Few will dispute that perception of data is as influential as the data itself.
Once you’ve achieved the Dot Com lifestyle and start building your investment portfolio, odds are you’ll first look to cyberspace for guidance, as that’s where you made your money in the first place.
Just know there are wily promoters out there using social media platforms to shade your perception. Short-sellers, in particular, have become commonplace.
First, a quick primer on how laying a put position — ie- betting a share price will go down in a given time period — works:
This is fertile ground for short-sellers, and Twitter makes for an excellent bullhorn:
- They select the company their research indicates as a good target for puts;
- They carpet bomb Twitter;
- They fuel speculation that their spin on the research is accurate;
- They then clean up on the falling stock’s price when the put comes due.
Do know this is perfectly legal.
Here’s an example:
In 2013, 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.
That’s because a dude named Carson Block has carved out a niche for issuing scathing reports detailing suspect accounting practices at publicly traded Chinese companies he’s short-selling. He sent tweets like this daily, on multiple occasions:
The nearly 15,000 followers of Block’s hedge fund research firm Muddy Waters bought into his belief that the company was fraudulent.
The fact that the stock rebounded to $20 soon thereafter is inconsequential. Block and his flock had made their killing.
Short-sellers like Block contend they’re simply countering the corporate spin machines with vast resources, thus making for an more even playing field.
That may be so, but the fact that many of their targeted stocks actually bounce back in price after their settlement dates indicates a cagier edge is present in their strategies.
Here’s Don Steinbrugge, managing director of hedge fund marketing consultancy Agecroft Partners:
“Big picture, if you’re shorting a company and you want the stock to go down, the more people [who] hear your negative views on the company and understand those negative views, the more pressure there will be on the stock to decline.”
Perception is indeed a powerful thing.