How The Adani Fraud Actually Works (Allegedly)

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Get 10% off your first month of therapy with our sponsors BetterHelp: https://BetterHelp.com/HowMoneyWorks Sign up for my newsletter https://compoundeddaily.com 👈 ----- Edited By: Andrew Gonzales Music Courtesy of: Epidemic Sound Select Footage Courtesy of: Getty Images For sponsorship inquiries, please contact [email protected] All materials in these videos are for educational purposes only and fall within the guidelines of fair use. No copyright infringement intended. This video does not provide investment or financial advice of any kind. #finance #investing #adani ----- Hindenburg research is an investment research firm which specialises in short selling using a very simple four step process. Step 1, find a company with something going wrong that isn’t yet public knowledge, like a serious fault in their growth model, a significant market threat, or just plain old systemic fraud, as is the case with this Adani situation. Step 2, short the companies stock. Step 3, make a public announcement in the firm of a research paper accompanied by a big marketing campaign to expose the problems with the company so that other investors also short sell the business which will push the price down. Step 4, exit the short positions at the new low price with a healthy profit. It’s a simple process that has made the appropriately named Hindenburg research and other investment firms using a similar strategy have made lots of money be exposing corporate frauds before. The great thing about this strategy for the short selling research firm is that even if the underlying problems with the company turn out to not be true, just the market panic caused by a widely circulated accusation of corporate fraud can be enough to push the stock price down for long enough to allow the firm to cash out their short position at a profit. If the allegations do end up being overblown, then the short sellers that followed the lead of the initial short selling research firm can end up burnt as the stock rallies back to its original price. Bill Ackman the Manager of the hedge fund Pershing Square Capital put a lot of investors in this position with his failed short play on the multi-level marketing company Herbalife. Ackman accused the company of being a fraudulent pyramid scheme after taking on a major short position combined with a marketing campaign that even included a documentary, Betting On Zero. The short failed to play out as regulars didn’t file any charges against the company and it continues to operate to this day with a stock price even higher than it was before Ackmans short sale. The failed short play hurt Ackmans reputation meaning other short sellers will be less likely to follow him into similar positions in the future making it harder for him to profit off this four-step plan in the future. A good reputation for digging up credible problems are very important for making this investment play work, so how is Hindenburg’s track record? Hindenburg’s last big short play was against Nikola motors and their CEO Trevor Milton. After their report was released to the investing public, Nikolas stock price fell 40% and an investigation by the SEC was opened into Milton which eventually resulted in a conviction for wire and securities fraud. Since the paper was published in September of 2020 Nikola stock is down over 90%, so when the same investment firm made similar accusations against one of the largest conglomerates in India, it understandably drew some attention. The seven publicly listed companies in the Adani group are now down over 50% from the record high prices they were trading at before Hindenburg’s report was made public. Investors are now taking sides because there is a lot of money to be made no matter what happens from now on. If it turns out that the short thesis presented by Hindenburg research is true, then the stocks could fall even further making a lot of money for short sellers following Hindenburg’s lead. If the report turns out to baseless FUD coming from an investment firm with a financial conflict of interest against the Adani group or if Indian authorities do not prosecute the Adani group for the alleged crimes, then the stocks could rally back to their previous trading highs leaving short sellers with a potential 100% loss on their positions. For everybody else on the side lines it is going to be fun to watch, so it’s time to learn How Money Works to find out how the Adani fraud actually worked to create so much excess value in the stock’s price.