Short Sellers Sue Musk

[Electroman]

When you go Long, you want the company to succeed. You see signs that the company can succeed, but when it doesn't, as a passive Long investor there is nothing more you can do than hold the stock, and sit tight.

When you go Short, you want the company to fail, and fail miserably. You see signs that the company is going to fail one way or the other, but when it doesn't fail - what do you do? You don't sit tight. YOU WORK HARD TO MAKE SURE IT WILL FAIL. You collaborate and conspire with your friends in the media and entities that want the company to die (UAW, Dealers, Big Auto, Big Oil) and spread rumors and lies. The objective of these rumors - company will go bankrupt, Elon is a thief, car will catch fire, no demand, suspension is bad, AP will kill you, yada yada.. - is for the public to lose confidence and stop buying Tesla cars, and that will instigate a downward spiral.

Now what happens even if all of these rumor mongering efforts don't help even make a dent? Then you step up the offensive. Throw a variety of spurious cases and tie up the time and money of their legal department - because every dollar the company spends on these spurious cases is a dollar taken away from productive use.

Now what happens even if that doesn't help? then desperation sets in.. sabotage is the only option.

So sure, poor Shorts have to work hard to make money.

 

[bhzmark]

This guy is one of the plaintiffs:

Will Chamberlain (@willchamberlain) | Twitter



The other plaintiff has a somewhat generic name Kalman Isaacs and virtually no info about him in the complaint, but probably this is him:

 

[AudubonB]

P.S. There is nothing wrong with shorting Tesla. It doesn’t hurt anybody, except the people who lose money doing it.

I have posted elsewhere my justifications for claiming not that there is anything wrong with shorting Tesla, but that there is no justification for short-selling to exist in any capital markets. For me, the absolutely ONLY place the kind of activity that shorting represents belongs... is in the world of gambling.

I come close to vomiting - writing with little hyperbole here - whenever I read arguments claiming that short-selling makes for more efficient capital markets, exposes fraud, and so forth. Balderdash of the first water! That is defensible neither academically nor in the real world.

But enough mincing of words. For me, the single most despicable action of the SEC in my lifetime was the gutting of the downtick rule. Whether something like that exists or existed in your presumed home markets I am not aware, but here it opened a Pandora’s Box of destructive, unjustifiable actions.

 

[strangecosmos]

Shorting a company does no harm to it. Expressing a negative view of a company might.

A lot of the negativity around Tesla comes from people who have no position in the stock. Conversely, most of the shares sold short are sold short by people or institutions who aren’t vocal about Tesla in public.

There is some overlap in the Venn diagram, but most of it is non-overlapping.

People on places like TMC focus too much on a handful of vocal short sellers who have barely any capital, influence, or following. What they say seems inconsequential. For some reason a lot of Tesla fans attribute immense power and influence to Twitter trolls whose only impact on the world, as far as I can tell, is upsetting Tesla fans.

I think the negativity around Tesla comes mainly from cognitive biases and systemic media bias, including the tendency of the news media to latch onto existing narratives (even if they are baseless), overreact to bad news, and paint a picture of a fall from grace or an exciting comeback based on very little real change. People have been making these criticisms of media coverage for decades. I’m just observing the same phenomena play out with Tesla. Dan Gardner’s book Risk is an amazing treatise on this topic.

I think some Tesla fans fall into some cognitive bias traps too. As humans, it is easier for us to attribute some bad phenomenon to scheming, villainous human actors than to some abstract phenomenon. Conspiracy theories take hold because our brains like explanations where things happen because people intended it. People thought the Black Plague was God’s wrath. It’s part of human hard-wiring. Assigning blame for Tesla’s problems with public perception to vocal short sellers is attributing immense, world-shaping power to a small and largely ineffectual group of cranky men who spend far too much time ranting and arguing on the Internet.

