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"In the Olympics of finance, short selling is the high jump—where the lower you go, more the chances of you winning gold!”
Paris Olympics is over now! Let us start and understand the game of Short Selling of Hindenburg with Kautilya’s Olympic of Finance
What is Hindenburg Research?
Hindenburg Research is a company founded by Nathan Anderson specialized in forensic financial research. The company does deep research and uncover corporate fraud, accounting irregularities & unethical practices. The release of this company research reports in public make their stock prices to fall, allowing them and their investors to profit. The strategy by which they make profit is called short selling.
The firm is named after the 1937 Hindenburg airship disaster, symbolizing the financial collapses it seeks to expose.
Recently it released such reports regarding SEBI Chairperson Madhabi Puri Buch and Adani Companies.
What is Short Selling?
Short selling is a strategy where trader/investor profits when stock prices go down. Unlike the traditional strategy where we profit when stock prices go up.
A trader/investor borrows stock from broker and sells them at current market price to buy back them at a lower price. The profit in this transaction is difference between buying and selling price.
Let us understand this by a example - A customer comes in a mobile shop and he ask for a limited edition phone for which he is ready to pay good money but what if shop owner does not have that phone currently in stock. Then the shopkeeper will simply tell the customer that you pay the money today and will get you phone tomorrow. So Shopkeeper will now sell the phone at Current price and will purchase the phone from market at lower price. The difference between Selling and Purchase price is profit for shopkeeper.
How did Hindenburg profited using this strategy?
Hindenburg Research made over $4 million from its short-selling position on Adani stocks, according to Bloomberg, which reported earnings figures disclosed in a statement by the firm.
So it's very simple first sell the stocks before releasing a fact based negative report of a company. Then release the report which will led to stock and market fall.
After the fall purchase the shares back at lower price and the difference between selling and buying price is its huge profits.
Hindenburg wanted to take advantage of same strategy by putting allegations on SEBI chairperson Madhabi Puri Buch on August 10, 2024, so that markets fall but smart investors understood it and gave it back !!
Thank you.
Regards,
Milan Purohit,
Kautilya, IBS Mumbai.
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