They highlight inflated sales and financial irregularities like a chain of companies that engage in self-dealing, but are portrayed as independent to hide their real ownership, and so on.
If you believe what they say, your faith in the company is shaken because they're pulling a con job on you to invest in them and believe their story. If the SEC investigates that just supports the claim that it's a con.
If they don't investigate - for whatever reason - it doesn't mean that it's not a con and you won't lose all of your money believing it.
So a change in the regulatory environment is only one element.
For example, the Modhi/Adani thing is outside the reach of the SEC. And after watching a piece on it, apparently shorting it was amazingly tricky, and they had to go through some Singaporean markets to arrange a short position.
SEC Commissioners turn over slowly. It is not quite as independent as Fed, but more independent than most agencies.
Matt Levine always has the good stuff, but he had commentary on a profile of Jim Chanos (the lesson not necessarily being specific to Chanos) that always sticks with me. The profile that discussed the idea that the real sort of 'secret sauce' was that the combination of Chanos' main funds were like 190% long, and then 90% the short stuff he wan known for.
On its surface, nothing crazy for long/short funds, the notable part was that basically all the effort was on the short side, and the long side was implied to be very humdrum. And the short book had like negative returns over a long period. It just struck me as a really elegant (if extreme) example of what uncorrelated returns can do if you do somehow have some edge over time.
And I'm not sure what Hindenburg's holistic picture is, but whether rightly or wrongly now I usually assume most of the kind of very public shorts operate similarly. I was never really on board with the "short sellers are evil" train of thought, but I did believe, "oh these very public short sellers only short things, they just go around all the time thinking everything is awful". And my assumption now is that they are like, kind of really theatric long/short funds.
Matt had some line like if you extremely good at something, you can get rich doing it, even if it loses money. As long as it's not correlated.
I’d wager a big part of how they make money is as SEC whistleblowers. It’s not as huge of money as shorting is - but it’s typically a single digit percentage of the recovered fines. Considering these guys nailed a company that defrauded people of $3 BILLION dollars, they’d net $30 mil from turning that company in even if the payout is only 1%.
The SEC has a policy of paying out part of recovered fines as bounties to whistleblowers to align incentives. If your company is doing something sketchy, you get a payout by doing the right thing.
I’m not a lawyer but I think that mechanism works just as well if you’re an external reporter of fraud. SEC makes money and pays you for your diligent forensic auditing.
Its 10% to 30%
where did you get 1% from, its a really good bounty system to clean up the markets and you get to be anonymous if you use a lawyer, the trick is to get the SEC to prioritize it. They are now inundated after some large payouts made the news in financial circles
Large indeed - there was a $279 million payout to a bounty hunter in 2023:
https://www.sec.gov/newsroom/press-releases/2023-89
Do you have any evidence/links that discuss this? I'd be surprised that they'd get any whistleblower fees, because they themselves aren't actually the whistleblower. E.g. a whistleblower usually refers to actual insiders with private knowledge that then "blow the whistle". In Hindenburg's case, they basically just did research anyone is capable of doing (although in many cases, after they became known, they did have whistleblowers reach out to them).
This bounty program doesn’t require being an employee
Astute observers and outsiders - doing the same thing prolific short sellers do - have received some of the biggest bounty payouts
The source is on the SEC’s bounty payout page
> Shorting tends to be intrinsically harder because the market goes up over time and Americans are generally optimists
Also, with shorting the best you can do is double your money (if the stock goes to 0), while you can lose an unlimited amount (as there’s no cap on a rising stock); whereas with going long, you can only lose all your money (again, if it goes to 0), but you can gain an unlimited amount.
Except for leverage... but the general point remains that the upside is capped and the downside in theory is not.
This is incorrect. The way shorting works is you borrow a stock (and keep paying premium for the duration) and sell it
Premiums are usually small, so you can make many multiples of paid premium
And since their business model is releasing the findings, which in turn makes the stock drop, they can time their short position very well and don't need to pay premiums for long
I think you misunderstood what I meant by "your money" in "double your money" (and I was unclear). You can only earn the value of the stocks you borrow. When trading long, the gain is unlimited.
