At the bottom of this article is a retweet of an idea I wrote up on the 18th Feb about a company I felt was an obvious wrong'un: Hanergy Thin Film (566 HK). What follows are some thoughts on shorting. Nothing ground breaking, rather a war story !

In terms of shorting Hanergy, ultimately I feel i will probably be proved right as the shares have been suspended today down -47% as the HK securities regulator probes market manipulation.

So far so good...

Until you realise I was advocating shorting them at HK$4.32 (a USD mkt Cap of c$24bn), just before they marched straight on up to $7.8 in April (a frankly incredulous USD mkt Cap of $43bn). Although at the suspended price last night I would be c8% in the money, it would have been pretty ride, scary sitting on an 80% loss.

So back to John Maynard Keynes: "the market can remain irrational longer than you or I can remain solvent"

You have to have utter conviction in your shorts to run them given the open ended nature of your liability, or have a v strong risk management discipline ie stop losses (but then again your platform provider may plead some Black Swan defence...)

The other observation about shorting real wrong'uns is that you should run small active shorts (ie a small % of your NAV), then once the buying pressure fades and cracks in the story start to go mainstream then really up your short. That way you miss getting rteally burned on the way up.

Best of luck with the shorts !

here is what I wrote on 18th Feb

Well done all those that spotted Naibu was a "wrong'un" (me too as it happens)

I felt today's FT was v interesting on Hanergy Thin Film (566:HK), the Chinese solar group, quoted on the HK exchange
$23bn USD mkt cap (bigger than the 3 largest US solar companies mkt caps combined...)
100% of the quoted company's revenues come from selling to Hanergy Group (ie the parent company). Related party transactions are never a favourite.
FCF negative, trades on 50x PE
receivables were >1.4x the prior years revenues.
The solar sector is v competitive yet Hanergy declares EBIT margins…

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