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发帖数: 562 | 1 From Keith Fitz-Gerald who recommended the stock:
How to Handle a Short Attack on a Stock You Own
Keith Fitz-Gerald Jun 03, 2015
An anonymous individual writing under the name “The Pump Stopper” launched
a vicious attack on Ekso Bionics Holdings Inc. (OTC:EKSO) yesterday that
immediately pressured the stock and caused it to drop 24.28% to close at $1.
36 a share on heavy volume. Understandably, that makes a lot of people
nervous.
Here’s the thing, though.
If you’ve been in this game long enough, you know what to look for and why
stuff like this isn’t a big deal in the scheme of things.
Today we’re going to talk about how to recognize a legitimate short versus
a short attack and what to do about it, especially when it comes to a stock
you may own like Ekso.
Here’s what you need to know:
First, let’s tackle the elephant in the room – stock manipulation.
Most investors are familiar with the phrase “pump and dump.” That’s what
the SEC calls a form of financial fraud used to artificially inflate the
price of a stock – usually a small-cap or microcap – for personal gain by
distributing misleading and false statements. That’s the pump.
The dump comes later when the fraudsters suddenly sell their stock en masse
and the price drops catastrophically, causing investors to lose their money.
It used to be done in so-called boiler rooms or small back offices like
those depicted in the film The Wolf of Wall Street, but now it’s most
commonly perpetrated via the Internet and chat boards. Pump and dump is so
extensive that these kinds of stock scams may now account for an estimated 5
-15% of all spam email.
It’s blatantly illegal.
The reverse of that is called “short and distort.” That’s what’s
happening with Ekso.
Instead of buying the stock in question, the perpetrators typically short
the targeted company first, then release theoretically independent reports
and analysis that is little more than a thinly veiled smear campaign. Once
the stock has fallen, the parties involved buy to cover, bank their profits,
and hopefully disappear.
This, too, is illegal, but that doesn’t change the fact that it happens all
the time.
Sadly, the SEC is totally outclassed and seemingly always a step behind.
They simply don’t have the resources to detect, prosecute, and punish every
short and distort artist out there.
Many people wonder how this is possible, especially today. It’s not as
difficult as you would think.
TV personality Jim Cramer gave a hair-raising interview in December 2006
that was aired in March 2007, describing how hedge fund managers and others
push stocks higher or lower at will, stating specifically that some hedge
fund managers spread false rumors to drive a stock down.
“What’s important when you are in that hedge fund mode,” he noted at the
time, “is to not do anything remotely truthful because the truth is so
against your view, that it’s important to create a new truth, to develop a
fiction.”
Then he outlined three ways to do that:
Spread false rumors
Drive futures
Give information to reporters who would then spread the “news” giving it
an air of legitimacy
So how do you recognize legitimate shorting versus a short “attack” or
even a bluff?
There are a few giveaways:
First, real short sellers don’t hide behind anonymous Internet chat boards
and cutesy names. They don’t have multiple email accounts to engage in
rumor mongering. And they don’t have websites registered in Panama that
have been through nine changes hosted on seven different name servers over
the past eight years. That’s because guys like George Soros, Simon Cawkwell
, Mark Cohodes, and Jim Chanos – some of the most famous legitimate and
successful short sellers of our time don’t need to. They’re idea-driven.
Second, real short sellers don’t want attention. In fact, they want the
exact opposite – not to tip anybody off so that they have an extended
period of time to maximize their positions. “Short and distort” sellers
typically use high volume activity to drive prices down quickly in their own
self-interest rather than see them collapse under their own weight.
Third, real short sellers publish factual information if they publish
anything at all. Short and distort artists string together information that
may or may be germane, let alone accurate under the guise of personal
opinion that makes it hard to prosecute. They rely on selected information
that is taken out of context or partial truths and inference. Ethics have
very little to do with how they play the game. Their sole interest is in
creating short term angst that causes investors to bail so that they make
money buying depressed shares.
Obviously, this is not pleasant for anybody. Short and distort artists prey
on panic. They have a demoralizing effect that can hurt not only individual
investors but also the companies they target by slowing down financing and
growth.
