With the Ontario Securities Commission seemingly putting the final nail into Sino-Forest on Friday it should be obvious to everyone by now that when dealing with North American listed Chinese companies any sign of smoke should be assumed to be the sign of a raging fire.
In other words, if you own one of these and you see a short seller target it, sell first and ask questions later. Based on what I’ve seen the odds of one of these short sellers targeting a legitimate company seems to be very, very low.
I posted articles on Muddy Waters for Gurufocus.com as they recommended selling a serious amount of Chinese companies over the past year. In each instance the analysis of Muddy Waters has been spot on. Each time I posted an article the comment section was filled with investors suggesting Muddy Waters was the dirty party and that the company in question was a valid business.
I’ve been on the wrong side of a short-seller outing a scam as well. The company was ACLN Ltd which I owned and Herb Greenberg started raising flags about. I talked myself into believing that I was right and he (or whoever tipped him off) was wrong. That cost me a lot of money as ACLN Ltd became the first fraudulent company to be kicked off the NYSE in 25 years.
My point is that from what I have seen over the past 15 years of investing is that it is very unusual for a legitimate company to be accused of being a scam. If you own one that becomes the target of such allegations the best course of action is almost always to sell immediately. As I’ve proven with my mistake, it is hard to admit when you have been taken by a scam, but swallowing your pride is really the way to go.
The Washington Post profiles one of those short sellers. A gentleman running a very small hedge fund which has had some serious success shorting fraudulent companies: http://www.washingtonpost.com/business/gaining-by-betting-against-flimsy-chinese-firms/2011/08/20/gIQAe4KFgJ_story.html?wprss=rss_homepage
In other words, if you own one of these and you see a short seller target it, sell first and ask questions later. Based on what I’ve seen the odds of one of these short sellers targeting a legitimate company seems to be very, very low.
I posted articles on Muddy Waters for Gurufocus.com as they recommended selling a serious amount of Chinese companies over the past year. In each instance the analysis of Muddy Waters has been spot on. Each time I posted an article the comment section was filled with investors suggesting Muddy Waters was the dirty party and that the company in question was a valid business.
I’ve been on the wrong side of a short-seller outing a scam as well. The company was ACLN Ltd which I owned and Herb Greenberg started raising flags about. I talked myself into believing that I was right and he (or whoever tipped him off) was wrong. That cost me a lot of money as ACLN Ltd became the first fraudulent company to be kicked off the NYSE in 25 years.
My point is that from what I have seen over the past 15 years of investing is that it is very unusual for a legitimate company to be accused of being a scam. If you own one that becomes the target of such allegations the best course of action is almost always to sell immediately. As I’ve proven with my mistake, it is hard to admit when you have been taken by a scam, but swallowing your pride is really the way to go.
The Washington Post profiles one of those short sellers. A gentleman running a very small hedge fund which has had some serious success shorting fraudulent companies: http://www.washingtonpost.com/business/gaining-by-betting-against-flimsy-chinese-firms/2011/08/20/gIQAe4KFgJ_story.html?wprss=rss_homepage
