Short sellers don't get it. They can be rigorous. They can be sharp with the pencils. They know accounting better than anyone. They can smell a rat better than anyone else and they know when a company is on thin ice with the government.
But there are four problems that always confront shorts and make them inherently unequal on the playing field -- and that's exactly what is bedevilling Tesla (TSLA) shorts as they confront perhaps the greatest short buster of them all, Elon Musk.
Yesterday's $420 TSLA takeover price, the one that Elon Musk seems to be mulling to take the company private -- at least according to Elon's tweet -- is exactly the kind of riposte that shows the flaws of short selling.
Let's list them.
1. Musk has every right to say that he has a potential for a $420 takeover bid, provided that he doesn't sell stock into what may be his hype. Why? The SEC doesn't specifically say you can't ponder what a company's worth or whether the company got a bid. In fact, Twitter is absolutely the place to disseminate this possibility. I am sure that Musk has been approached from time to time, maybe even by the Saudi Public Investment Fund that has reportedly taken a 3%-5% stake in the company, according to the Financial Times. Remember, this was not a fund raise, they bought the stock in the open market. Maybe they mentioned that he should take it private? Who knows? But, again, as long as there is no dump with the pump, it's arguably a legitimate think to say.
2. Which brings me to point two: Unless the SEC or Justice gets involved, it doesn't even matter if it is illegal, wrong or inappropriate. This is something that Bill Ackman learned the hard way when he took on Herbalife (HLF) . If you read "When the Wolves Bite" -- CNBC's Scott Wapner's excellent book -- you see that Ackman, in desperation, did everything he could to get any agency to act to put Herbalife out of business, because of the way it does business. In the end, he lost his battle because no agency took the bite. Even if the SEC, say, looked into it, I don't think that it would matter much to the stock.
3. That's because of point three: You need sellers to come out to knock the stock down. Who in their right mind is going to sell if there is the possibility of a takeover bid? How do you know that this isn't a reprise of Keurig Green Mountain, which went private after David Einhorn suggested that it was worth dramatically less than it was selling for? Don't I know it -- I had been championing the stock when Einhorn went to work on it and cited me as part of the Keurig problem. I became part the solution: The company got a bid from JAB Holdings that valued the stock 72% higher than where it had been. Keurig was what we call a "terminal short." It's a short seller's worse nightmare.
4. Finally, sure Tesla's stock may be a short -- and it might be a protracted battle, a virtual Verdun. But remember what that great investor and economist John Maynard Keynes preached: In the long run we're all dead. I think Musk can keep the balls in the air longer than the shorts can stay short. He could have told the Saudis that he would sell them $2 billion in stock right from the company if he wanted to. Then what?
Musk plays hardball. I remember when I met him and I challenged him on the prospect of a giant solar field in northern Colorado that could power this whole country. I thought it seemed fanciful. His response was simple: There was a 50% chance that I don't even exist, that I am just a figment of his imagination.
It was brutal. It was funny. And I am sure the twenty people around the table where he mortified me would each give him money just for the parry. He's part showman -- think David Blaine, the great illusionist -- he's part Punisher -- the powerful Netflix series -- and he's part Edison, or at least Tesla. He's got it going on, and only he can stop himself.
