Timminco v. Sood part 3
It can hurt, even when you’re right.
Just back from a March Break break, and I was of mixed minds when I read in my DTM that the last leg of Timminco’s (TIM:TSX) train wreck in now complete.
I was sad for all of the investors, from Fidelity on down, who got swept up in what may well be the biggest case of unrequited market expectations since, you know, that Indonesian mine. It is never fun to see things go poorly for any of us in the capital markets.
At the same time, I couldn’t but help to feel a bit of pride in the analytical courage of Ravi Sood, the hedge fund manager who did some homework and declared on BNN Television that Timminco’s technology was “virtually worthless” back in 2008. He was short the stock at $34, and wanted then world to understand why.
Timminco’s pugnacious CEO threatened a libel suit against Mr. Sood (see prior posts “Timminco v. Sood” Aug 15-08, and “Timminco v. Sood part 2” May 14-09), which is unusual in the world of research analysts and hedge fund managers. The last time I heard about a capital markets libel suit of this nature, convicted Fraudster Garth Drabinsky was going to sue Burns Fry Research Analyst Doug Kirk for publishing his conclusion that Mr. Drabinsky was including asset sales in Cineplex’s revenue figures back in the day.
Unlike fairy tales, this story may not have a happy ending for anyone. I fear that at some time during the past 18 months, Mr. Sood wouldn’t have been able to post enough collateral to keep his short position in place and would have been forced by his Prime Broker to cover long before he got the full benefit of his call-of-a-career.
Whatever happened, this episode is one for the ages. Just because someone is in the minority, it doesn’t make them wrong.
MRM
Hi Mark,
Having been a fund manager who has been short stocks and gone on the record with that position, there are two ways of being right.
If a stock is at $30 and I say it is worthless — but don’t say why I think that — then as long as it goes almost to zero then I am right.
But if I give a rationale and the reason I give turns out to be not proven — but the stock goes to zero for (possibly) other reasons — then although my financial gain is the same my research isn’t quite as vindicated.
The reason I make this distinction is that Ravi didn’t just say TIM was going way down, he made comments that their “proprietary” Silicon purification process wasn’t what they claimed it to be, and that (it seemed to me) was the crux of his short argument.
In the months following the Sood-vs-Timminco debate, the global solar industry (and especially those in the silicon supply chain) has more-or-less collapsed due to a slew of factors (economic crisis, falling solar subsidies, oversupply on a historic scale.) All kinds of companies have gone — and are continuing to go — bankrupt.
To give Ravi his due, the sheer scale of Timminco’s operating losses and difficulties manufacturing and selling solar grade silicon make it look like most or all of Ravi’s arguments could well be true. But it is also possible that his arguments were not true, and Timminco is just one of many companies that spent like crazy to create facilities to sell upgraded silicon at $60/kg…and are in deep deep trouble when prices fell by 80% or more.
Duncan