A version of this story appeared in Business’ Nightcap newsletter. To get it in your inbox, sign up for free here.
New York
For the last half-decade or so, the last thing any CEO wanted to wake up to was their company’s name in print alongside the name Hindenburg Research. If the short-seller had you in its crosshairs, things were about to get ugly and very, very expensive.
Hindenburg, which stunned Wall Street when it announced it was closing its doors on Wednesday, embodied all the traits that make many traditional investors and corporate boards loathe activist short-sellers: It was brash, loud and (most frustratingly) it was often right. The firm burnished its reputation by puncturing the hype bubble around EV truck maker Nikola and took big swings at others it accused of fraudulent or corrupt behavior, including the Adani Group and Icahn Enterprises.
In a memo Wednesday, Hindenburg’s founder, Nate Anderson, said the firm had accomplished what it set out to do “we shook some empires that we felt needed shaking” but acknowledged the toll his work had taken on him.
“I’ve spent most of the last eight years either in a fight or preparing for the next one,” he told The Wall Street Journal.
The move comes as several prominent short-sellers investors who wager that a stock will go down have retreated from the spotlight in recent years. Last year, the FBI charged Citron Research founder Andrew Left with securities fraud (he pleaded not guilty). Famed Enron short-seller Jim Chanos closed his fund in 2023. Melvin Capital went bust in 2021 after losing $7 billion shorting GameStop. Hedge fund billionaire Bill Ackman, who lost $1 billion shorting Herbalife, said in 2022 he was giving up the practice.
Hindenbug wasn’t just a run-of-the-mill short-seller it was known for its deeply detailed reports on the companies it targeted, and it used activist investing tactics to broadcast its findings and try to convince others to sell.
Hindenburg’s exit was something of a surprise given its string of successes. But Anderson’s memo, which noted the intense and “often all-encompassing” rigors of the job, pointed to the difficulty of being the ultimate bear in a long-running bull market.
“I was shocked, because Hindenburg has had an amazing track record,” Gordon L. Johnson II, CEO of GLJ Research, told me. But, he noted, “the risk of publicly putting out a sell rating is exponentially higher to your career and I would argue your financial and physical health than simply coming out and saying the stock is great.”
Perhaps, Johnson said, Hindenburg saw a chance to get out before the political and financial risks became overwhelming.
“And that is an absolute tragedy,” he said “because if you don’t have people doing the forensic work in the market, fraud is allowed to run rampant.”
Life on Wall Street is hardly a walk in the park no matter where you work, but short-selling is a notoriously brutal business.
“In some ways, the deck is stacked against short sellers,” Steve Sosnick, chief strategist at Interactive Brokers, told me.
In shorting, you’re betting a stock will lose value. But it can never go below zero, so the most you can ever make on a short is 100%, Sosnick notes. On the flip side your potential losses are basically infinite if the stock keeps going up.
“Just by choosing to trade from the short side, you’ve added some major degrees of difficulty to your work, so you have to have a very high conviction,” Sosnick said. “And especially now, after the meme stock era, people have actually made it a strategy to find big short positions and try to squeeze them.”
(As a refresher: The meme stock era refers to the early 2021 run-up in GameStop and other heavily shorted stocks in 2021, during which retail traders bid up the price of stocks, largely because they found it funny, which forced short-sellers to cover their positions and lose lots of money.)
The process of shorting is exhausting. First you’ve got to sniff out overvalued stocks and uncover some fundamental problems in their business, which is no small thing. Then you have to bet against them, publish a report that will grab people’s attention, and then you have to get yourself booked on CNBC, and every other financial media outlet so you can make your case to investors around the world.
Many investors credit short-sellers with providing an essential service of deflating bubbles in the stock market. But what a lot of market participants don’t like about short sellers like the Nathan Andersons and Andrew Lefts of the world, Sosnick notes, was their style.
“There’s probably a lot of schadenfreude in how people react to the Hindenburg announcement … Even if you don’t dislike short-sellers, most traders and investors don’t particularly appreciate when someone talks their book,” Sosnick said. “The way that they put on a position and then revealed the position with big fanfare, which was almost guaranteed to get the stock to have a tick lower and get attention I don’t think that was particularly loved.”
Hindenburg, named after the 1937 disaster, epitomized that style of swashbuckling short, but not all of its bets paid off. Its October report on the wildly popular video game platform Roblox provocatively titled “Roblox: Inflated Key Metrics for Wall Street and a Pedophile Hellscape for Kids hasn’t dented the stock, which is up some 50%. Earlier this month, Hindenburg published a report on Carvana, which it derided as a “Father-Son Accounting Grift for the Ages,” and the stock is up 16%.
Hindenberg’s exit is hardly the end of activist short-selling but may well be the end of its bombastic era that made its practitioners the enemy of Corporate America.
