What Is a Short Attack?!

Short attacks represent the dark arts of Wall Street. They carry significant risks for both the underlying management team and investor issuing the attack.

Capital Markets / Investor Relations in Two Minutes or Less

What is a short attack?

Simply, an investor believes based upon a strong thesis that the underlying stock is going down.

Expectations of success are that the underlying stock price will decline between 50% and 90%.

What makes the short attack so powerful?

For management and the company, there is significant reputation, career, and compensation risk associated with the attack.

There are three reasons the attack is so powerful from the investor perspective.

Three Drivers of a Powerful Short Attack

Irrefutable Fundamental Premise: Investment thesis is based on a statement that management cannot refute. For example, Steve Rubis Co. ran its clinical trials in Latin America. A factual statement.

Series of Supporting Data Points: The supporting data points lend further credence to the irrefutable premise. However, management can likely defend against some or all of the supporting points.

Illumination of Nefarious Behavior by Management: The fundamental premise and supporting data points are meant to illustrate that management is hiding, lying, obfuscating, or doing something nefarious.

These three drivers combined is what drive the 50% to 90% decline in stock price.

What are the Three Types of Short Attacks

Structural Flaw of the Business: Strongest form because based on likely irrefutable fundamental premise

Narrative and Earnings Performance: These are weak forms of short attack, because management has several levers to constructively defend against these short attacks e.g., earnings materials and guidance.

Over the coming videos, I will do a deeper dive on short attacks and walk through some real life experiences from both the Sell-Side and Corporate.