Friday, April 21, 2006

Two Ways to Fight the Shorts

In the press this morning we have on display two ways to fight short-sellers: the right way, and the dreary, dumb, and dishonest way.

I'll start with the right way, described in the latest Business Week. Seems that a company called Hansen Natural Corp. has been under attack from shorts, who believe that its Monster energy drink is a fad. Even if it isn't, the shorts say, Monster will be crushed by the competition if their own energy drinks catch on.

So how has Hansen fought back? BW's Roben Farzad recounts the anti-short campaign:

Hansen's shares have surged from $2 to $130 since 2003, and earnings have increased from 28 cents a share to an expected $3.92 this year. Hansen's market value sits at a lofty $2.9 billion. The company reaches its core demographic, males aged 18 to 30, by flooding retailers with giant cans of its energy concoctions
In other words, Hansen has fought the shorts by performing. By actually making money for shareholders. "Hansen. . . is beating the pros by doing what it does best: selling drinks," says Farzad.

Meanwhile, on the Wall Street Journal Editorial Page, we get the dreary, dumb and dishonest way. The blow-smoke-against-nonexistent-conspiracies way. The Patrick Byrne way.

Today, the CEO of this chronically money-losing retailer bloviated in a letter to the editor. As usual, his bloviation responded to a columnist who had committed the ultimate offense in the eyes of Patrick Byrne: criticizing Byrne's "jihad" against a nonexistent "conspiracy" of short-sellers, analysts, hedge funds and journalists.

No need to quote from it. It's typical Byrne: sneering and rambling, vaguely lashing out against unnamed "blackguards."

Since Byrne's jihad has been getting a lot of criticism, Byrne has been fighting it on a bunch of fronts, and he appears to spend a goodly amount of time and energy doing so. He has responded to criticism in a Motley Fool message board and, most recently, the New York Times's DealBook blog.

Byrne, of course, has also filed a lawsuit. He has not been shy about talking about it and taunting one of the defendants, David Rocker. Jeff Matthews pointed to that as evidence (not that there wasn't plenty already) that Patrick Byrne is a "little, little man."

So there you have it. You can fight the shorts by making money or making noise. Got to say this much: if you're a CEO who craves attention, adores the adulation of crackpots and views himself as the Savior of the Financial System, the "making noise method" makes a hell of a lot more sense! Particularly when your company is in the red.


Wall Street Versus America was published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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