Wednesday, September 21, 2011

Shit Happens (An ongoing Saga)

During the six years that shorts have been waiting for the remarkable Greenhill & Co share price to diminish more dramatically, several of my children have seen the front and back of adolescence; flash memory has expanded exponentially in capacity while collapsing in price; all of my old iPods resemble the rather ridiculous-looking Motorola Flip-Phone with cheesy antenna; emerging markets have come and gone and come again; Americans have witnessed the denoument and implosion of a housing bubble previously thought attributable only to the Japanese; the ascent (and probable descent) of the first non-white-male President; as well as two World Cups and the same number of Olympiads.

It must now be acknowledged that shorts were "right", pyrrhic victory that it now seems. That is if they are still around, in business or with position, all which should not be assumed with any degree of certainty. For full-disclosure, I have not been short, not for lack of interest or conviction, but rather due to my restrained risk-tolerance when it comes to *fuck-you* stocks. They are no by means ubiquitous, butneither are they uncommon. Even casual observers will note their high short-interest, their confounding behaviour on down-days (as well as up-days), their constrained float; their adoration by growth and momentum investors alike; their typically outrageous absolute and relative valuations, and a specialness that is, at the end-of-the-day, through the eyes of the skeptic, just not that special. That case for the [eventual] fat left-hand tail, still is insufficient for the risk-intolerant short, or the PM with risk-intolerant investors. And perhaps rightly so, since over the interval above, most everyone has moved up, on, away, or more sadly, expired.

Trend-followers, of course, rarely wax lyrically or wistfully about their prey, and for their detachment, they are decidely better off. Yet it is worth pondering the question that IF the investment thesis is so tenuously related to the presence of one man, Mr George, who it must be said could run himself over with his Jet-ski, get terminally blindsided by a snowboarder in Aspen, made brain-mush by sirloin-steak prions, be stricken at any moment by anything from antibiotic-resistant MRSA, to very lethal lightning itself, one would imagine that such champions of Greenhill would have applied the same forethought at all times. That assumes such lack of relative price reasonableness was the chief cause of GHLs relative fuckiness.

That however, would be too simplistic. More likely, GHL is a simply marvel of market complexity and dynamics - of shorts squeezed and replaced by others, who iun turn were rubbed-out by market events for return of capital, punctuated by index inclusions, long love-affairs by those adoring closely-held, growth, or someother alluring attribute and whose accumulation induced yet another financial hemorrhoid for the unfortunate prevailing short interests. Revel in its wonder, but I will keep chanting the mantra: Do not short on valuation (without a sackful of better reasons....)

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