At the end of the day, this is about making money and, sometimes, more importantly, not losing money. I have long held that if you contain your losses, your gains will take care of themselves. But sometimes it's difficult to leave a stock, especially when you think you have the next Tesla (TSLA) , when Tesla is so in your face as one of the greatest investments of all time.
Yet, sometimes you have to move on and move on with alacrity when you see bright red flags, like the kind of red flags that we saw with the stock of Nikola (NKLA) -- the supposed hydrogen and electric vehicle company -- before it fell apart. We have not been fans of this company, because it seemed like too much hype and we warned you to get out and get out when the getting was good.
The guy with the goods on Nikola, though, was a fellow named Nathan Anderson, founder of Hindenburg Research, named for the German airship, the Hindenburg, which had sailed from Frankfurt Germany to Lakehurst New Jersey and crashed and burned, killing 36 passengers in one minute.
He correctly predicted so much of what would happen, because he thoroughly distrusted the main proponent of the Nikola story: Trevor Milton, the executive chairman. Milton has been very vocal about the coming Nikola revolution and, with the help of a special purpose acquisition company merger, had taken the stock from $11 to $80.
While Anderson didn't get you out at the top, when the stock was at $50 he revealed what he claimed were multiple moments of fraud that cast doubt on the entire story. He identified that Milton has made numerous false statements to investors, that the company overhyped its intellectual property and that the images of the sample truck barreling down the highway were actually staged. The truck was actually rolling down a hill. These facts, as well as other statements, made it clear that the story was not to be trusted.
Now initially Nikola disputed these findings and claimed that it wanted the government to look into charges of manipulation, because Nathan made it clear he was short the stock. It was a brilliant tactic, because it made you feel that Hindenburg made the whole thing up to drive the stock down. But Hindenburg said it welcomed the inquiry, too. Turns out that the Justice Department and the Securities and Exchange Commission are apparently looking at Hindenburg's charges and Nathan says there's more to come.
I point all of this out, because I want to show the value of short sellers to this market. I thought that Hindenburg flashed enough red flags that you had to question everything, including whether the investors -- and partners like GM -- did enough due diligence before they got in bed with Milton. Did they know that there wasn't that much intellectual property? Did they know that the hydrogen technology may not be what it was cracked up to be? Did Mary Barra, the CEO of GM (GM) , know about the bogus truck video? I would like to know, so would you, if you still owned the stock.
Now, I am not saying that I think Hindenburg's always right. I think that the stock of J2 Global (JCOM) , which Hindenburg targeted, is dirt cheap and a buy. I read through Hindenburg's short report on GrowGeneration (GRWG) , the Tractor Supply (TSCO) for growing marijuana, and while there are some real issues raised about the character of some of the principals, I think it's a very good story.
But I applaud the work that Hindenburg's done on Nikola and I want to point out that short sellers can raise questions that you need to think about and be able to rebut if you own a stock. I regard most short sellers as helpful, even if I own a stock, because you should always want your convictions challenged if you want to invest for the long term. After reading Hindenburg on Nicola I just can't get comfortable with the stock and I would use this bounce to exit the story.