The Secret Broker: I’m too
sexy old for my shorts
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
You may not know this, but there has been a change at the top of the order at the Australian Securities police station.
A new top dog has arrived, in a shiny new uniform, after the last one had to quickly exit stage left, before an angry mob of politicians ripped him to bits.
The new Chief Constable in charge of the Australian Securities and Investments Commission – ASIC – is Joe Longo.
He’s been around the block a bit and seems to have a full understanding of all things financial. This week he appeared from behind the curtains to show he means business.
His arrival was heralded by the release of a paper from ASIC titled ‘Activist short selling campaigns in Australia’. It makes for some interesting weekend reading.
I laughed out loud when I realised that Longo had decided to take on the Shortos.
Well actually after reading the paper, not so much as ‘take on’ the market shorters. More of a ‘please read this’ note slipped under the front door to their office.
As we all know, short sellers are made out to be the evil villains of the stock markets and can easily froth up a mob of angry shareholders if they publish an opposite view to a bullish holder.
Boo to them the shareholders cry, angrily populating stock forums to blindly express their financial hurt to the world.
Banners declaring ‘Shorting should be banned’ start appearing outside of exchanges and in the press as clickbait articles.
But here’s the thing that they and the press all miss – when someone is short in a company’s stock, at some point, they have to become a buyer of the shares.
So a seller becomes a buyer.
Elon Musk took on the shorters of Tesla and created what is known as a ‘short squeeze’.
A short squeeze is the term used when everyone scrambles to cover their short positions and sends the share price higher.
Elon, being Elon, sent out Tesla Red pairs of Kylie Minogoue lookalike golden short shorts (who could not forget that video?) to all the main shorters of Tesla shares.
OK, in case you did forget them…
Musk even started selling them on the Tesla website. Then he went in for the kill by producing results which were way above market expectations. The stock sharply rose and went even higher as the short sellers scrambled to buy back their positions.
In the ASIC paper, they want short sellers to check facts with the company, if they are to publish or release their research/findings via social media or the press.
This is a grey area and the ASIC paper also points out that the writer of the report may have insider information – i.e., they have done such in-depth and physical research, that they have more knowledge than the general market.
In the case of the massive US$5.8bn collapse of Wirecard in Germany, when they were approached to comment on accusations of fraud, the company sued the reporter and the newspaper who made the enquiries and went on the attack.
Turns out that it was all true and Wirecard prolonged its demise by continuing to lie.
I particularly liked this from the ASIC paper:
‘The language in short reports can mislead investors and lead to panicked investment decisions. Short reports should be factual, relevant and expressed in a clear and objective manner. Emotive, intemperate or defamatory language should not be used, nor should vague or imprecise language’.
Intemperate means (I had to look it up) “having or showing a lack of self-control; immoderate”. Sounds like me at the bar at the end of the night.
I remember once being in shock, when a few years into broking, we were all called into a room by the firm’s top analyst and presented with evidence of fraud at a publicly listed company. After the presentation was over we all went back to our desks and the chap next to me started selling the company’s shares down.
It was a Friday and the report was going out Monday morning pre-market.
When I told him I don’t think what he is doing is legal, he said I’ll learn.
And learn I did.
Come Monday morning, the shares fell 30% on the release of the report and there he was, phoning up clients with the bad news, and if they did want to sell any, he was a buyer.
In fact he was the only buyer, the whole morning.
Over lunch he defended his actions and explained to me that without his buying, the shares would have fallen more and had a worse effect on everyone’s portfolios.
He kinda had a point, 30 years ago.
These days I am too wise (or old) to bother with short selling, as it really is a specialist’s game. I figure that if I don’t hold a share in a particular company, then I am technically short of them. Otherwise I would just buy a put option and wait.
Or maybe it’s because I can’t stop spinning around in my short shorts anymore without generally offending everyone around me, including the ones who may be Longo or Shorto.
Lalala, spinning around…
The Secret Broker can be found on Twitter here @SecretBrokerAU or on email at email@example.com.
Feel free to contact him with your best stock tips and ideas.