Another trap is assigning malice to people who disagree on a highly uncertain matter. If Tesla fans who think all short sellers are bad or evil spent some time learning accounting and doing valuation modelling for Tesla, I think they would appreciate that there are two sides to this debate. Given a cursory glance, Tesla looks like an overvalued company. You have to go deep into the accounting math and make some uncertain assumptions to make a full, quantitative, evidence-based argument that Tesla’s valuation has significant room to grow over the long term. It isn’t crazy or stupid to think Tesla is overvalued, and it certainly isn’t morally wrong or evil.

The reason the stock market exists is because there is uncertainty in the predictions we make about the future. If we knew all of our predictions were 100% accurate, all stocks would be 100% correctly/efficiently priced and buying one stock couldn’t yield a higher return than buying any other, or buying an index fund. Opportunity is proportional to uncertainty and therefore to risk.

The human tendency for tribalism has gone bananas here, with Tesla longs and Tesla shorts forming tribes — an “us” and a “them”. It’s literally just a disagreement about a stock. Forming tribes over your opinion on a stock doesn’t make a lick of sense, but it is so, so human. This definitely distorts people’s rationality. It turns financial inquiry into a bitter fight between opposing camps. That’s crazy.

 

[replicant]

Shorting a company does no harm to it. Expressing a negative view of a company might.

A lot of the negativity around Tesla comes from people who have no position in the stock. Conversely, most of the shares sold short are sold short by people or institutions who aren’t vocal about Tesla in public.

There is some overlap in the Venn diagram, but most of it is non-overlapping.

People on places like TMC focus too much on a handful of vocal short sellers who have barely any capital, influence, or following. What they say seems inconsequential. For some reason a lot of Tesla fans attribute immense power and influence to Twitter trolls whose only impact on the world, as far as I can tell, is upsetting Tesla fans.

I think the negativity around Tesla comes mainly from cognitive biases and systemic media bias, including the tendency of the news media to latch onto existing narratives (even if they are baseless), overreact to bad news, and paint a picture of a fall from grace or an exciting comeback based on very little real change. People have been making these criticisms of media coverage for decades. I’m just observing the same phenomena play out with Tesla. Dan Gardner’s book Risk is an amazing treatise on this topic.

I think some Tesla fans fall into some cognitive bias traps too. As humans, it is easier for us to attribute some bad phenomenon to scheming, villainous human actors than to some abstract phenomenon. Conspiracy theories take hold because our brains like explanations where things happen because people intended it. People thought the Black Plague was God’s wrath. It’s part of human hard-wiring. Assigning blame for Tesla’s problems with public perception to vocal short sellers is attributing immense, world-shaping power to a small and largely ineffectual group of cranky men who spend far too much time ranting and arguing on the Internet.

Another trap is assigning malice to people who disagree on a highly uncertain matter. If Tesla fans who think all short sellers are bad or evil spent some time learning accounting and doing valuation modelling for Tesla, I think they would appreciate that there are two sides to this debate. Given a cursory glance, Tesla looks like an overvalued company. You have to go deep into the accounting math and make some uncertain assumptions to make a full, quantitative, evidence-based argument that Tesla’s valuation has significant room to grow over the long term. It isn’t crazy or stupid to think Tesla is overvalued, and it certainly isn’t morally wrong or evil.

The reason the stock market exists is because there is uncertainty in the predictions we make about the future. If we knew all of our predictions were 100% accurate, all stocks would be 100% correctly/efficiently priced and buying one stock couldn’t yield a higher return than buying any other, or buying an index fund. Opportunity is proportional to uncertainty and therefore to risk.

The human tendency for tribalism has gone bananas here, with Tesla longs and Tesla shorts forming tribes — an “us” and a “them”. It’s literally just a disagreement about a stock. Forming tribes over your opinion on a stock doesn’t make a lick of sense, but it is so, so human. This definitely distorts people’s rationality. It turns financial inquiry into a bitter fight between opposing camps. That’s crazy.

You don't seem to see the big picture: Tesla's mission isn't to make profits (that would just be a by product) but to shift the world to renewable energy. This will bring regimes down, topple dynasties, bankrupt banks and sovereign funds, reshape geography, or whatever .

