Death of a Short-Seller
The Bloody Aftermath of the Conflicting Carvana narratives
Two weeks ago, I highlighted how two opposing narratives on Carvana, a used car retailer which was either “the turnaround story of the year” or “an accounting grift for the ages”, were a perfect opportunity to see how they played out in the real world.
I didn’t expect that the final outcome would be known so quickly. Since Hindenburg published its report on Carvana, the stock is up +15%, and Hindenburg is dead has closed!
I am sharing my post-mortem(!) thoughts below, but first, I wanted to mention that the podcast is back with a conversation that’s super useful for understanding narratives. It’s with Alex Edmans, one of the most brilliant minds I’ve met, he’s a professor of Finance at London Business School, advisor, and author of May Contain Lies.
I will share more details next week, but you can already watch here or listen here.
It’s the perfect way to kick off the year and introduce a fresh approach to the show. In 2025, we’re focusing on critical thinking in investment management, alongside the new podcast branding: Investology.
(I’ve messed up a bit the branding in 2024, but in 2025 it will be Investology - the podcast and Investorama - where I use investment scenes from movies and series and sometimes they will intersect).
Back to Carvana v Hindenburg
On 15 January, Hindenburg sent: “A Personal Note from our Founder”
I have made the decision to disband Hindenburg Research. The plan has been to wind up after we finished the pipeline of ideas we were working on. And as of the last Ponzi cases we just completed and are sharing with regulators, that day is today.
I write this from a place of joy. Building this has been a life’s dream.
There’s a lot to read into that and the life of a short-seller; they are a species in danger of extension. But I just want to focus on the narrative angle here.
Carvana is not mentioned once. I’m going to make a strong assumption here: although it’s a profound personal and business decision where a lot of other parameters are taken into consideration, the two are related.
It’s not that they “finished the pipeline”. This trade must have hurt financially. After years of hits, including Adani and Carl Icahn, I don’t believe the plan was always to send an email for a trade that didn’t work and call it quits two weeks later.
It matters because you could expect an ongoing battle where the company responds and the short-seller provides more updates, similar to what unfolded with Icahn Enterprises or Adani.
But what happened instead is this 👇🏼 based on the newsfeed on Apple Stocks.
This snapshot is a good representation of what happened when the world’s most famous short-seller published a damning report (and they're not alone) on a used car sales stock that trades at tech multiples and has gone up 500% in 2024: not much.
Here is a rough timeline:
News outlets pick up the story (the stock fell 11%)
Some supporters deny the allegation the next day, including JPMorgan
Back to business as usual
IT’S BORING!
Aristotle & Vince McMahon tag team
I’m going to call on two influential thinkers to understand how this has played out:
First, Aristotle (Greek philosopher), who identifies three primary strategies for persuading an audience:
Logos (Logic): The use of reason, facts, and evidence to construct a rational argument.
Ethos (Character): The credibility and moral authority of the speaker. A persuasive argument depends on the speaker's trustworthiness and reputation.
Pathos (Emotion): The emotional appeal to the audience, designed to evoke feelings that align with the argument.
So if we take them one by one:
Maybe the allegations of Hindenburg were wrong or superficial and should be logically dismissed. (Logos)
Maybe Hindenburg does not have a sufficient track record, they’re not trustworthy. (Ethos)
Nobody was excited about the report (Pathos)
Put this way, I think Hindenburg scores high in Ethos, low in Pathos. The Logos would require further examination, but my quick read was there were facts about insiders selling the stock that are undeniable and then many allegations that may or may not be true but are unproven.
Aristotle tells us we need all three. There’s no algorithm about how much weight we should assign to each.
But here is a second and more recent reference that can help: Vince McMahon (ex-WWE boss accused of sex trafficking).
I’ve watched the “Mr McMahon” documentary on Netflix, and I think it holds the clues to what may be missing: “You need to generate heat”.
Heat is wrestling talk for “hate”. Other keywords are “heel”, bad guy and “face”, good guy.
It doesn’t matter how good you are at wrestling. You need strong feelings to attract viewers, and creating characters that people hate, including his own, was the surest way to ramp up the audience figures. Generating mild feelings is much worse than being hated, because you will be ignored.
The Pathos is overweight.
The WWEification of everything
The two biggest winners of 2024 have mastered this craft: Trump and Musk.
When Trump lays claims on Canada and Greenland, out of nowhere, it may not be the greatest foreign policy move, but it’s a brilliant way to keep the focus on him in a polarising way. The traditional incoming president playbook, where you keep it quiet until the inauguration and say things like, “It’s time to unite after the election battle,” is in the bin.
Musk… I don’t think I need to add too many details.
Others are learning, too. I’ve seen a lot of posts about Zuck’s watch, many of them were saying it’s a tasteless mistake to flaunt a $1m watch as you announce redundancies. But given how carefully this guy is crafting his image, I would say this was a carefully planned move (the t-shirts and chains also have interesting meanings, but I will stop the sartorial analysis). It’s polarising. Many will see him as a “heel”, but it’s a great business move.
Narratives are so 2024. 2025 is about WWEification.
Emotional engagement drives financial outcomes, but turn the dial to 11
Being "Ignored" is riskier than being “Hated”
Storylines, not performance, are the main drivers
Let’s get ready for 2025
Maybe the failure of Hindenburg’s narrative, “an accounting grift for the ages”, is to be celebrated, but the pace of its crash showed how storytelling has evolved.
In my ideal world, the weight assigned to Pathos, Ethos, and Logos would be different, but like Alex Edmans said in the podcast:
We don't live in an ideal world, we live in the real world, and I wanted to empower the reader in the real world to notice misinformation and to combat it.
We may not love the world we live in, but we can adapt and thrive with critical thinking. That’s what I plan to do in this newsletter and my other publications.
PS: I’m back from a long trip to Australia and suffer from severe jetlag, so this may explain a different style. I’m not sure how this McMahon Aristotle tag team will age. Let me know what you think, please!
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