Muddy Waters is short

[Intelligent_Investor]

Lmao this dude is a clown. Imagine shorting Microsoft or Amazon because its 18% overvalued based on what you think fair value should be. If I was an investor in his fund I'd be pulling capital right now because he obviously doesn't know how to manage money. Probably has a burner on r/WSB

[Gregmal]

48 minutes ago, Intelligent_Investor said:

Lmao this dude is a clown. Imagine shorting Microsoft or Amazon because its 18% overvalued based on what you think fair value should be. If I was an investor in his fund I'd be pulling capital right now because he obviously doesn't know how to manage money. Probably has a burner on r/WSB

Nah, its actually a very low risk scam-like operation. I'd be shocked if he is still materially short Fairfax. He closes substantial portions of his "shorts" within days of first going public as thats when you get maximum movement. Why wait for fundamentals to prove you right or (likely) wrong?

Edited April 10 by Gregmal

[Crip1]

11 minutes ago, Gregmal said:

Nah, its actually a very low risk scam-like operation. I'd be shocked if he is still materially short Fairfax. He closes substantial portions of his "shorts" within days of first going public as thats when you get maximum movement. Why wait for fundamentals to prove you right or (likely) wrong?

 

Not 100% sure of that. The video of "Help me dig up dirt" suggests more than a short-term short and distort deal, but it may be a matter of "Hey, we orchestrated a 10% drop last time, let's try it again"...the "cost" was a 2 minute video which, clearly, isn't much.

 

-Crip

[MMM20]

https://east72.com.au/wp-content/uploads/2024/04/E72DT-Quarterly-Report-March-2024.pdf

 

[ValueMaven]

Ctrl-F - search for Fairfax: https://business.columbia.edu/sites/default/files-efs/imce-uploads/Graham Doddsville Spring 2024 Issue FINAL.pdf

 

Someone from MuddyWaters talks a bit more about their short-case. 

[sleepydragon]

11 minutes ago, ValueMaven said:

Ctrl-F - search for Fairfax: https://business.columbia.edu/sites/default/files-efs/imce-uploads/Graham Doddsville Spring 2024 Issue FINAL.pdf

 

Someone from MuddyWaters talks a bit more about their short-case. 

geez , he or the newsletter spell Buffett without the T

[MMM20]

3 hours ago, ValueMaven said:

Ctrl-F - search for Fairfax: https://business.columbia.edu/sites/default/files-efs/imce-uploads/Graham Doddsville Spring 2024 Issue FINAL.pdf

 

Someone from MuddyWaters talks a bit more about their short-case. 

 

"But when you see tons of aggression all over the book from the publicly observable financials, you really must question what else is going on. And we didn't really touch on the insurance operations, which we're also looking into." Sounds like another buying opportunity might be incoming.

 

Edited May 17 by MMM20

[gfp]

Just keep in mind that interview is from late February.  Not particularly recent.

[Saluki]

I'm long FFH and FF India, so I don't want to do what I'm about to accuse Muddy Waters of doing, but you have to be really careful about cherry picking data points that confirm your viewpoint.  

 

Yes, we do. There are good investments and bad investments. For example, we can all intellectually debate about Digit’s value. The issue we take is with the approach to marking it. With successive higher VC rounds Digit was marked up.

 

This is a relevant data point. There is a famous former head of a large Wall Street bank who told his traders how to figure out the mark for a large illiquid position for which there wasn't a market.  "Sell 10% of your position, and that's your mark."  So this method kind of works for valuing Digit. If something is worth what someone is willing to pay for it, unless you have evidence of a shareholder from a prior round selling for less than what FF says it's worth, then why is the last known sale price a bad mark?

 

And then lo and behold, we have a pretty significant financial crash in terms of multiples of VC-backed companies. We have a number of IPOs in India that massively underperformed and then they're very slow to take the mark-down. And so intellectually, again, if the approach wasn't, "Well, we really care about the marks," why didn't you take the marks down as fast as you take the marks up?

