Quote of the Day: James Montier

James is an unusually clear eyed analyst:

“In good times, few focus on such ‘mundane’ issues as earnings quality and footnotes. However, this lack of attention to ‘detail’ tends to come back and bite investors in the arse during bad times. There are notable exceptions to this generalization…

Contrary to the silly populist backlash which sees short sellers as rumor mongers and conspirators, they are actually amongst the most fundamentally driven of all the investors I interact with. Rather than being some malignant force within the markets, in my experience short sellers are closer to the accounting police (something the SEC once purported to do!).

Whilst companies often accuse short sellers of lying and conspiracy, it turns out that the accusers are often the guilty party. Owen Lamont from Chicago University has examined the battles between corporates and short sellers in the U.S. between 1977-2002. He found that ultimately it was the shorts that were right; the stocks underperformed the market by a cumulative 42% over three years after the start of the battle.”

-James Montier
Mind Matters: Cooking the books, or, More sailing under the black flag
June 30, 2008

via Welling@Weedon

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What's been said:

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  1. dblwyo commented on Jul 25

    Thanks for sharing that – it’s so true and a lesson for the rest of us. In bad times we need to really be looking for good companies for when the turn-around starts…in the sweet bye and bye of course. And steer clear of bad, or worse, companies. Digging into what really makes a company work takes work and some little industry knowledge perhaps. FWIW here’s a short guide: http://tinyurl.com/5leb6h

    Bill Miller at Legg-Mason just got trimmed up by ignoring that problem, not least because he got into the Financials weigh too early without asking what’s their context, what’s the write-off picture, how might a slowing economy spread and, do their business models work. Even when we pay attention to fundamentals, e.g. PE Ratios, just because they’ve deteriorated doesn’t mean they shouldn’t have. A “cheap” price ain’t if revenues and profits aren’t being grown on a sustainable basis.
    Not my business but it seems to me that anybody really investing these days needs to take more lessons from Warren than the talking heads.

  2. Martin commented on Jul 25

    i think the focus and anger focused on short sellers is actually on those who seek to manipulate the market. Recent history (the post below) has taught us that if a market can be manipulated, someone will try. There have been several incidents where traders have failed to locate shares for their naked shorts.

    No pants.

  3. ken commented on Jul 25

    Nothing wrong with short selling, as long as the stocks shorted can actually be borrowed first.

    With the emergence of hedge funds the SEC needs to update its regulations and outlaw shorting without actually first borrowing. This has never been a big problem before the advent of large pools of unregulated capital in the hedge funds. Today it is a major problem causing unaceptable volatility driving investors to the sideline and leaving speculators the run of the table.

    The SEC should also reinstate the uptick rule in some form.

  4. Jim Haygood commented on Jul 25

    “If a market can be manipulated, someone will try.” — Martin

    Yup. You might want to tune in to the pump-monkey channel at 4 pm — Abby Jo Cohen!

    This woman’s absurd, fact-free bullish prognostications have been manipulating the market for years … although they don’t seem to work very well no more.

    Indeed, as a contrary indicator, her untimely appearance suggests to SELL EVERYTHING. Unless, that is, she’s turned BEARISH — in which case, you should rake in far-OOM calls with shovels and pitchforks.

  5. Estragon commented on Jul 25


    If I really wanted to manipulate a stock, why would I bother with naked shorts. Unless the company goes BK, I’m eventually going to have to locate and buy real shares to cover, and I’ll likely be competing with mo-mo traders chasing an upside breakout.

    Surely, if I really wanted to manipulate the stock, I’d use puts. Besides limiting my risk to the value of the options, and maximizing leverage (more shares with less capital) I’d likely be causing the market-maker to delta-hedge by shorting (and MM’s are exempt from must-locate rules).

  6. Estragon commented on Jul 25


    You should read the background on why the uptick rule was dropped. It simply doesn’t make any real difference.

    I’m not sure what your definition of “unaceptable volatility ” is, but you must be young. Take a look at a chart of 1970’s stock prices, for example, and you’ll see that todays moves are a sea of tranquility by comparison.

  7. Christopher Laudani commented on Jul 25


    Can’t agree more! Us short sellers are wicked smart!

  8. lurker commented on Jul 25

    estragon you wily dog. that makes perfect sense to me. well explained!

  9. Terence Burns commented on Jul 25

    Owen Lamont and the University of Chicago are a part of the great short-selling and rumour-mongering conspiracy that’s undermining American business! ;)

  10. CNBC Sucks commented on Jul 25

    What, BR, you don’t think bulls like Bob Doll, Paul McCulloch, and Larry “Drill! Drill! Drill!” Kudlow are unusually clear-eyed analysts? Inflation is down! Unemployment is down! The housing crisis is at the bottom. The financial crisis is not that bad. We have plenty of oil. The dollar will rise again. What’s the matter with you? Happy days are here again…

  11. Steve Barry commented on Jul 25

    Can we all agree to stop using the term “wicked __________”…it’s played out.

  12. TDL commented on Jul 25

    Somewhat related. Doesn’t the old saying “you have to be twice as right when you’re short.”, real saying “You have to do twice as much work to short.”? I always saw short sellers as much savvier and harder working than the “go long all the time, every sell off is a bottom, if you’re negative on the market you are a commie, pinko, anti-American” crowd. But, then again, that’s just me.

    Anyway to short regulations?


  13. donna commented on Jul 25

    We also need to *support* the good companies — I try to purchase products from those companies with sound business practices, like taking good care of their employees so they avoid rapid turnover and the temptation to screw the company with some shady activity or another.

    When did we all forget that business is about more than just making a short-term profit, anyway?

  14. Donkei commented on Jul 25

    The SEC’s just mad at the short-sellers because they’re trampling their turf.

    Nobody else seems to care about the “accounting” except short sellers. That doesn’t look good for the SEC, whose job it is to look after the accounting.

    Government entities are always keen to protect their market niche.

    The SEC’s nonsense proclamations about financial firms (only) will one day be viewed as the pen-ultimate government excess in the market. Why just financials? Why just naked shorts? It’s all bullshit, all the time.

  15. stuart commented on Jul 25

    Peter Schiff from almost 2 years ago….good stuff.

  16. Mark E Hoffer commented on Jul 26

    “We also need to *support* the good companies — I try to purchase products from those companies with sound business practices, like taking good care of their employees so they avoid rapid turnover and the temptation to screw the company with some shady activity or another.

    When did we all forget that business is about more than just making a short-term profit, anyway?”

    Posted by: donna | Jul 25, 2008 5:27:25 PM

    This, by the way, has been the only way to effect any meaningful and long-term Change.

    One’s currency, in the marketplace of goods and ideas, is the ballot, cast every day, that informs our Day, and shapes the ‘morrow.

    Differently, we’ll see why Thrift used to be a virtue, widely taught, and why “Defund to Defend” is, still, a key piece in any War Plan..

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