According to Investopedia, "the Federal Reserve Board requires all short sale accounts to have 150% of the value of the short sale at the time the sale is initiated" so it's the same principle as going long with margin. You can leverage yourself but there's a limit.
Yes, but borrowing short is fundamentally leveraged. As long as the stock doesn't increase in value, you don't need much of your own cash to secure it - because you're holding the cash from selling it.
But, of course, that gets ugly when the stock goes up; that's when you have to start putting your own money in against the borrow.
You borrow 10 shares that are currently worth $10 each. You immediately sell and get $100.
The price drops to $1 per share. You spend $10 to buy those shares and return your loan.
So you spent $10 and made $90. That's a 9x gain.
Yes you cannot make more than $100. But of course you can! Do the short on 1000 shares instead of 10.
The more confident you are of the share price going down, the more shares you borrow. Unlimited upside.
Isn't this a bit like arguing that you can make infinite money by borrowing infinite money and going long? You have to maintain margin requirements which limits how many shares you can borrow so again, you can really only double your money (not even double, iiuc your account has to have 150% of the value of your short), unless there's something I'm not seeing.
> your account has to have 150% of the value of your short
yep, people who aren't professional traders, and don't actually have an account with a broker to do shorting with, and dont know the margin requirements.
The thing is, a broker will _never_ put themselves at risk of losing money. If they offer you a shorting service, they require a method to make themselves whole. If you short, they will guess some sort of margin of safety for said short (calculated based on the liquidity of the stock) - if it's very liquid, the margin could be lower, but for illiquid stocks, it's even higher. This margin of safety is what the broker will use to close your short position if the market moves against you - you don't get a choice in the matter. You don't even have access to those funds from the sale of the short - the broker holds onto it until the short is closed.
The same argument can be made with roulette. Just place all your money on black and assume you'll win each time.
You need to put up a lot more than $10 to do that borrow. Quite limited upside.
uhh, no. When trading long your gain is limited by the depth of the order book. Stock price isn't relevant if there are 3 buyers out there looking to buy 2 shares each and you're sitting on 100,000 shares
The order book refills over time and normal humans will never exhaust it.
See put options.
The song remains the same - the stock can only go to zero. The upside of a put is effectively capped at (strike price minus stock price) * 100. Going long via shares or calls is unlimited.
Right, but the price of the put is much less than the price of the stock, and the price of the put is the denominator.
Right now, Walmart is at $91.34, and you can buy a put at $88 expiring on 24th January for $0.18 [1]. If you buy one, and the stock goes to zero by then, you spent $0.18 and gained $88, a 488x return. January 2026 at $86.67 is $5.35 - a mere 16x return.
[1] https://www.nasdaq.com/market-activity/stocks/wmt/option-cha...
You'd spend $0.18 per share, yes, but the option's price is $18, not $0.18. So your return would be roughly 4.1x, not 488x. Remember options contracts are counted in hundreds, so $0.18 is the price per share, not per contract.
If you're going to work it out per options contract, then you spend $18, and get to sell 100 shares at $88. 100 * $88 / $18 is still 488x.
(This number is large because Walmart is not going to go bust in the next few days! It serves to illustrate the arithmetic, but maybe it's not the most realistic example.)
> Shorting tends to be intrinsically harder because the market goes up over time and Americans are generally optimists.
... and the market can stay irrational longer than you can stay solvent.
I remember once I tried shorting a stock, of a market leader in my area. I knew the field well enough to see that they were trying to fudge some numbers and their quarter was _not_ as good as they had claimed it to be.
But sadly the market didn't see this and the stock went up. E*Trade started pushing me to cover my positions, and eventually I ended up losing a 5-figure sum (nothing earth-shattering, but still a good chunk of my cash).
