Hedge fund managers are increasingly tweeting their research and their sharp-edged attacks betting that a company’s stock will fall instead of rise, in a medium that was made for stirring up trouble.
Last October, shares of NQ Mobile, a Chinese company that provides security apps for mobile devices, were trading at around $25 each. By the end of the year, however, its stock had been slashed by more than half to around $11 per share.
The reason: short seller Carson Block. And Twitter.
Block, who is notorious for issuing scathing reports detailing suspect accounting practices at publicly-traded Chinese companies he is short selling, used Twitter as the launching pad for his attack against NQ Mobile, tweeting multiple times a day to the nearly 15,000 followers of his hedge fund research firm Muddy Waters his belief that the company was fraudulent. And though shares of NQ Mobile are trading back up around the $20 mark today, investors who were short the stock in the fourth quarter of last year stood to make a killing.
"We started our Twitter account initially as a way to disseminate information about the companies on which we write," Block said in an email to BuzzFeed. "The companies have a lot of resources — shareholder money — to fight against us, and Twitter was a good way to constantly communicate with people both in the U.S. and in China."
Indeed, Twitter has become a favored channel for short-sellers, or investors who bet that a company's stock will fall instead of rise, who are using it to not only disseminate investment positions and research, but also to raise their profiles. Tweeting one's investment position, known in industry parlance as "talking your book" is becoming increasingly prevalent, thanks in part to last summer's passage of the Jumpstart Our Small Businesses (JOBS) Act.
While Block is often cited as one of the originators of the Internet short report, he is by no means alone. Prescience Point, a hedge fund research and short selling firm, earlier this year took a short position in auto parts company LKQ Corporation and began tweeting about how it believed the company was overvalued and had management issues. In just a week, the stock plunged more than 20% from $32.29 to just under $26 per share.
"We decided to start a twitter account a little over a year ago, and as we've put out more accurate, respected reports on certain companies, we gained a twitter following," said Ben Axler, cofounder with Eiad Asbahi of Prescience Point, which has a little over 2,200 followers to date. "We tweet incremental bits of information after we put out a report."
Hedge fund Kerrisdale Capital experienced a similar outcome around this time last year when it began tweeting about its short position in semiconductor manufacturer EZChip, whose stock dropped to around $21 per share from just over $25 in two months.
"Twitter is increasingly used as an outlet to distribute research to the investing community," said Kerrisdale founder Sahm Adrangi, who has actually developed an entire strategy around Twitter that he has coined "tweetvesting."
"Whereas previously only the sell-side had channels to distribute their research, Twitter is now allowing other market participants to share their opinions with a broad audience of investors. It's a key contributor to the overall democratization of research that's been occurring over the past few years," said Adrangi, whose hedge fund has more than 4,500 followers on Twitter.
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