The Cincinnati Enquirer from Cincinnati, Ohio on September 15, 1991 · Page 132
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The Cincinnati Enquirer from Cincinnati, Ohio · Page 132

Cincinnati, Ohio
Issue Date:
Sunday, September 15, 1991
Page 132
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1-10BusineSS news THE CINCINNATI ENQUIRER Sunday, September 15, 1991 As ace long troubles sellers f short snare prices rise, Losses mount for many firms "They've (short sellers) been pretty badly bloodied this year. "Now they just don't have the funds. Jim Solloway, director of research at Argus Research. to drive a stock down. Among other things, Barnard's bill would require short-sellers to disclose when they sell short 5 or more of a company's stock just as investors who buy 5 or more of a stock are required to do. A ) similar rule is being mulled by the ., Securities and Exchange Commis- ' sion. Barnard's bill would give a com- ? pany the right to sue short-sellers ' if it feels its stock has been driven down by rumors and innuendo. " Shorts often are accused of -'. spreading rumors and lies to knock a company's stock down. A few '. weeks ago, an ad appeared in The New York Times asking shareholders of U.S. Surgical a stock I whose big rise this year has hurt ; some shorts to contact a law firm regarding a class-action suit. But the ad was a hoax. The stock fell a few points. No one knows who placed the ad. Many ' stock analysts suspect lumps. Also, short-sellers last fall bet heavily that bank stocks would slump. But a number of big takeovers and speculation about more to come lifted the entire group. "Short busters" have also played a role in the fall, experts say. Short-sellers themselves say some investment-fund managers and other large investors are looking to profit at the shorts' expense. It works like this: A fund manager will find a stock that short-sellers are heavily betting will fall. Then he will aggressively buy the stock, bidding up the price. That price rise often spurs brokerages that lent shares to the short-sellers to call in those loans, forcing short-sellers to buy the stock even though it's rising. That pushes stocks even higher. There is proposed legislation from Rep. Doug Barnard, D-Ga., a bill introduced Thursday that would impose restrictions on short-sellers, who long have been accused of resorting to extremes end of last year. Short-sellers don't always lose money when the stock market rises. Most short-sellers carefully research companies trying to find sure losers. But this year, most short-sellers picked the wrong stocks. "They've been pretty badly bloodied this year," says Jim Solloway, director of research at Argus Research. "Now they just don't have the funds." Why the tumble for short-sellers? Experts point to a bull market for small-company and bank stocks. "Shorts traditionally flock to smaller stocks, where they think they're more likely to find fraud and mismanagement," says Steve Kibbey, a short-seller for Centurion Capital who is down 20 this year. Short busters But small stocks have been rallying for most of the year. The NASDAQ composite index of small stocks is up 39 this year. And the shorts have been taking their lio has plummeted 25 since he started. The country's 15 biggest short-sellers have lost an average 30 on investments this year, Strunk figures. "There will be a few who go out of business soon," he says. Even the mighty Feshbach Brothers, the country's biggest and best-known short-sellers, are down 40 to 45 this year, stock analysts say. Joe, Kurt and Matt Feshbach declined to comment. And short-sellers' influence on the markets has diminished. Investors were short 727 million shares of NYSE stocks in late August, down 15 from 856 million shares at the GANNETT NEWS SERVICE Mark Denebeim started short selling stocks full time in November, joining the ranks of a controversial and clubbish group of investors who seem to invest in reverse. His timing couldn't have been worse. Short-sellers profit from falling stocks. They borrow shares from a broker, who is eligible to receive an interest-free loan equal to the collateral value of the shares. The short-seller then sells them, hoping to buy them back at a cheaper price to repay the broker and pocket the difference. Instead of trying to buy low and sell high, these investors aim to sell high and then buy low. Last year, short-sellers were hot. Investments of the 15 biggest shorts rose an average 46, says Harry Strunk, a Palm Beach, Fla., consultant who tracks the fortunes of large short-selling investment firms. At their peak late last year, those 15 firms controlled stock worth $2.5 billion. Trades by short-sellers have ac Stock Exchange trades this year, up from 8.9 last year and 7.2 in 1989. Often, stocks that became targets of short-sellers crumbled under the selling pressure. Some investors hailed the shorts for giving the market some balance against hype intended to push stocks higher. Others scorned them as rumor mongers out to trash companies. Short sighted During that late-1990 peak, Denebeim, a 33-year-old former stock broker, started his short-selling . firm in a spare bedroom in his Tiburon, Calif., apartment with $1 million. Since then . . . ouch! The gulf-war rally gave stocks a record boost in January and February. More recently, bank stocks, which many short-sellers thought would fall, have shot higher. The result: "A lot of carnage among us," says Denebeim, whose portfo There aren't many jobs available that pay 9th Annual that kind ol money. 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