Problem is, it's almost impossible to know unless you're there. Companies that are dependent on financing might not get financing if loud short sellers are able to change the narrative, and then fail to achieve goals that would be achievable if investors were on board.
I don't know enough history to know concrete candidates, but I'd be very surprised if no company had ever been stopped from achieving a good trajectory by short sellers and other naysayers changing the perceptions of investors. Yes, there is a value in short selling as a market mechanism to detect fraud and correct incorrecly priced companies, but it's naïve to think it doesn't also incentivize destruction of initiatives that are actually valuable.
I did follow the short campaign against Tesla closely from 2014-2018. And that project was vicious. I could easily see it toppling a less-financed company, or one where the quality of their engineering was less obvious. And trust me, although things might look black and white in retrospect, there was nothing obvious about Tesla's success in 2014. The indications were pretty clear if you followed it closely, but this reality was in very sharp contrast with the narrative. I believe it was a closer call than most would believe in reterospect.
Comparisons with Nikola nonwithstanding, I believe you're wrong about loud short sellers in general not being able to destroy the prospects of a company that would succeed in their absence.
It's also fairly trivial to see that it's possible to destroy some companies this way simply by noting that some companies succeed and some companies fail, which implies that there exist companies at the margin whose success or failure depends on things like financing availability or interest rates.
Moreover, companies in that position are exactly those with the greatest profit potential for short sellers. Companies that are obviously going to succeed or already have aren't likely to decline in value in the near future. Companies that are obviously going to fail will have declined in value already.
The largest opportunity for short sellers is when there is that uncertainty, because then you have a company walking a tightrope and there are people willing to bet that they make it to the other side. The short sellers can take their money and then give the company a hard shove and hope that it makes them fall.
>The largest opportunity for short sellers is when there is that uncertainty, because then you have a company walking a tightrope and there are people willing to bet that they make it to the other side.
Provide an example of this happening.
Judging by many of these comments, I'm not sure some people here understand the mechanics of how selling shares short actually works. It does not, defacto, destroy any value in the company.
There's a pretty good case that they were trying to do this to Tesla. We heard all these claims about how nobody was really buying their cars and so on, which turned out to be bullocks, but were being made at a time when they were in a precarious financing situation.
But the general problem with asking for examples is that nobody has the inside information necessary to verify them. I can point to any company that went bankrupt following negative media coverage at the behest of short sellers, but how is anybody supposed to prove whether or not they would have survived in the alternative?
> Judging by many of these comments, I'm not sure some people here understand the mechanics of how selling shares short actually works. It does not, defacto, destroy any value in the company.
Are you sure you know how short selling works? Short sellers borrow shares in the company and then sell them, which temporarily increases the supply of shares on the market and suppresses the price. If the company at that point issues new shares or wants to borrow money against the value of their stock, it costs them money, i.e. reduces access to capital or requires them to pay higher interest rates, which negatively impacts the business.
And that's just the result of the actual short selling, not including the reputational harm caused by false allegations (or over-hyped technically true allegations), which can reduce demand from not only investors but the business's customers.
There's also a nicely written Forbes piece [1] from January, which focuses on the then-current Tesla situation, but which also references the Bill Ackman v Herbalife short battle.
Another, perhaps ultimate, persuader of the value to markets/investors of short-selling would be Michael Lewis's book, The Big Short [2]. An often overlooked point about short-selling is that it is frequently done, and it was certainly so in this case, in demonstration of utter conviction that the masses are being duped; rather than as some calculated bet against a single company.
Lots of companies finance themselves by debt or stock offerings, this being especially relevant in distressed situations. There has to be a buyer on the other side. Short selling, even if not accompanied by short reports, is visible to market participants.
If anything it promotes good corporate behaviour. See Steinhof as a good recent example of a company outed for fraud on an industrial scale by a professional short seller
>I believe you're wrong about loud short sellers in general not being able to destroy the prospects of a company that would succeed in their absence.
You believe I'm wrong, but can't name a public company that had its prospects destroyed by a short-seller? I take issue with that.
>I did follow the short campaign against Tesla closely from 2014-2018. And that project was vicious.
What leads you to believe that this is a "done-deal", and that Tesla has "won"? There are still many open questions about this company.
Did you know that the Wirecard fraud went on for a decade, and even the German financial regulators were going after journalists and short-sellers to protect the company? And it was a huge fraud. Now that it's out in the open, it's a very interesting read:
Nothing is ever a done deal. I'd wager money that Tesla will never drop below a market cap of $50 billion again, which is plus/minus 50% an OK definition of "succeeding" for the sake of my argument -- when seen against the narrative in the 2014-2018 timeframe -- but the prospect of a company is always probabilistic, and I'd never act in conflict with that understanding. It's only in reterospect that most will erroneously be convinced that the outcome was certain.
You can't prove a negative, and I was clear that I don't have the historic knowledge to provide good candidates for what you're asking. They certainly exist; sibling commenters have made some attempts. I made this comment because I didn't want your implied statement of "if you can't mention a specific name, you're wrong" to stand without providing a reasoned counter-argument.
The thing with Tesla is that they actually had their own tech IP and a killer product.
Nikola lied about its trucks, and now plans to outsource all of its production to other CV manufacturers, or at the very best buy parts off the market and "integrate" them in house.
Since they don't have the killer tech or top engineers what's stopping the next charismatic founder from selling the same exact thing Nikola has (dreams and a couple wrenches and bolts) and eating their lunch?
They have no working trucks or plans to begin production any time soon. And for a while their market cap was larger than Ford and GM.
Not saying they can't be successful, but Tesla they are not.
I wasn't explicit about this, but I fully agree that Nikola
is most likely smoke and mirrors. I was making a point about loud/activist short selling in general.
> Companies that are dependent on financing might not get financing if loud short sellers are able to change the narrative
How would this scenario play out for a non-fraud and non-zombie business? If a publicly-traded company is in such a precarious state that they need the large cash infusion of either debt or a secondary offering to remain in business, the conclusion is that the business is non-viable. Either they IPO'ed prematurely or the expected growth isn't materializing. The short-sellers are performing the broader market a service in this case.
I did follow the short campaign against Tesla closely from 2014-2018. And that project was vicious. I could easily see it toppling a less-financed company, or one where the quality of their engineering was less obvious. And trust me, although things might look black and white in retrospect, there was nothing obvious about Tesla's success in 2014. The indications were pretty clear if you followed it closely, but this reality was in very sharp contrast with the narrative. I believe it was a closer call than most would believe in reterospect.
Comparisons with Nikola nonwithstanding, I believe you're wrong about loud short sellers in general not being able to destroy the prospects of a company that would succeed in their absence.