Short Selling prep
I'm a L/S equity analyst with 4 YOE. Looking for suggestions on how to hone short selling skills. On the long side, I put together a decent amount of readings & certifications over the years (papers, CAIA, CFA, "how to read a 10K" kind of documents, other investors' stock pitches, etc.) in addition to the day to day work. I'd like to increase my understanding of short selling; not looking for frauds, but rather spotting accounting red flags, over-earners doomed to undergo normalisation, etc. What kind of material would you go through?
Pitches from short sellers such as Hindenburg are fraud-related so it's not exactly what I'm looking for.
Are there specific books worth reading? The more technical the better (I read "The art of short selling" for instance).
Is there any specific investor that publishes its short reports (again, not those against frauds) that you'd suggest following?
If you had to go for certifications, would ACA, CPA, or others be a good way to spend one's time? Not looking necessarily for a certification unless it really adds something to my investing skills rather than solely to my CV.
Financial Shenanigans is a good one. There’s also this 10-K navigation guide by Wolfe Research which I found helpful. Some unsolicited advice — always try to remember that the most important aspect of short selling is disproving the bull case. It’s a common trap for people to find problematic accounting and red flags only to get blown out of the position because the street was focused on something else entirely (see TSLA).
As for short selling investors, I’ve found Jehoshaphat Research to have excellent reports. Some are fraud oriented but they have some very good accounting ones as well. I believe Edwin Dorsey’s bear cave has a list of good resources for shorts too.
Thanks for that - I went through the Wolfe Research document time ago and found it a very useful resource.
Do you have a view / direct experience on whether any financial accounting certification (CPA, etc.) is worth pursuing?
Thanks for this. Anyone else having trouble accessing the Wolfe Research link? It's just directing me to a WSO 10-K page lol. Would appreciate the full link, thank you again.
Art of Short Selling - Kathryn Staley is a decent read.
I'm amused that you seem so biased toward certifications.
How about this investigative exercise: look at the hundreds of stocks that have had large drawdowns in the past, and dig into what caused the decline for each of them. Practical examples like that will teach you a lot more than canned training programs/certifications.
You misunderstood the certification thing - it's actually something I'd rather avoid. I did CAIA & CFA early on and want to spend my time on more useful resources. My only interest in a certification is the fact that it provides you a structured set of topics that you maybe didn't even think of.
Your suggestion covers something extremely useful that I'm already doing - that's what I intended in my post when writing about day-to-day job. I'm just looking for other angles from which to study the topic. I find that reviewing cases afterwards has its purpose but oftentimes ends up in "reviewing what you already know" so not always easy to put aside that hindsight bias you naturally have.
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The home run accounting issues hidden in a 10K are so rare and one off, similar to fraud, that its like looking for needles in haystacks. Seems to be an extremely inefficient way to try to invest even in the best case scenario where you happen upon something that you've uncovered. Its far easier from an opportunity set perspective to just have a fundamental view on a company and/or sector and whether or not a company is over valued (easy would be anything that ran up a ton due to the covid lockdown measures - think pelaton). I'm sure there are decent anecdote type books out there but I don't think there are guides to help you analyze a short per se.
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