After I had bought it all back, slowly the market realized what I had seen and the stock dropped as I had expected. Unfortunately I did not have the deep pockets to stick around long enough; all I was left with was a hole in the wallet and a hard lesson learned.
Somebody say the thing please
They are planning to release their methodology. Buried in the article:
> Beyond my own desire for relief, it also feels selfish to keep the knowledge we’ve accumulated trapped within our small team. I have more than enough. In the past several years we’ve been flooded with thousands of messages from many of you asking how we do what we do, or whether you can join the team. I read them all and I’ve been trying to figure out how to respond in a way that can answer everyone—so over the next 6 months or so I plan to work on a series of materials and videos to open-source every aspect of our model and how we conduct our investigations.
Aside from the obvious risk of short selling is the tornado of lawsuits and threats that arise from targeting shady companies.
Just because some company is accused shenanigans or breaking the law doesn't mean they won't try to litigate you out of existence.
Or that they don't have associates with baseball bats who might visit you in the night to discuss your "bad choices".
It takes some real minerals.
What they do isn't anything new or revolutionary. Short sellers have existed ever since public markets have existed. See Muddy Waters Research, Citron Research, Kynikos Associates, Pershing Square (famous for their crusade against Herbalife), Gotham Research, all of the Big Short folks. And these are just the active ones.
https://www.newyorker.com/news/annals-of-communications/is-h...
There's quite a lot of short sellers that publish their research.
You need to have a very thick skin, because the shorted will come at full force against you.
I have read somewhere (long ago forgot where) that the only country this can work is America; in other countries, he would need to be scared for his actual life. Adani, for example, is in bed with India government.
Yes:
https://hntrbrk.com/about-us/
Take a look at Scorpion Capital.
Who were pretty much right about Ginkgo Bioworks (DNA)
Muddy Waters has been around for a while and had some high profile hits.
I believe Andrew Left and Citron Research were the first.
The impact this organization had was incredible. I doubt they would have been able to do this work if they were based out of any other country, which makes me wonder how the US legal system, regulators and law enforcement in general are not extremely corrupt. What reasons or incentives make the system work in the US? Of course there are many instances of corruption and injustice, but in comparison to almost any other country, it seems to work surprisingly well.
I think there is a really nuanced check-and-balance system that has extreme visibility for the federal legal system:
- investigators need approval from a prosecutor to move forward with investigations, and ultimately have to present their evidence in sales calls to their boss/peers. It’s a lot of red tape.
- prosecutors have bosses and reputations to uphold, they don’t want to take on risk.
- judges act as a procedural review for the prosecutor and watchdog for civil liberties
- the defense is red teaming the prosecutor and investigators for fraud etc
- the appeals court acts as a second level review for everyone + original judge
- it’s all public so journalists can poke around.
which is all good, because it is better to let 9 guilty men free, than to wrongfully imprison 1 innocent.
There are many reasons for this but primarily its simply that it is a wealthy country with a functioning legal system. US courts are generally fair; if biased. This has changed with many recent rulings by the SCOTUS. But there exists a culture of generally respecting laws (and an apparatus to enforce those laws).
> I doubt they would have been able to do this work if they were based out of any other country
Here's a British one: https://en.wikipedia.org/wiki/Viceroy_Research
There were a _number_ of British and German ones involved in the whole Wirecard mess.
Hindenburg's probably the world's most prominent, but there's nothing about the model that inherently requires being in the US.
And those German short-sellers (and to a lesser extent their British counterparts) were aggressively bullied by their local government market regulators https://www.reuters.com/article/technology/germanys-long-lon...
I have lost literally hundreds of thousands of $ trying to short obvious frauds and scams.
I have made all that back and more by instead going long things that are cheap + growing.
Being a bear pays off 1% of the time, and the act of trying to time it actually changes the window so just be an optimist and get rich.
Very true. If you have the fundamentals right, but the timing wrong, you're still "wrong", because you're broke.
What information sources do you use to find the cheap + growing things?
