Wednesday, September 19, 2018

Largest short squeeze ever (TLRY); our Seminar on Short Selling; NYC programs next week; Jim Chanos; Seth Klarman

By Whitney Tilson

1. The largest short squeeze in history (in dollar terms) is happening right now in the case of Tilray (TLRY), a Canadian medical cannabis company. The stock is up more than 50% this morning because the CEO appeared on Mad Money last night. It's just absurd – the company was only incorporated earlier this year, has a mere $28.1 million in trailing 12-month revenues, but now has a ~$22 billion market cap (yes, you read that right: it's trading at more than 750x revenues)! It's the ultimate speculative momo stock: the float is only 17.8 million shares (19.1% of the 93.1 million shares outstanding), yet more than 10 million shares traded in the first hour this morning! (On a regular basis, 100% of the float trades every day.)

But good luck trying to short it – the borrow (if you can get it) is in the range of 240-600% (the highest I've ever seen), and the options are crazy expensive. My best advice is to learn some lessons – mostly about the perils of short selling – and then ignore this stock. If you must short it, wait until it's really cracked – say, under $100 (which could happen in a matter of days!) – and the momo herd has moved on. There will still be a ton of downside left (at over 300x revenues), but the borrow won't be so expensive and the risks of a short squeeze will be much less.

    Here's Doug Kass's wise take on it:

    Another Short-Selling Lesson (Part Deux)

    Sep 19, 2018 | 8:05 AM EDT

    Stock quotes in this article:


    • Tilray is now a sideshow of classic speculative activity
    • Neither go short nor go long TLRY
    • Ignore TLRY and move on

    Pot stock Tilray, Inc. (TLRY) is trading at $225/share (+$70 in premarket trading).

    The short squeeze is reminiscent of Robert Wilson's legendary short in Resorts International. Indeed, in dollar terms, Tilray is now the largest short squeeze in history. (The interest rate on a TLRY borrow is over 260%, annually!)

    The price action in Resorts, Tilray, Tesla (TSLA) (two years ago) , etc., are examples of why my basic and first tenet in short-selling is to avoid stocks with high short interest as a percentage of float and as a multiple to average daily trading volume.

    I have learned this lesson the hard way and I have the scars on my back from that experience.

    But this tenet has worked out well in my short strategy as I have avoided short squeezes over the last 10-15 years!

    Tilray was featured in a segment on Jim Cramer's Mad Money last night. Brendan Kennedy, TLRY's CEO, seems to be a perfectly nice fellow. But do yourself a favor -- neither go short nor go long Tilray shares.

    Both actions are gambling and not trading or investing.

    This recommendation will save you a lot of money and aggravation.

    My strong advice is take TLRY shares off of your stock monitor and move on from it -- your investment portfolio and emotional well being will be far better off for doing so.

    Here is the tape of last night's Mad Money segment!

    2. We had great fun teaching Tilray in the first webinar session this morning of our Advanced Seminar on Short Selling (click here for more info). It's one of many historical and current case studies we teach, as we impart the many lessons we learned (sadly, often the hard way) in 15+ years of short selling.

    If you do any short selling, you should take this seminar – and, I'd argue, you should even if you're long only, as it's invaluable to develop a skeptical mindset, learn how to identify value traps, etc.

    It's not too late to join the webinar (you can watch the video of the first session and participate live in the next two, which will be from 7:00-9:30am EST tomorrow and Friday), or we'll be teaching it again via webinar on Nov. 14-16.

    We'll also be teaching it in person next Friday (Sept. 28) in NYC – contact me for details and special pricing.

    3. Next week in NYC we'll also be teaching our Lessons from the Trenches: Value Investing Bootcamp (Monday-Wednesday) and our one-day seminar on How to Launch and Build an Investment Fund (Thursday). See for more information and, again, contact me for details and special pricing. We have special last-minute deals for students and young/emerging investors.

    4. Michelle Celarier with a nice profile of Jim Chanos: How Jim Chanos Uses Cynicism, Chutzpah — and a Secret Twitter Account — to Take on Markets (and Elon Musk). Excerpt:

    Jim Chanos runs Kynikos Associates, the lone short-selling hedge fund of any size — and the only one that that has been in business since 1985.

