'I think we're helping people': Activist short seller Carson Block on making the market a better place
Block, who heads up the firm Muddy Waters Research, typically tries to expose fraud, lies, and corruption.
And that often makes him unpopular, not least with the companies he is targeting and their investors.
Block talked to Business Insider last week, and in a wide-ranging interview discussed the merits of activist short selling. He also said that mainstream investors are now paying closer attention to what he has to say.
Block became notable by exposing Chinese firm Sino-Forest as a fraud. He also angered the company and a lot of investors.
"This was a stock that almost everyone in China owned in their retirement fund or something," Block told Business Insider. "So there was a certain amount of pushback, but you expect that."
Despite the headaches he causes for companies and their investors, Block believes that his kind of approach to investing is ultimately a win-win for investors.
"Many investors appreciate that the presentations I make on the shorts are educational as well," Block said. "I have people come up and say to me, 'Reading your report really helped me learn how to do better due diligence and sift through trades.'"
Essentially, said Block, shorts were previously done in private beforehand by large institutions. Now, by bringing in an activist mentality to shorting, more investors are being exposed to the type of analysis and research that can help spot fraudulent companies and bad businesses.
Back when Block started, it was essentially just Muddy Waters and Andrew Left's Citron Research doing the legwork and presentations necessary to launch one of these high-profile shorts.
Nowadays, said Block, instead of being seen as rabble-rousers trying to disrupt companies, they are important parts of the investing world.
The best way to get acceptance, said Block, has been to prove that his type of loud shorting is effective.
He told us:
It really helped activist short selling to get wins. We were getting wins, Andrew [Left] is getting wins, other activist short sellers have gotten wins, and now the smart money is starting to notice what we do and listen to it. I think we're helping people recognize companies that are not good companies.