By Mak Yuen Teen
In a Business Times piece about shareholder activism titled “Taking on the big boys” (May 19), Mr Thio Shen Yi, joint managing partner of TSMP Law Corporation said this about short sellers: “With short sellers, the equation becomes more asymmetrical. Altruism and profiteering seldom mix…It appears more like market sentiment manipulation than genuine activism.” Mr David Gerald, President and CEO of SIAS was even more scathing about short sellers. He said: “Short sellers are to be discounted altogether because they are self-serving. They don’t identify themselves and cannot be reached and cannot be taken to task for misleading the investors….That’s not activism – that’s front running.”
I often write scathing articles about companies and do not engage in short-selling. In fact, I sometimes buy some shares (not sell) when I write negatively about companies, in order to be able to attend shareholder meetings to ask questions as a proper shareholder, rather than having to ask around for a proxy. It is only a few hundred to 1,000 shares and I am prepared to lose my “investment”. In that sense, I am a silly investor, buying shares in companies to lose money.
However, I do not agree with the sweeping views about short sellers and cannot see why we would so clearly differentiate them from analysts and brokers who generally make buy recommendations (occasionally “hold”, and rarely “sell”). They too have a profit motive. So, if they write a positive report to induce their clients buy shares, which in turn benefit them, is that front-running? For that matter, auditors, lawyers, independent financial advisers, sponsors, intermediaries, etc. all have profit motives, so should we discount all their opinions and advice too (truth be told, that may not necessarily be a bad idea sometimes).
There is a reason why short sellers don’t identify themselves – because no company will ever sue analysts for saying positive things about the company even if they are flat out wrong, but companies often respond to short sellers with threats of defamation suits. This is particularly the case in countries like Singapore where it is quite easy to sue for defamation, sometimes to discourage fair comment. Bear in mind that the Goliaths who are often the subject of criticism have plenty of resources to sue, while the Davids doing the criticism may have to incur legal costs to defend their right to comment. Let us not forget that in some scandals involving charities here, whistleblowers were threatened with defamation suits and had to settle even though their allegations eventually turned out to be true or substantially true.
When I write about companies or individuals and identify myself, I have to be sure that I get my facts right to avoid threats of defamation suits. And despite my often very detailed commentaries about companies, there are many things I generally know about a company but do not include in my commentaries. Even then, I still get such threats from time to time. Therefore, I can fully understand why short sellers who issue detailed negative reports on companies may not want to reveal their identity.
As for not being able to take short sellers to task for misleading investors, when was the last time an analyst was taken to task for making wrong “buy” calls? Or a professional or investor body for giving out best governance or transparency awards to companies that shortly after implode in a scandal? In fact, over the weekend, someone sent me the link to an online report titled “Best-In-Class SGX Undervalued Stocks” dated May 16, 2018. The report said this about one company: “[XYZ’s] shares are now hovering at around -97% beneath its actual worth of $1.16, at a price tag of S$0.038, according to my discounted cash flow model. This mismatch indicates a chance to invest in [XYZ] at a discounted price. Furthermore, [XYZ’s] PE ratio is around 12.94x against its Internet peer level of, 30.68x indicating that relative to its peers, [XYZ’s] stock can be bought at a cheaper price. [XYZ] also has a healthy balance sheet, with near-term assets able to cover upcoming and long-term liabilities. [XYZ] has zero debt on its books as well, meaning it has no long term debt obligations to worry about.”
And what company is XYZ? YuuZoo Corporation – a company which, together with its former executive chairman, are currently under investigations by the Commercial Affairs Department. Thankfully, investors cannot follow the advice to buy the stock because it is currently suspended from trading. As for zero debt, a beggar is often also in the same position.
In this case, the writer has put a name, but how would we even know if the name is real? And even if it is, is he going to be held accountable? Are brokers and analysts ever held accountable for their wrong calls? At least for short sellers, they have skin in the game, so if the market does not agree, they stand to lose money.
At the end of the day, we should look at the message rather than the messenger, and if there is a proper basis for the message – whether we are talking about short sellers or analysts. Don’t shoot the messenger just because we do not like what he has to say.