IMO, there has never been a company with such ambition so I don't think we can consider the long/short fight as some "financial inquiry".

 

[strangecosmos]

You collaborate and conspire with your friends in the media and entities that want the company to die (UAW, Dealers, Big Auto, Big Oil)

This is quite literally a conspiracy theory.

 

[AudubonB]

Trent:

Your posts demonstrate you are an intelligent and responsible person; well able to grasp complex issues. That means that I’m not going to do your homework for you, but strongly suggest you cogitate over what happens to a company’s share price...and the fortunes and reputation of that company - when subjected to a short storm, AND do so once you have read up on my aforementioned “uptick rule”; its reasons for existence and the ramifications of it having been abolished.

I will be quite disappointed if after having done so you do not come away with a different opinion regarding short-selling.

 

[replicant]

https://twitter.com/TeslaCharts/status/1028096926842011648

Hihihi

 

[Menifeer]

I have posted elsewhere my justifications for claiming not that there is anything wrong with shorting Tesla, but that there is no justification for short-selling to exist in any capital markets. For me, the absolutely ONLY place the kind of activity that shorting represents belongs... is in the world of gambling. ..

Are you suggesting the shorting is gambling, but buying long isn't? I really don't see any difference, except for one's expectation of what will happen to the share price.

 

[replicant]

Are you suggesting the shorting is gambling, but buying long isn't? I really don't see any difference, except for one's expectation of what will happen to the share price.

Imagine a theater. With people in it, and a door. We know what happens when someone say "fire!": some people might get out alive but some may be crushed in the stamped.

Screaming fire shouldn't be forbidden because if there's a fire, it's better to panic than to not unaware of the danger. Someone may be mistaken, think there's a fire and scream: that's a also a risk. But why would you incentivize people to report fires? Shouldn't it be enough to let people save lives?

IMO, this is like investing: we want prices to reflect the true value of companies. There's money to gain because successful companies are beneficial to society. And money to lose when the enterprise doesn't benefit society. Losing money is when people get out. When there's a fire, people notice and leave. No need to incentivize the stampede or people get crushed for false positive. Shorts may say they're helping everyone by going into the theatre hoping for a fire (and a gain) but do you really need them?

 

[defc0n]

Imagine a theater. With people in it, and a door. We know what happens when someone say "fire!": some people might get out alive but some may be crushed in the stamped.

Screaming fire shouldn't be forbidden because if there's a fire, it's better to panic than to not unaware of the danger. Someone may be mistaken, think there's a fire and scream: that's a also a risk. But why would you incentivize people to report fires? Shouldn't it be enough to let people save lives?

IMO, this is like investing: we want prices to reflect the true value of companies. There's money to gain because successful companies are beneficial to society. And money to lose when the enterprise doesn't benefit society. Losing money is when people get out. When there's a fire, people notice and leave. No need to incentivize the stampede or people get crushed for false positive. Shorts may say they're helping everyone by going into the theatre hoping for a fire (and a gain) but do you really need them?

Hmm some say shorts help by pointing out the fact the theatre is dangerous and might be prone to a fire. I however don’t buy into this theory. I believe traditional buyers and sellers are capable of doing just that.

 

[strangecosmos]

...it is not only market participants who think shorting is a good thing: financial regulators do too. Iosco (the international college of securities regulators) says: “Short selling plays an important role in capital markets for a variety of reasons, including more efficient price discovery, mitigating price bubbles, increasing market liquidity, facilitating hedging and other risk management activities.”

...

And it is important there is a powerful incentive for investors to find out what is wrong with individual companies. For example, it was shorters who were the first to work out that something was up with Enron.

Short sellers devote considerable time, effort and resources to establishing the reality behind corporate rhetoric.

“Why short selling is good for capital markets” (The Financial Times)

 

[GeorgeSymonds]

Whether potential funding is secured or not, there are two potential losers if the deal doesn't go through:

- Shorts who have to cover their position at a temporary inflated price on the speculation of the deal
- Tesla enthusiasts who bought even more shares at the inflated price believing in the deal

We can debate the sympathy or not for the shorts, but the Tesla enthusiasts will be hurt financially if the share price falls away which it already is doing. I read posts on buyers liquidating all their other shares to invest in Tesla at 375+ which may very well hurt them, at least in the short and middle term. That's not a good place to be.

