June 19, 2013

Stopping Shorts

We’re in Paris.

After last week’s pelting Hollywood, FL schedule at NIRI National 2013, we’re sight-seeing along the Seine and then wheels-down southward through Provence on bikes. Tell you about it in two weeks.

Back to NIRI. The Westin Diplomat taunts with beckoning views of surf and sand mere yards away while you ride chilly escalators through its immense conference center. One early walk Wednesday up the strand, home to bargain venues like the Manta Ray Hotel and dining establishments where breakfast still goes for $3.90, cured our longing for the outdoors, however. We soaked fast in the sultry air where but degrees of atomization separate sea and sky. We don’t know humid in Denver.

Observations? NIRI ran a solid show, tightening panel-times and offering innovative material to spice up the same stuff you’ve always seen if you’ve gone to fifteen of these like I have. Audience? Seemed light to me, perhaps some under the 1,200-ish we heard. But it’s FL. Maybe a chunk hit boats and links rather than booths and panels.

ModernIR pumped up its presence with a new booth, a bag insert, and a full page in the conference program. And I was on a panel about short-selling (we track short volume with algorithms). In all my NIRI years, I can’t recall one on shorting that featured the head of securities-lending for Franklin Templeton and a real short-selling hedge fund.

The gregarious Kevin Tuttle, CEO of short fund Tesseract Management, entertained us with wide-ranging views interspersed with gems that could slip by if you weren’t paying close attention.

Tuttle, who gained notoriety with his 2003 book The Hundred Year Market Theory, employs a cyclical approach to short strategies and generously shared a five-point antidote if you’ve become a short target. He said “shorts” can embed themselves, but five factors may well make them reassess the short risk in your story:

Large dividends. Shorts foot the bill for dividends. A big dividend (3% or more) is a turnoff to shorts, boosting costs and shortening timeframes for returns.

Acquisitions. A company using its stock to unlock value incrementally through M&A may chase shorts away. Everyone loves the “new kid in town,” and acquisitions can make your stock that new kid for a time.

Non-systematic stock-repurchases. We learned twice in different sessions this year at NIRI that often traders and institutions can zero in on systematic stock-repurchases. But buybacks changed up unpredictably present risks for shorts.

New incentives. Launch a new product, create a new division – do something new with your business. It can be a double-edged sword but the prospect of multiple-expansion can trouble shorts and chase them off.

New management. Bring in a seasoned and recognized leader and you’ll unnerve shorts counting on weakness to produce returns.

Food for thought! Our thanks to Kevin Tuttle. Enjoy the break next week from these musings. We’ll be relishing France! Chat again right before this republic’s birthday.

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