Guest essay by Eric Worrall
Gordon Johnson of Axiom Capital Management Inc. is the short selling 3rd Avenue Financial Analyst Solar Energy companies are learning to hate. His business is making money from the the failure of unsustainable renewable business models.
Guest essay by Eric Worrall
The Most-Hated Bear in Solar Isn’t Backing Down
16 February 2017, 20:00 GMT+10 17 February 2017, 15:01 GMT+10
When Elon Musk’s SolarCity hosted stock analysts about a year ago to gush about its prospects in the solar industry, Gordon Johnson was nowhere to be found.
It seems that Johnson, a 36-year-old analyst at boutique advisory shop Axiom Capital Management Inc., wasn’t invited. This may not have been an oversight; it happens to him a lot.
“Everybody hates me,” says the New York-based analyst in jest, acknowledging his reputation as solar’s notorious bear, a soundbite-ready contrarian among a group of analysts generally bullish on the industry’s long-term prospects. “Companies don’t like me because I have sell ratings on their stocks.”
…
These days, Johnson has a sell rating on every stock he follows (including some steel companies), and he has a fresh reason — Donald Trump. Johnson figures the president, a renewables critic during the campaign, may attempt to revoke federal subsidies for solar — a minority opinion, to be sure. “It would be a big negative for renewables, particularly solar,” Johnson says. Tax reform would also hurt.
…
A solar skeptic since his tenure at Lehman Brothers a decade ago, Johnson isn’t beloved among the companies he covers, not to mention other Wall Street solar analysts. Some observers view him merely as an ally of the hedge funds and other short-sellers that are his clients, and sometimes just lucky in playing what they call the solar-coaster.
…
Johnson’s contrarian view derives from a simple thesis: solar, he says, can’t compete with, or replace, natural gas because it can’t provide around-the-clock power and because it has needed subsidies to be competitive.
…
Short selling is heavily maligned in the popular press, where reporters often characterise it as a dangerous game played by wreckers.
The reality is a successful short sell usually only works if the targeted company is already a wreck. Short selling clears the fog of spin, revealing the ugly reality beneath the glossy brochures and rosy, overhyped forecasts. Short selling forces worried investors to ask uncomfortable questions – questions target companies often wish remained unasked.
I doubt Johnson is going to run out of renewable companies to short sell.
The article details some cases when Johnson got it wrong. The kind of trading activity Johnson facilitates is potentially high return, but in my opinion it is also high risk – get it wrong and you can lose your shirt. Your money, your risk, your responsibility.
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How is selling short during a bear market any worse (or better for that matter) than the speculative buying in a bull market that preceded it? Buying with inside info is just as illegal as selling with inside info. No such thing as safe investments, only lower risk. How about hedging your long positions during a bear market?
When you short you do not own the stock but borrow it from the broker to sell at a fixed price hoping later to repay the broker with those same stocks repurchased when the price is much lower thus making a profit on the difference. But remember, in order to sell someone else must be willing to buy and in order to buy someone else must be willing to sell.
Also realize as the “short sale” becomes increasingly obvious, the fees to borrow the stock for a short sale rise dramatically.
If your looking for a “safe” investment, the stock market is not for you.
Even if you can tolerate risk (reasonably correlated with higher returns), if you cannot read financial statements, most individual stocks are not for you.
Seriously think about index mutual funds.
An excellent book on financial statements and how to read them for profit is :
“Warren Buffet and the Interpretations of Financial Statements” written by Mary Buffett and David Clark, Buffet’s daughter and son in law. It clearly explains how Buffet would interpret the financial statements looking for companies with “a durable competitive advantage”. It made him very wealthy.
Short selling only works if you can sucker someone into buying at a price that seems like a bargain today, tomorrow. So short selling in a bear market is hard to do. As is going long in a bull market (buying at a price that looks good today, but is a steal tomorrow).