 

Look for the flaw in this argument:  Lots of marijuana startups went public in Canada and they all imploded.  Therefore, the junior miners in Canada are also in trouble.  If he's saying that INSURANCE companies in India that went public are in trouble, that's relevant. If you mean that food delivery and taxi apps in India went bankrupt, what does that have to do with Insurance in India? 

[Thrifty3000]

6 hours ago, ValueMaven said:

Ctrl-F - search for Fairfax: https://business.columbia.edu/sites/default/files-efs/imce-uploads/Graham Doddsville Spring 2024 Issue FINAL.pdf

 

Someone from MuddyWaters talks a bit more about their short-case. 

 

Wow. He sounds retarded. At best he has a 100 IQ. I love that his advice for serious MBA students wanting to become short sellers is "don't".

 

What a putz.

[nwoodman]

@ValueMaven thanks for the link.  Transcribed the Fairfax section below as it is relatively short.  As @gfp pointed out, the interview is from February.  It’s interesting that they intended to look into the insurance operations, is 3 months long enough?

 

Freddy Brick is a partner at Muddy Waters Capital LLC

("Muddy Waters").Mr. Brick began at Muddy Waters in 2014 and has led Muddy Waters' investments in resource-related issuers since 2017.

 

Editor's Note: This interview took place on February 23rd,

2024.

G&D: We could dive into the ideas and could go into your two most recent shorts. We can start with Fairfax (TSE:

FFH). Do you want to walk us through your thesis on that one?

FB: Ah Fairfax.Everything I'm saying here is just my opinion.

We believe Fairfax based on my review of the data is incredibly aggressive with respect to marking its book. And much of this is allowed, which we never said it wasn't. We just see a great deal of intellectual dishonesty.

In Fairfax, what we see is significant areas where there's subjectivity. So, while the company would like to say, "Oh, well value is where something ends up and it's not about where it's marked today.

And we have this wonderful way of determining intrinsic value and it's completely devoid from a market price." If that were the case, I would think the intellectual honest thing to do is marking very conservatively. And when lo and behold you reach that tangible, whether it's a takeout or crystallization, you take the markup then. What we see in many cases is actually the inverse. Where there's significant subjectivity, which is deviated from an observable price, which to my mind is always a better mark. In my opinion, many of their investments haven't perform as well And that's a pattern over 10 plus years. I think the sell side would like to characterize this as Muddy Waters cherry-picked a few examples and that's really not what we did. We actually identified a pattern of behavior.

We believe there are a lot of things that are dressed up as sales, which are financing transactions. And again, we think this is probably done to benefit leverage metrics.

But when you see tons of aggression all over the book from the publicly observable financials, you really must question what else is going on. And we didn't really touch on the insurance operations,which we're also looking into.

 

G&D: The research report is very specific that it's targeting the holding company, not the subsidiary-level businesses. Do you have a view on the subsidiary-level businesses?

 

FB: Yes, we do. There are good investments and bad investments. For example, we can all intellectually debate about Digit's value. The issue we take is with the approach to marking it.With successive higher VC rounds Digit was marked up. And then lo and behold, we have a pretty significant financial crash in terms of multiples of VC-backed companies. We have a number of IPOs in India that massively underperformed and then they're very slow to take the mark-down.And so intellectually, again, if the approach

care about the marks,' why didn't you take the marks down as fast as you take the marks up?
 

Our gripe is more with the intellectual approach. And not, as characterized by the sell side that, "Oh, Muddy Water has said that Fairfax made some bad investments." Everyone has bad investments.

If you take for example, Exco [Resources]. Exco is an example of throwing bad money after good for over a decade. They first invested in equity, then they did some debt. They went through a bankruptcy process, which we believe for a long time the debt was aggressively marked during that bankruptcy process.There's an observable price where the shares are trading in the OTC market, and they choose to market at a higher price because of their own fair value metrics.Why are you doing this if you're not fussed about day-to-day profitability in the business? Why wouldn't you just take the most conservative approach every time?