Usually big established companies that've been unfairly beaten down and financials don't have any red flags. I look at social chat/analyst chat also but mostly only to see if/how many people/bots are talking not really to see what they are saying.
For example, I hold oversized bags of Boeing, Pfizer, and Google right now (these are new-ish positions ~3-4m in)
If I'm wrong, I try to get out asap. If I'm right, I try to never sell.
What no one touches is that he used to unmask the devil and also let the regular folks (if they trust him) take short positions just like he did. Sort of Robin Hood with weak reference.
That's not how that works. They take out short positions and then release the info to profit off the drop when they announce. Announcing publically is how they make their profit, not them letting you in on it. Informational advantage is their entire strategy.
Apropos user name ;)
Damn thats clever.
I mean that's the whole business of a short seller.
Take a big short position, then spread the bad news. Hopefully, it's true: the stock drops, and you make a mint. If you fail to spread the news, or you don't get the facts right, the stock goes up and you lose.
I believe Hindenburg Research's most notable expose was on Adani, yet he’s still standing strong. Perhaps the closure could somehow be tied to Trump’s comeback—just a thought. That said, corporate fraud is an endless cycle, and their work might inspire countless others to pursue similar research and investment ventures.
Adani is still standing because my countrymen have become delusional and government is in bed with Adani.
Literally every time I shorted (our bought puts) I lost money. One particular short of Beyond Meat (via puts) I was right about eventually, just not in the timeframe needed. I knew Beyond Meat was BS but unable to sustain the losses as it kept climbing in a complete bubble.
Oh, that's a shame---at least from my perspective as a reader---but Nate seems to be quite ok, and I guess it makes sense to quit when you're "winning". As a victim of burnout, I wish I had that insight too.
At least we still have Coffeezilla and Data Colada!
From their About page
"...Hindenburg Research specializes in forensic financial research.
...we believe the most impactful research results from uncovering hard-to-find information from atypical sources. In particular we often look for situations where companies may have any combination of: ... • Undisclosed related-party transactions..."
I would love to see whether Bayesian inference can be applied to quantitatively establish when "there's a there there' in any given situation. When is the unlikelihood of a coincidence transcend beyond the level of background noise?
https://hindenburgresearch.com/about-us/
I'm so confused – I thought these guys were the absolute best in blowing the whistle on scammy corporations.
There were - nothing in the article counters that.
nobody needs forever companies. I don't know why people aspire to do that.
just create strike teams: incorporate, capitalize, execute, distribute capital, unincorporate
No, it was being investigated by the DOJ and SEC for fraud and scheming just like its sister company Citron and Andrew Left, which has been indicted. So Nate has decided to shutdown before he gets subpoenas to preserve the records.
I missed that news. Could you pay some links to the DOJ and SEC investigations into Hindenburg?
Hindenburg Research shorts going strong!
Correct me if I’m wrong but doesn’t short selling only harm bad companies? If a strong company comes under selling pressure from shorts, then it can buy its own stock back at a discount.
No. Shorting can damage reputations which don't bounce back or if it choose a particularly bad spot for a company it could sink it.
wow! I've always thought of them as some ruthless finance people with huge egos. This piece made me think differently. Very moving read!
Fraud and deception are common. Just consider Tesla for instance.
It seems to me that you have no idea what the word fraud means. It’s a legal term. It has nothing to do with whether you like or agree with something.
In an upcoming age of oligarchy, regulation will be adapted to suit business owners. As an example, it seems that Gautam Adani is friendly with Trump.
What will be the impact on the SEC? What are future scenarios of fraud enabled by weaker regulations?
But this is a regretable, but wise move. Love the fact that he linked a DJ set.
Godspeed, Hindenburg folks! I started to really appreciate your work, when I read Dan McCrum and the other Alphaville writers at the FT.
I think trump has been publicly against the idea of allow short selling
> In an upcoming age of oligarchy
oligarchy has been going on for a long time, regardless of political affiliations.
to see why i say this, look at (no relation) https://quiverquant.com , and you'll see professional politicians with sub $180k salaries worth tens of millions of dollars, for just one example.