As they say. timing is everything. Technical traders believe they can spot upcoming pivot points in a stock price and plan their entry or exit of that stock accordingly. As they also say, fear and greed drive the markets. There will always be those who are more afraid than others and those who are more greedy than others. So there is always a spread between those and the trick is to be able to take advantage of that. Keeping in mind of course that sometimes you win, and sometimes you lose. Managing your losses is of upmost important to being successful in stock trading.
philjourdan
Different investors frequently have different opinions of the same investment opportunity (your guess of what Apple’s stock will be next year is probably different than mine); this does not mean one party has to “sucker” the other party (although this can happen, especially with unsophisticated investors). There is money to be made on these differences of opinions.
It is true that short sellers are not the most “respected” of investors. If this is a serious concern, you could do much the same thing with “put” options or derivatives.
Hi Eric
Thanks for posting the story on shorting CAGW stocks.
I have a degree in geophysics and have been in the financial markets for a long time.
My thesis has been that on this popular uprising the public will see through the two main statist boasts.
That the economy can be “managed”.
And that the climate can be “managed”.
You might Google
Continue with Google : “Central Planning And Big Government: Kaput”.
Perhaps this cartoon of mine is apropos …
http://www.maxphoton.com/give-me-your-opm/
Good. Very good.
Ugh! expensiver should be expensive… dang typo!
good article, it is always worth listening to someone with skin in the game. if climate scientists had the same level of accountability i doubt cagw message would be the same as it is now.
The supercilious sloth of slushfunders are not going to give up their slops without a fight Eric-
http://www.heraldsun.com.au/blogs/andrew-bolt/danger-bank-regulator-gets-warming-faith/news-story/e5aa501f42b2ef232988b03074103e37
The top 2 corporate income tax payers in the US are Exxon and Chevron. The concept that the fossil fuel industry is getting subsidies is laughable.
Just because they are paying taxes doesn’t mean they also aren’t getting subsidies.
Someone above said that fossil fuels get 4 times the subsidies of alternatives. Assuming that is true, consider that they produce …guessing… 35 times more energy than wind and solar.
So, no matter how you slice it, alternatives are bloated with subsidies.
The so called subsidies are mostly two things.
In the US, they are standard business deductions.
Outside the US, they are from governments selling gasoline to the masses at below market prices.
Mexico is big on this.
Barbara
When Chris (upthread) claimed fossil fuels get 4X the subsidy of renewables, he (probably knowingly & willingly) conflates depreciation/amortization of business capital investments with government subsidy.
Government giving a business a tax deduction for shareholder (not taxpayer) money they re-invest in the business is not definitely the same as giving that same business a subsidy e.g.: (lower-than-market-cost loan or tax rebates to customers who pay a high price for your product).
Eric
“The article details some cases when Johnson got it wrong. The kind of trading activity Johnson facilitates is potentially high return, but in my opinion it is also high risk – get it wrong and you can lose your shirt. Your money, your risk, your responsibility.”
I may be nitpicking, but I find this statement to be somewhat misleading. Trading equities involves risk, and for that risk the rewards can be “rewarding”. There is nothing the least bit immoral or risky about a short sale. If I think a stock will go down and you think it will go up, you buy. Because we have opposite viewpoints, I borrow the stock you just bought and sell it. At some point I must replace the stock I borrowed. If I was right, I win. If you were right, I lose. Assuming neither of us have insider knowledge, the probability it will go one way rather than the other is exactly fifty/fifty. My risk is not more or less than yours.
Essentially correct – the risk premium on a short sale is exactly the same as for a long position. What the post author probably means is that losses on a short position are potentially limitless, unlike a long position where the loss cannot exceed the investment.
The one thing that people tend to forget to mention, that same rule, but in reverse, applies to income.
In case of short sales, you loss is limitless but your income is limited to amount invested.
In case of long, your loss is limited to amount invested, your income is limitless.
I have no criticism for anyone making a dollar of this global warming scam , matter of fact if the Labor party get voted back in for a second term in Victoriastan (Australian state ) I will seriously consider investing in their windfarms they want built .
Because I’m green ? Hell no , because I’ll be rich if I play the game right ? Hell yes .
Good on him. Stick to his guns and he will make a fortune. Big solar will fail because it is a fancy high tech version of The Music Man. Someone should make money off the popping of that particular bit of climate parasitism.
Well you have to admit the watermelons have hit on a very cunning plan. With no lights on we’ll all appear equal and at one with the environment. Utopia at last.