 

Then we get to the board, two of his children sit on the board.I believe John Templeton's niece sits on the board. Prem is very open about John Templeton being a great mentor of his. Three other members of the board are I think over the age of 80 or have been on the board for 15 to 20 years. And this is important in the context of these being the people that are supposed to hold this accountable. People think of Fairfax as this big company, it's got a $35 billion market cap. It's very small in terms of people.. And I think that's important in the context of how these things were allowed to happen because there's no real accountability at the board level, in my opinion

Edited May 17 by nwoodman

[Thrifty3000]

23 hours ago, nwoodman said:

@ValueMaven thanks for the link.  Transcribed the Fairfax section below as it is relatively short.  As @gfp pointed out, the interview is from February.  It’s interesting that they intended to look into the insurance operations, is 3 months long enough?

 

Freddy Brick is a partner at Muddy Waters Capital LLC

("Muddy Waters").Mr. Brick began at Muddy Waters in 2014 and has led Muddy Waters' investments in resource-related issuers since 2017.

 

Editor's Note: This interview took place on February 23rd,

2024.

G&D: We could dive into the ideas and could go into your two most recent shorts. We can start with Fairfax (TSE:

FFH). Do you want to walk us through your thesis on that one?

FB: Ah Fairfax.Everything I'm saying here is just my opinion.

We believe Fairfax based on my review of the data is incredibly aggressive with respect to marking its book. And much of this is allowed, which we never said it wasn't. We just see a great deal of intellectual dishonesty.

In Fairfax, what we see is significant areas where there's subjectivity. So, while the company would like to say, "Oh, well value is where something ends up and it's not about where it's marked today.

And we have this wonderful way of determining intrinsic value and it's completely devoid from a market price." If that were the case, I would think the intellectual honest thing to do is marking very conservatively. And when lo and behold you reach that tangible, whether it's a takeout or crystallization, you take the markup then. What we see in many cases is actually the inverse. Where there's significant subjectivity, which is deviated from an observable price, which to my mind is always a better mark. In my opinion, many of their investments haven't perform as well And that's a pattern over 10 plus years. I think the sell side would like to characterize this as Muddy Waters cherry-picked a few examples and that's really not what we did. We actually identified a pattern of behavior.

We believe there are a lot of things that are dressed up as sales, which are financing transactions. And again, we think this is probably done to benefit leverage metrics.

But when you see tons of aggression all over the book from the publicly observable financials, you really must question what else is going on. And we didn't really touch on the insurance operations,which we're also looking into.

 

G&D: The research report is very specific that it's targeting the holding company, not the subsidiary-level businesses. Do you have a view on the subsidiary-level businesses?

 

FB: Yes, we do. There are good investments and bad investments. For example, we can all intellectually debate about Digit's value. The issue we take is with the approach to marking it.With successive higher VC rounds Digit was marked up. And then lo and behold, we have a pretty significant financial crash in terms of multiples of VC-backed companies. We have a number of IPOs in India that massively underperformed and then they're very slow to take the mark-down.And so intellectually, again, if the approach

care about the marks,' why didn't you take the marks down as fast as you take the marks up?
 

Our gripe is more with the intellectual approach. And not, as characterized by the sell side that, "Oh, Muddy Water has said that Fairfax made some bad investments." Everyone has bad investments.

If you take for example, Exco [Resources]. Exco is an example of throwing bad money after good for over a decade. They first invested in equity, then they did some debt. They went through a bankruptcy process, which we believe for a long time the debt was aggressively marked during that bankruptcy process.There's an observable price where the shares are trading in the OTC market, and they choose to market at a higher price because of their own fair value metrics.Why are you doing this if you're not fussed about day-to-day profitability in the business? Why wouldn't you just take the most conservative approach every time?

