In the world of investing, the number one rule is try not to lose money. Most investors are focused on the upside, because your wealth will increase if you are close to being correct, just a matter of how much of an increase. With the emphasis on the upside, every company no matter how big or small is focused on showing they are growing, unless there is a recession and why they would be one of the few companies making tremendous profits. After a few years in business, companies tend have assets – land, bonds, etc. that have gone up in value and to ensure reasonable stable earning they can sell some assets to ensure they meet the expectations of the street. But what happens when a company stretches the true of accounting or uses accounting tricks to show a profit when in reality they are losing money. Fortunately, for investors there are some possible solutions.

In an article from Reuters, one of the solutions since 2017 is a short seller firm called Hindenburg Research. Ideally under AI, the process will get easier, but there are companies such as Hindenburg that are skeptical of every earnings report. Some sound great, but they are built on a house of cards and can come tumbling down. However, it takes a great deal of research, then the correct conditions before everyone sees what the Research team sees.

Hindenburg Research went through a number of companies and did not believe the story being told, some were outright lies. Then the company began to short the shares of the company, it involves borrowing stock to sell it and hopefully buying the stock back at a lower price and pocketing the difference. The risk is if the price rises, the seller can be exposed to potentially unlimited losses. To short means the cost of borrowed money, plus margin, plus needing the stock to fall drastically to make money.

Over the years, Hindenburg Research shook some empires that we felt needed shaking up and nearly 100 people have been charged by regulators, said Nathan Anderson, President of Hindenburg Research.

Once reports have been written, regulators examine them, and there is time delay before verification of either fraud, accounting issues, or mismanagement.

After the short seller’s report is issued, senior management of the company will accuse the short seller of having a vested invested, use the Public Relations to explain what a sound company it runs, and the list goes on. To be a short seller, one needs a thick skin.

Linking to dividend paying stocks, ideally because a number of analysts follow the company and over the years they should understand the company as it meets expectations, no short seller should be reported on your investment. We all know companies shares go up or down or fluctuate but over the long term, many will rise in value. The issue for the larger company is that there should be no reason for fraud in the accounting books, if there is quickly find alternatives because there will be a time delay before the stock will tend to go up.

There are more questions than answers, till the next time – to raising questions.