The cat is out of the bag! Zak Mir on Tiger Global

I have to admit that I do not read www.ft.com quite as much as I should largely due to time issues. Therefore, it tends to be the Saturday Financial Times which gets the greatest attention. However, this week’s revelation on FT.com regarding the activities of hedge fund Tiger Global were certainly an eye opener, and what I regard as journalism at its finest.

http://www.ft.com/intl/cms/s/0/56b53e6e-70d7-11e4-8113-00144feabdc0.html#slide0

While it may have been an open secret amongst the forces of darkness that private investor favourites Blinkx (BLNX) and Monitise (MONI) were being shorted in massive fashion by somewhat obscure traders, for those holding these stocks over the past couple of years there has been pain to a massive degree.

This is because there was apparently little connection between the pace of the decline of the respective stocks, and the underlying fundamentals. True, in some instance the fundamentals may not have been quite as robust as they should be. But you did not have to have too many years of market experience to smell a rat.

In fact, we can go further into all of this.

The anonymity and use of multiple companies had the effect of concealing not only identity and magnitude of the wilful sabotage of these companies, but also, perhaps most importantly, meant that the average investor stood no chance against the onslaught. They would have to rely on the blogosphere for clues. The bloggers of course pointed to numbers not adding up, led by Blinkx’s nemesis Harvard Professor Ben Edelman.

Edelman

He may have done all his homework perfectly correctly. Nevertheless, the point to be made is that even if he was totally wrong, any company whether good, bad, or ugly could have slid under the shorting attack of the magnitude of Tiger Global with its cloak of invisibility. The bear attack would simply gather its own momentum to create a self fulfilling prophecy as investors panic out as the stock price plunges for no apparent reason. 

Of course, what Edelman was to Blinkx, so Gotham City Research was to Quindell (QPP). It is interesting to note that according to Valuewalk.com Tiger Global was already short of the insurance outsourcer and at the latest count was short of 4.26%. It would be fascinating to know whether the shorter and the researcher’s paths have ever crossed? Certainly, it is much easier to be bearish on a company if you know hedge funds are in their up to the eyeballs. It is also easier to point out weaknesses if you know that going forward a company will be slowly asphyxiated by a share price decline and the board will be left attempting to turn the tide King Canute style.

What the Tiger Global episode appears to illustrate is the way that after regulators have closed to the door on the old long side insider trading and ramping, some players have gone to what could be termed as the “dark side”. This is because shorting companies is not understood by the mainstream, or apparently regulators, as well as it long equivalent. There may have been no wrong doing, no collusion, and no conspiracy regarding the recent histories of Quindell, Blinkx, Monitise et al and the manner of the stock price downfall. But something did smell as they fell, especially as I would venture to suggest that even a whiter than white company attacked in such a way would implode. It would be surprising if the rules are not changed once the dust settles.

As a matter of interest, Valuewalk.com reveals that Tiger Global is short of Dixons Carphone (DC.) through its Fest NV vehicle. It will be interesting to see whether it still goes for the jugular following the FT.com outing, and whether the bloggers will come up with fundamental backing for the bearish position.