    That's no mean feat, as the stock market has risen almost 1,500 percent since Kynikos's debut. Chanos has lived through at least three bear markets — the 1987 crash, the bursting of the dot-com bubble in 2000, and the global financial crisis of 2008 — and he's waiting patiently for the next one.

    "I'm not saying it's the top of the market, but on the other hand, bear markets haven't been outlawed," he quips.

    Chanos, of course, is already a legend. He will go down in Wall Street history for predicting the demise of Enron Corp., whose collapse resulted in a wave of prosecutions and the imprisonment of top executives — the kind of harsh penalties that have not been seen since.

    But that was in 2001 — 17 years ago.

    Since the financial crisis year of 2008, Kynikos's shorts overall have been bleeding red ink, and investors have bailed. Kynikos has lost almost three quarters of its assets since the end of 2008. This year alone, its funds had fallen between 9 percent and 19 percent through July (net of fees), depending on the fund.

    Read on for the rest of my profile in Institutional Investor. It's the first profile of Chanos in a decade. He's on CNBC and at conferences (not to mention Twitter), talking his short book, but no one has looked under the hood to see how he runs his business. This is a deep dive or "plonge" as one French reader said.

    5. Speaking of legendary investors, here's an article about Seth Klarman of the Baupost Group: Money Talks. Will the G.O.P. Listen? Excerpt:

    Not two years ago, Mr. Klarman, a registered independent, was the biggest donor to the Republican Party in New England. According to The Boston Globe, during the Obama administration, Mr. Klarman gave more than $7 million to the party. If you look at his Federal Election Commission filings for 2016, you will find $100,000 to the Hillary Action Fund, but mostly a long list of donations to names like Marco Rubio, Paul Ryan, Chris Christie and the Republican National Committee.

    No longer. Among the many things Donald Trump has upended, one has been Mr. Klarman's political giving. The denunciation of the president and his party in papers like this one has done nothing to change their behavior. He hopes money will.

    The F.E.C. filings that will come out on Sept. 20 will show that Mr. Klarman is now giving almost exclusively Democrats — and donating far more money than he ever has.

    Mr. Klarman shared an early copy with me. So far this cycle he's ponied up $4.9 million. He has given to 150 or so candidates, including Joe Kennedy, Conor Lamb, Beto O'Rourke and Kirsten Gillibrand, as well as dozens of lower-profile candidates. Liberal super PACs aimed at helping the Democrats take back the Senate and the House received $1 million and $2 million, respectively. It's quite a list for someone who says, "I'm not a Democrat."

    For Mr. Klarman, the logic is plain: "We need to turn the House and Senate as a check on Donald Trump and his runaway presidency."

    The investor has been alarmed by Republican attempts at voter suppression, and by a president who demonizes immigrants and suggests that Muslims, Hispanics and blacks are second-class citizens. He told me he feels "betrayed" by "spineless" Republicans who have, with rare exceptions, been "profiles in cowardice." Anyone still counting on them to stand up to the president is delusional. A Democratic majority, Mr. Klarman said, is the only option to "act as a check and balance."

    He referred to what's going on in Washington as an "emergency" multiple times and suggested that the question patriots should ask themselves about the midterms is: What's the price tag for democracy? If you knew your donation would give your grandchildren a better chance of growing up in one, how much would you contribute? "It seems like the answer should be a huge amount," he said.

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    Empire Financial Research

    Whitney Tilson

    Empire Financial Research founder and CEO Whitney Tilson is the editor of the Empire Investment Report, a monthly investment advisory that focuses on cheap, high-quality stock ideas.

    Whitney graduated with honors from Harvard University and Harvard Business School, where he earned an MBA and was named a Baker Scholar. Whitney spent nearly 20 years on Wall Street, during which time he founded and ran Kase Capital Management, growing assets under management from $1 million at inception to a peak of $200 million.

    Once dubbed "The Prophet" by CNBC, Whitney predicted the dot-com crash, the housing bust, the 2009 stock bottom, and more. Now, he's sharing his secrets and strategies with followers of his latest endeavor, Empire Financial Research.

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