'X has been happening for a long time' is an old tactic to hide bad things behind some undefined excuse of inevitability, and discourage any action. Corruption has been happening for a long time, but that doesn't mean it can't get much worse or, through our action, much better.
What does it even mean? What does it matter if it's been 'going on for a long time'?
It means that it’s not “upcoming” but already here.
Thank you for all the great work. Big respect.
Hindenburg goes down in flames?
Long > short.
Andrew Left of Citron got indicted last summer for securities fraud (shorting, settling to cash in in the gains, and lying that he's still short). My first reaction was are they bailing before someone starts sniffing around, but have to say either the author is a total sociopath or he's sincerely just ready for something else in his life. Which I can understand.
Everything had its positive and negative side. Hindenburg sure made some bold calls that led to unraveling some frauds & Ponzi. But they're also in it for money.
No point applying a moral coat of paint. He took on listed Adani in India but I respect those that take on mining mafia & exploiters of slave labour where there's no pot of gold if you win & end up dead in ditch if you don't.
It was easy target to pick - Soros had openly painted a target on his back and his entire ecosystem was working overtime. Reasons purely political - his perceived closeness to Modi who is hated more than Orban + Trump put together by the ecosystem.
It was laughable anyway as Adani was very rich even before Modi was known outside his own state. And that was exactly like all other tycoons in Asia - greasing palms that needed it. These businessmen know who's in power, who's likely to & who's there to stay.
Yeah wish him good health to enjoy his wealth. And let us enjoy the collateral damage caused to "frauds" he thought lucrative enough to pick.
No offence to Mr. Andserson but it reads a bit like someone has done an 'Inception' on him - subtly planted the seed of a train of thought that would lead him to disband his efforts, all the while believing it was his own idea.
Is he now just absurdly wealthy from the short positions?
38 seems young to quit. Is there another story here?
Given the number of ultrarich and powerful people that already hate the Hindenberg folks... my guess would be that there is some calculus here about the incoming U.S. presidential administration's enmity towards whistleblowers and their prior statements about changing libel laws in the U.S.
Um, yes.
Starting next week, it's open season on suckers. It's going to be like the glory days of the Tel Aviv binary options scammers, who at one time were 40% of the Israeli finance sector and had good political connections.[1] Crypto deregulation is coming. No more CFPB enforcement! No more SEC enforcement!
There are still people who haven't lost money in crypto yet who can be targeted. They're all little people. No one will help them. Just pay off some influencers and start up your scam.[2]
[1] https://www.timesofisrael.com/topic/binary-options-fraud/
[2] https://www.reddit.com/r/memecoins/
>It's going to be like the glory days of the Tel Aviv binary options scammers, who at one time were 40% of the Israeli finance sector and had good political connections.
When I started at Goldman Sachs 25 years ago, I was told early on of an "Israeli discount" and "Canadian discount"; that is, investors were more skeptical of companies based in those countries.
I was not told of any more details than that at the time, but I now wonder if what you said is the cause?
Right, that's about when Netanyahu first took over. The Netanyahu era hasn't been good for Israel, but it's been great for Netanyahu's cronies.
In the US, south Florida seems to be the scam capital.
Musk famously hates short sellers, the Trump Social CEO has done the "blame the short sellers" bit, Eric Trump is hyping crypto coins, Trump himself is eager to take credit whenever the market goes up... I think it's almost guaranteed that they'll target short sellers specifically at some point. They're a easy target to blame, and divert attention from the the fact that they are actually fleecing investors right at this moment.
Soon the only crime will be exposing fraud.
Hindenburg exposes hucksters and frauds. Hucksters and frauds have now taken over the highest office. He just sees the writing on the wall and needs to get out now.
There is a very fine line between investigative journalism and market manipulation. They treaded it pretty carefully so far, but were bound to slip up sooner or later. Especially now that they are prominent enough that HFT bots are instantly shorting every company they mention in new posts. Quitting while they are ahead is a good move.
