MW is speaking to a particular audience here— those who hold a position but do not follow the company closely. I’m thinking of quants, new investors, certain widely diversified, generalist funds, short-term traders, and certain private investors that don’t dive into the details. The example of Burford Capital, targeted by MW a couple of years ago, demonstrates the playbook: 1) choose a company with a complicated business structure & accounting; 2) choose a company that’s financial in nature, increasing the trust factor with respect to marks, reserves, etc.; 3) Call that trust into question with cherry-picked examples; 4) Ignore counter-examples & disconfirming evidence; 5) make the accusation following a run-up in price, when the stock is perhaps beginning to attract a broader following (better yet, in a quiet period…); 6) carefully deal in innuendo and insinuation rather than in outright accusations of fraud. The calculus becomes “how can we craft an argument that’s plausible enough to scare someone away that doesn’t understand the company well, while avoiding a lawsuit?”
