21: The Fraught Life of a Dumpster-Diving U.S. Short-Seller

Tracy Alloway (0:07)

Welcome to Odd Lots, I'm Tracy Alloway, executive editor of Bloomberg Markets.

Luke Kawa (0:12)

And I'm Luke Cowan, reporter at Bloomberg Markets. So Tracy, you remember that Taylor Swift album I borrowed off you?

Tracy Alloway (0:20)

For the purposes of this conversation, I am going to say yes, I remember that you borrowed my Taylor Swift album.

Luke Kawa (0:27)

I've got some bad news. I kind of sold it to a friend for 20 bucks.

Tracy Alloway (0:32)

20 bucks?

Luke Kawa (0:33)

But don't worry, don't worry, I found somebody on Amazon who said that they'll let me buy it off them for 13 bucks.

Tracy Alloway (0:39)

Wait a second. So you're going to make money off of my Taylor Swift album?

Luke Kawa (0:44)

Indeed.

But I was also taking a pretty big risk here when you think about it. You know, it is a Taylor Swift album. You should assume that's going to go up in value. And you know, what if nobody was willing to sell that for less than 20 bucks? I'd be in the red.

Tracy Alloway (0:56)

I guess that's true. Why are we actually talking about this?

Luke Kawa (1:00)

Well, because short selling is all the rage. And it's not just because of the Oscar winning movie, The Big Short.

In the market, it's been the little guys, Andrew Left, John Hempton, who have really brought short selling back into the prime time.

Tracy Alloway (1:12)

Right, so John Hempton is a name I definitely recognized. He's been in the headlines recently because of some of his work on Valiant, right?

Luke Kawa (1:20)

Yes, Valiant.

Both John and Andrew Left, they kind of discovered a lot of accounting irregularities or some things that were eyebrow raising at Valiant. And that kind of served as the launching pad for the discovery of all the things that have brought what was once Canada's most valuable publicly traded company to around its 30th most valuable.

Tracy Alloway (1:42)

That's been an amazing story. So this giant pharmaceutical company, a darling of the public markets, and it's just been embattled lately against short sellers and the wider investment community.

Luke Kawa (1:56)

Yeah, and with that in mind, I've taken more of an interest in short selling, and I don't think there's anyone better to talk to learn more about it than Mark Cajotas, who was once called the world's greatest short seller.

Tracy Alloway (2:08)

Tell me who Mark is.

Luke Kawa (2:10)

Well, Mark is now a chicken farmer.

We seem to really have a bead on that on Odd Lots. This is the farm really the podcast.

Tracy Alloway (2:18)

On farmers, we've had mule traders.

A cow farmer. And now we have a chicken farmer.

Luke Kawa (2:26)

Yes, but in his previous life, Mark was a partner at Copper River, and they had many public high-profile battles. Probably the most famous was with overstock.com. And it's amazing because Mark's experience is one, which we'll get him to detail, is one where even in a down market where things are getting killed, it's still incredibly tough to make a profit as a short seller.

Tracy Alloway (2:52)

So his job as a short seller was basically to find companies where he saw potential weaknesses and he thought the stock was going to go down and bet on those companies. But you're telling me that even if he got his call right, it didn't always work perfectly.

Luke Kawa (3:07)

Yep, that's pretty much everyone in finance's worst nightmare. When your thesis is right and then you still lose money.

Tracy Alloway (3:13)

All right, so today we're basically going to learn about the fraught life of the American short seller.

Luke Kawa (3:20)

Yes.

Marc Cohodes (3:27)

You guys know what you're doing, that's why I make the big bucks. I'm a Bloomberg subscriber anyway, so I can get you.

Tracy Alloway (3:32)

Oh, excellent.

Marc Cohodes (3:35)

I support the product.

Tracy Alloway (3:36)

You feed the hungry journalist. Thank you.

Marc Cohodes (3:38)

Exactly right.

Tracy Alloway (3:41)

So Mark, thank you so much for joining us.

Luke has given a little bit of background, but I guess I'm kind of curious to go back to the beginning. How did you actually get into short selling?

Marc Cohodes (3:53)

Well, I've always been interested and excited about the investment business. When I was in high school, I used to play gold when gold was hot, made some money doing it. Then I completely blew myself up being long a fraud called data access systems.

And I lost myself plenty of money. I'm in my early 20s.

Luke Kawa (4:17)

Not now, Mark. You're not in your early 20s now, sorry.