Off the top of my head the reporting about Block - CashApp was disgraceful and Hindenburg got sued for it. Not sure how that's going to play out with disbanding the "company."
I don't think Hindenburg is scared of being sued, otherwise they wouldn't have been in the business in the first place. Their investigations are extremely thorough, with everything fully documented, mostly from public records, for the specific purpose that if/when they show up in court, they can be confident of the basis of their findings.
https://www.reuters.com/legal/government/adani-group-threate...
P.S. where did you see Block suing Hindenburg? The closest thing I can find is 'Block said it intended to “explore legal action” against Hindenburg, who sought to “deceive and confuse” Block investors to “profit from a declined stock price.”' which is just PR speak
>I don't think Hindenburg is scared of being sued, otherwise they wouldn't have been in the business in the first place
They should be. If doesn't matter how well everything is documented or how above-board the company is when the courts turn into kangaroo courts for a thoroughly corrupt administration. They're right to get out now while they still can.
No, Nate is not afraid of being sued, he is afraid of being indicted for fraud. The difference being that you just pay your way out of lawsuits, but indictments are a bit more serious
The court finds them guilty of violating which laws, exactly?
Sorry I really don't get what you are trying to say. In order to lose in court, you need to first find a law where Hindenburg could be breaking. But I don't see that happening, especially as it's almost impossible for them to be found guilty of defamation due to the First Amendment.
How do you explain their report on Supermicro? It seems nothing was wrong there after all. From https://www.morningstar.com/news/marketwatch/2024120275/why-...
> the committee confirmed previously stated findings that there was "no evidence of fraud or misconduct on the part of management or the board of directors."
After the external auditors resigned saying that the financials couldn't be trusted the fact that an internal report run from the board of the directors clears them mightn't be as generally reassuring as you seem to find it.
It's not my job to explain. Ask Hindenburg Research.
Would that really be a factor? It's hard to call it slander when you agree to pay the fine.
Good.
After the details of the sources on the absurd hitjob they did on Super Micro came out recently, they should be deeply embarrassed.
The whole thing was basically just the claims of a disgruntled sales manager, of very dubious character, fluffed up to seem like there was some legion of internal whistleblowers.
Not to mention relying heavily on mixing in details of long settled previous issues at the company to lend credence to the dubiously evidenced current claims of malfeasance. Shameful profiteering on the part of Hindenburg there.
They should have nipped that report in the bud instead of sloshing it out the door.
Can you say more about the Supermicro “hit job”? Last thing I saw was E&Y resigning as their auditor which certainly suggests some potential accounting issues.
Yea the Adani report already had me skeptical but the Supermicro hit job, and the fact that multiple independent auditors haven’t found the same claimed problems in their accounting, has made Hindenburg look a lot more shady. This to me looks like an incompetent firm that profited from big short positions and potentially false reports, now closing shop so there’s no assets to claim in a lawsuit.
Adani Group which was charged in November by the SEC for bribery?
https://www.hindustantimes.com/business/adani-group-shares-p...
The SEC is charging them with it (as did the DOJ in parallel) - but that’s not the same as a judgment. The way this works is the SEC accuses, and it will need to then go through the legal process of our justice system (or settle it separately). But as of right now, the Adani group hasn’t been found guilty of anything.
The main issue raised in Hindenburg’s report is around accounting. It is too early to draw any final conclusions since I don’t think independent audits have been conducted yet. The Adani group consists of many companies in many industries - some of them did switch auditors after the report came out and financial filings have continued normally since those changes. I don’t think any smoking gun has come out yet that actually proves the accusations from Hindenburg.
Thanks for providing a definition of a commonly understood legal term that I used.
Here’s a screenshot of the accusations of bribery contained in the Hindenburg report: https://imgur.com/a/cta3zuj
If you take even a cursory glance at the report, the main issues are not accounting.
It is interesting that their 'About' page mentions a lot of their work but no mention of Adani - which would have arguably been their biggest.