 

Then we get to the board, two of his children sit on the board.I believe John Templeton's niece sits on the board. Prem is very open about John Templeton being a great mentor of his. Three other members of the board are I think over the age of 80 or have been on the board for 15 to 20 years. And this is important in the context of these being the people that are supposed to hold this accountable. People think of Fairfax as this big company, it's got a $35 billion market cap. It's very small in terms of people.. And I think that's important in the context of how these things were allowed to happen because there's no real accountability at the board level, in my opinion

 

The board gripe is just ignorant. Buffett has gone on record to say most boards are useless, but he says the board structure that seems to be most effective is the one where a family with controlling ownership governs a professional management team (meaning the managers aren't family, and the board isn't dominated by a single person). With that structure there is genuine interest in the best long term performance of the company for its owners.

[sleepydragon]

28 minutes ago, Thrifty3000 said:

 

The board gripe is just ignorant. Buffett has gone on record to say most boards are useless, but he says the board structure that seems to be most effective is the one where a family with controlling ownership governs a professional management team (meaning the managers aren't family, and the board isn't dominated by a single person). With that structure there is genuine interest in the best long term performance of the company for its owners.

Except Paramount ..

[xboojum]

Quote

Since 2021, the valuations for "InsureTech" stocks and Indian unicorns have collapsed. Digit's prospects for an IPO in the near future seem minimal. Fairfax has not mentioned Digit on an earnings call since Q3 2022. Further, our research indicates that Digit has little proprietary technology, and is effectively a fairly conventional, albeit small, insurer in the Indian market. From S&P Capital IQ's comp valuations, we see Digit as generously being valued at ~$1.5 billion presently. We therefore adjust Fairfax's book value downward by -$1.1 billion to align Digit's carrying value with a more reasonable value.

 

Welp! (To be fair, that was three whole months ago.)

Edited May 23 by xboojum

[TwoCitiesCapital]

5 hours ago, xboojum said:

 

Welp! (To be fair, that was three whole months ago.)

 

Was coming here to say just this

[gfp]

Their argument was great, "fintech unicorns have plummeted in value" followed by, "this isn't even a high tech fintech - it's an insurance company!"

[TwoCitiesCapital]

Maybe I'm doing the conversion wrong from INR to USD, but would seem at today's market IPO price that Fairfax was NOT, in fact, inflating the value of Digit by $1.1B on their stake.... 

[marcowelby]

They going after the short seller Andrew Left!

 

https://www.cnbc.com/2024/07/26/short-seller-andrew-left-charged-with-fraud-by-prosecutors-sec.html

 

Is this a general "message"  for other short seller to be careful about what they publish  or do they have plans to actually suing other short sellers?

 

 

[Hoodlum]

1 hour ago, marcowelby said:

They going after the short seller Andrew Left!

 

https://www.cnbc.com/2024/07/26/short-seller-andrew-left-charged-with-fraud-by-prosecutors-sec.html

 

Is this a general "message"  for other short seller to be careful about what they publish  or do they have plans to actually suing other short sellers?

 

 

 

I would think this is a specific case as he gave hedge funds advance knowledge before the report was released, and in exchange the Hedge Funds paid him some of their profits.  

Although the below comments would suggest that any short seller that benefits from publishing a disparaging report is in the SEC's sights now.   

 

“Left knew that his recommendations influenced investors’ decisions to buy or sell stock and thereby empowered him to manipulate the price of a Targeted Security,” the indictment said.

 

“By using the Citron Twitter Account to generate ‘catalysts’ — events with the ability to move stock prices — defendant Left profited from his advance knowledge that he was about to trigger such movements in the market.”

 

After using his influence to manipulate a stock’s price, Left “closed his positions to capitalize on the temporary price movement caused by his public statements,” the indictment alleges.

Edited July 28 by Hoodlum

[Hoodlum]

I hope the SEC names the Hedge Funds that shared their profits with Left (Citron).

[Hektor]

10 hours ago, Hoodlum said:

“By using the Citron Twitter Account to generate ‘catalysts’ — events with the ability to move stock prices — defendant Left profited from his advance knowledge that he was about to trigger such movements in the market.”

Some of Bill Ackman's actions might fit this bill.