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How are Wall Street’s short sellers holding up against Elon Musk and Tesla?
Posted on November 28, 2018 by Charles Morris
Love ‘em or hate ‘em, you have to give the short sellers credit for their dedication. Hedge fund manager Mark Spiegel even follows the market while taking a bath - two computer screens perched near the tub keep him apprised of the latest ill winds. Much of his time is spent sitting at his dining room table, sending a steady stream of tweets explaining why Tesla will eventually crash and burn, making Spiegel an even wealthier man.
Above: Tesla logo (Instagram: investorsniper)
Spiegel, a colorful character profiled in a recent Washington Post article, is part of one of Wall Street’s most aggressive, collective short bets against a single company in history - a $10 billion wager that says Elon Musk’s dream of freeing the world from fossil fuels will fail.
So far, that bet has been a loser, but Spiegel isn’t ready to back down. “I am very patient,” he told the Post. Others have proven less stubborn. Well-known short Andrew Left, who has been a vocal critic of Musk and Tesla for years, recently relented and went over to the long side, saying “nobody can change the narrative on this thing.”
As Tesla has grown, many foolhardy short sellers have felt the burn. However, the Post points out that it isn’t just Tesla. US stock markets have been on a roll for nearly a decade, and the nabobs of negativity have taken a beating overall. Since 2013, short sellers waging campaigns against particular companies have lost an average of about 0.5 percent, according to Activist Insight Shorts. Since the 2008 stock market crash, the number of hedge funds focused on betting against companies has fallen by more than half.
Shorting is by definition a contrarian activity, and therefore a risky one. In addition to monetary losses, those who would pollute the punchbowl also face moral opprobrium. “These people are much more concerned about profits than what’s best for our children,” Tesla investor Ross Gerber told the Post. “Morally speaking, you can short Snapchat all you want. Go short Facebook. Tesla’s whole purpose is to create an electric infrastructure so we can address the issue of climate change.”
Some short sellers object to being cast as villains, and say that they serve a useful function in the market, blowing the whistle on fraudulent companies such as Enron. Fahmi Quadir of Safkhet Capital targeted Valeant Pharmaceuticals, which recently saw its stock price tank amid accusations of massive fraud. Quadir is also short Tesla. “I need to support the value short sellers play in the market,” she said. “Short sellers are like our first line of defense. They will be asking the questions that others won’t be to get to the truth.”
Above: Here's why one high-profile Tesla short seller, Andrew Left, decided to change his mind on the company (Youtube: CNBC Television)
Elon Musk’s opinion of the shorts has evolved over time. In 2012 he tweeted that while “they cause me grief, I would defend the rights of shorts to exist.” More recently, as the attacks against Tesla have swelled to a tidal wave of FUD, his disdain has grown. “The last several years have taught me that [short sellers] are reasonably maligned. What they do should be illegal.”
While Nasdaq and other institutions have recently taken measures to require more transparency from short sellers, an outright ban is far from likely, and probably not as good an idea as frustration makes it seem. What the shorts fear far more than legal action is big losses, and in Tesla’s case, that’s just what they’ve been getting. Mark Spiegel’s hedge fund is down about 15 percent so far this year, mostly because of his bet against Tesla. The stock’s extreme volatility adds another layer of risk. “You wind up essentially getting whipsawed many times,” Spiegel said. “We have realized a lot of losses there.”
However, Spiegel and his colleagues will continue to prepare for the best and hope for the worst. “Part of my job is to make sure it doesn’t crush me before it collapses,” he says.
Another prominent Tesla short seller is David Einhorn, who was profiled in a recent article in Institutional Investor. Einhorn, a billionaire investor who was once regarded as a stock market genius, has fallen on hard times. His Greenlight Capital hedge fund has trailed the market since 2009. From a peak of $11.8 billion in 2014, Greenlight’s assets had shrunk to $6.4 billion by the end of 2017. In recent years, Einhorn has lost a bundle shorting various companies, including tech high-flyers such as Netflix, Amazon and Tesla.
In its glory days between 1996 and 2006, Einhorn’s Greenlight boasted annualized returns of 26 percent. His attack against Lehman Brothers, which began less than a year before it filed for bankruptcy, made Einhorn a short selling legend - in some circles, his name is used as a verb to describe the process of destroying a company’s stock price by means of criticism in the media.
Above: Short Seller David Einhorn (Image: Varchev)
For some in the short community, Einhorn remains a hero who’s just going through a rough patch. Among his admirers is that Brainiac of the bubble bath, Mark Spiegel. “He’s a terrific guy, and I’m sure he’ll come back,” says Spiegel. The two have collaborated on anti-Tesla presentations in the past. Spiegel still hopes to share a toast with Einhorn the day TSLA drops to zero, but he realizes that failure isn’t assured. “If David doesn’t come back, then I won’t come back.”