Book Review: The Most Dangerous Trade
The Most Dangerous Trade: How Short Sellers Uncover Frauds, Keep the Market Honest, and Make and Lose Billions. This 299-page book tells the dark side of the stock market world where traders profit from falling stock prices. If a trader generally takes advantage of an increase in the price of a stock, a short seller is the trader who takes advantage of the downfall.
In this book the award-winning journalist, Richard Teitelbaum, reveals ten high profile short sellers, including James Chanos, William Ackman, and Manuel P. Asensio. In an interesting novel narrative, he reveals how the short sellers carry out tactics to rake in profits from the downfall of a company’s stock – for example the Enron case.
These tactics include how they investigate the target company and look for publications to push stock prices down. For example, in this book, Asensio says that companies that are suspected of fraud are more likely to be his targets than companies that are suspected of being overvalued.
“An overvalued company is an opinion where someone has miscalculated future earnings; valuation is a judgment,” explained Asensio. “With fraud, you can have more conviction.”
As for Chanos, companies that grow through acquisitions are ones that should be scrutinized.
The short sellers in this book have different experiences, not all have made a fortune and some have even suffered huge losses. However, one similarity from their journey is that information obtained from fraud investigations is the key. For example, short sellers should continue digging on a company’s claim to determine whether the claim can be verified or not.
As Asensio revealed, “You need to have all the information, whether it’s relevant or not.”
The Most Dangerous Trade provides insights needed by fraud investigators, entrepreneurs, and especially those who want to jump into the short selling field.