As for Musk being in trouble - the truth of the situation is irrelevant, the financial markets are more concerned about due process over disclosure and there has to be questions over that. ie what Musk says can be accurate, they are looking to take it private and they do have the funding, but if the company doesn't follow the correct market notification steps then it can lead to market abuse. I'm also worried there is talk of him talking to big investors ahead of the announcement, that can lead to insider dealing. Ask Chris Collins...

 

[Krugerrand]

Whether potential funding is secured or not, there are two potential losers if the deal doesn't go through:

- Shorts who have to cover their position at a temporary inflated price on the speculation of the deal
- Tesla enthusiasts who bought even more shares at the inflated price believing in the deal

We can debate the sympathy or not for the shorts, but the Tesla enthusiasts will be hurt financially if the share price falls away which it already is doing. I read posts on buyers liquidating all their other shares to invest in Tesla at 375+ which may very well hurt them, at least in the short and middle term. That's not a good place to be.

As for Musk being in trouble - the truth of the situation is irrelevant, the financial markets are more concerned about due process over disclosure and there has to be questions over that. ie what Musk says can be accurate, they are looking to take it private and they do have the funding, but if the company doesn't follow the correct market notification steps then it can lead to market abuse. I'm also worried there is talk of him talking to big investors ahead of the announcement, that can lead to insider dealing. Ask Chris Collins...

The longs aren’t hurt if they just simply sit on the shares; they’ll appreciate. Tesla is about to enter profitability this back half of the year. Regardless of the shorts, the stock will rise on that accomplishment and longs that got in at or close to ATH will be rewarded.

 

[GeorgeSymonds]

The longs aren’t hurt if they just simply sit on the shares; they’ll appreciate. Tesla is about to enter profitability this back half of the year. Regardless of the shorts, the stock will rise on that accomplishment and longs that got in at or close to ATH will be rewarded.

Thats not how stocks work - the price already reflects the expected profitability in just the same way the stock price reflected the 5000 cars a week and when it finally occurred the stock actually fell.

But as I said, short and medium term the investors are hurt if the deal doesn't go through, they bought at inflated prices.

 

[Mario Kadastik]

What is proper market notification? Tesla has stated tomSEC in 2013 that Elon8s twitter is an official channel of communication. It has 22M followers and the news was instantly disseminated throughout the investment community. There is no more direct way to inform all interested parties.

At this stage of negotiations it is not necessary to disclose the funding sources, Elon more or less did his due by reporting the start of th proceedings as early as possible to give everyone time. The fact that shorts were caught with their pants down in a circlejerk is their own damn problem.

 

[GeorgeSymonds]

What is proper market notification?

Read up on Sarbanes–Oxley - if Musk can show suitable controls are in place when he shoots off on Twitter then all well and good.

 

[Just a Reader]

This is quite literally a conspiracy theory.

Yes, and funny enough it doesn't get any more "Big Oil" than the Saudis.

 

[Just a Reader]

...

At this stage of negotiations it is not necessary to disclose the funding sources, Elon more or less did his due by reporting the start of th proceedings as early as possible to give everyone time. ....

Sorry, but to claim "funding secured" is an altogether different kettle of fish from "early negotiations to take Tesla private".

 

[Mario Kadastik]

Sorry, but to claim "funding secured" is an altogether different kettle of fish from "early negotiations to take Tesla private".

Funding secured means he has funders who back his bid for going private. A ballpark measure of their capital is enough for Elon to claim funding secured. At the same time, this is just the start of negotiations with the board so it's early enough that there absolutely no need to disclose the details or even less backers. If the board decides to reject the deal, then that's that. If they accept it, THEN this is a material event and needs to be disclosed. Right now they have provided more data than has been necessary.