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Short Seller defends Herbie

mhatmccane

409 posts

Joined
1/20/2006

Short Seller defends Herbie
Posted: 13 Mar 06 10:04 PM

Confessions of a short-seller

It's never easy to make money betting stocks will go down. Here are three things I've learned that short-sellers might want to keep in mind right now.

By Bill Fleckenstein

In this week's Contrarian Chronicles, I'd like to "package" three lessons about the vagaries of short-selling, drawn from my daily column:

First: Be vocal about potential corporate chicanery, be prepared to endure the whipping-boy label and know you're onto something.
Second: Never underestimate the power of bullish psychology.
Third: Be mindful of Fed-related minefields.

Greenberg fends off first-degree Byrnes
Let's begin on point one with the recent flap over the SEC, Overstock.com (OSTK, news, msgs) and my friend Herb Greenberg. For those who don't know, Overstock's CEO Patrick Byrne is (to be generous) a bit of a wild man. In any case, Byrne claims that his stock price has been taken down by a conspiracy promulgated by short-sellers and Greenberg, a financial journalist.

To address that preposterousness: Short-sellers do not make stocks go down. That is, they don't cut the dividends. Nor do they drive stocks to ridiculous prices in the first place to make them attractive short-sale candidates. It's company managements that make the mistakes that lead to problems that short-sellers attempt to capitalize on.

In any case, I do not have an ax to grind with Overstock, because it's too kinky for me. But I do know a disaster when I see one, and, if I had to make a bet, I'd bet that Overstock will turn into a disaster, if it isn't already.

Whenever companies start blaming short-sellers, management is almost always guilty of whatever you think it's guilty of -- and oftentimes much worse. Herb Greenberg is an incredibly honest, ethical man. For Patrick Byrne, of all people, to accuse him of being sleazy is just absurd. Thanks to SEC Chairman Christopher Cox for suspending Herb's subpoena, but maybe he should send one to Byrne.

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Specific Stocks

Overstock.com (OSTK)

Short Seller de...