detectives of Wall Street
one of the biggest fears new investors have is: what if the company I invest my hard earned money into turns out to be a fraud? is there a way to mitigate the risk?
there is. in the US, there is. Hindenburg Research has been uncovering frauds, investigating companies, and making money off it.
how does it make money? the company finds companies that have issues, uncovers them, and shorts their stock.
shorting a stock involves borrowing shares, selling them in the market, and then buying them back in the future hoping that it’ll be available at a lower price. this means the steeper the price fall, the larger will the profit. but on the flipside, if the thesis doesn’t play out and the stock price continues to rise, one could theoretically incur an infinite loss on their position
Nate Anderson, a Wall Street investor and stock researcher, started this company in 2017. and yes, he named it after the German airship that blew up in 1937.
history tells us that the most successful shorts are those where a fall is guaranteed and businesses with dubious corporate governance or out rightly fraudulent activities make for perfect short positions. Hindenburg has made a name for itself by revealing such frauds.
last year in September, Hindenburg wrote a report on electric vehicle manufacturer Nikola calling it an “intricate fraud built on dozens of lies” after whistleblowers claimed that its CEO, Trevor Milton, made exaggerated statements about the company.
following this report, the US SEC conducted an investigation and charged Milton with fraud earlier this year in July.
Hindenburg's emergence comes at a time when short-sellers are demonized in the US. many look down upon short selling as making money off someone’s downfall is seen as immoral.
however, with the rise of r/WallStreetBets and the Gamestop squeeze, hedge funds were forced to realign with this new reality.
for example, Citron Research, which made a name for itself as one of the best known short-sellers in the world, decided to stop publishing short selling reports and pivoted its business model in January.
while Hindenburg has found success in digging up and exposing such obscure stocks, it wasn’t spared backlash earlier this year when its radar shifted to SPACs.
with changing times and a euphoric market, finding stocks to short will become a daunting task. will firms like Hindenburg that help in unearthing frauds continue to find success?