Believe it or not, though, there is a silver lining.
Sometimes short sellers get burned by their own mojo. If enough people come
back into a stock, that pressures the short sellers who are then forced to
cover at higher prices in something called a “short burn.” The irony is
that many times it’s their own actions that light the fire.
The other thing to think about is that if you buy off on the targeted
company’s potential – in this case Ekso – a short attack can be a super
time to pick up shares that are temporarily “on sale.”
Speaking of which…
What’s Happening with Ekso
Less than an hour after I learned about the story, I was on the phone with
Ekso’s CEO Nathan Harding and CFO Max Scheder-Bieschin. As you might
imagine, I share your concerns given the very serious nature of the
allegations being made. So, I was keen to speak with them.
I learned that the company will be issuing a point-by-point rebuttal to The
Pump Stopper and that it will be posted on Ekso’s website as soon as
possible. That way all interested parties – investors and “The Pump
Stopper” alike – will have access to it at the same time.
This is absolutely consistent with what you would expect from a public
company in Ekso’s position and in full compliance with SEC regulations,
including FD, Rule 10b5-1 and Rule 10b5-2 governing the release of material
non-public information.
The Way to Defeat “Short and Distorts” Is by Keeping Perspective
I’ve studied Ekso carefully, reviewed competitive offerings carefully,
visited headquarters and, talked extensively with C-level executives, Ekso
users, and even health care professionals.
To be very clear, I saw and still see tremendous potential ahead.
Short attacks like this are unfortunate and gut-wrenching. But they come…
and they go.
“The Pump Stopper’s” allegations seem credible at first glance, but many
of them don’t make sense if you stop and think about them logically for a
minute.
Take the allegation that Ekso’s testing centers now prefer competitive
products, for example. These are the top treatment centers in the world. It
’s not in their interest to be exclusive with any manufacturer… not Ekso,
not ReWalk, not Cyberdyne. You could easily substitute their names instead
of Ekso’s and instantly those companies would be on the defensive.
Instead, what these treatment centers want is to evaluate and use as many
options as possible. They have a medical obligation to their clients to test
any device with potential. That way they can offer the broadest spectrum of
treatment.
Ekso has never communicated a goal to be the only one there, nor have they
claimed that Ekso suits work on all patients. That’s an inference “The
Pump Stopper” hopes you’ll make so you’ll hit the sell button and make
HIM money.
Or how about the list of employee defections?
People come and go all the time, so employment ebbs and flows with every
startup, not just Ekso. This isn’t unusual if you understand how Silicon
Valley startups work.
Further, according to CFO Max Scheder-Bieschin, many of those same people
are actually working at Ekso again at this very moment. The Pump Stopper
doesn’t want you to know that because that interferes with HIS agenda.
Obviously, this situation is a long way from over, which is why I am
watching it carefully. There may be more selling ahead. In fact, I’d bet on
it.
But what I wouldn’t do is abandon ship in a panic.
We’re talking about a stock that’s between $1 and $2 a share. It’s not
like we’re talking about Netflix at $624 a share here. So your downside is
limited.
That said – to be really blunt – if you cannot handle the loss of $0.37 a
share, you have no business investing in the stock market let alone a
startup company like Ekso. Investing is risky and all investments can lose
money. That’s why you never, ever invest money in any stock that you can’t
afford to be without.
Further, if you’ve taken emotion out of the equation and properly position
sized your investments, including Ekso, in keeping with the Total Wealth
Tactics we’ve discussed many times, you’re not going to blow up your
portfolio if something goes wrong.
And, finally, keep my original instructions in mind. Ekso is a long-term
investment that will be volatile. Startups always are. That’s why my
original instructions were to average down if the stock fell to $0.75 per
share. Barring any change in the material information that Ekso releases
shortly regarding The Pump Stopper’s allegations, those still stand.
Still, I know this is tough. Nobody likes to see a stock they believe in get
clobbered for any reason… but keep it in perspective.
Microsoft is on track to do $99.3 billion in global revenue for 2015. In
1976, it booked $16,005.
Many times stocks that are ultimately big winners feel frail in the
beginning.
Best regards,
Keith Less |
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