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How a 25-Year-Old Investor Spurred Lumber Liquidators’ Plunge

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Re: How a 25-Year-Old Investor Spurred Lumber Liquidators’ Plunge

#11

Post by Qworg »

parfe wrote: post #2

The idea of private citizens both being able to investigate companies for wrong doing and earn income for their work appeals to me. No lawsuit, no legal process. After doing some investigations, just some quick transactions on a trading account, and a blog post later.

This exists - many manufacturing companies get hit up by chemical engineers who discover something in their product, backed by a lawyer. They get damages + fees and the product gets a "This is known to cause cancer in the State of California".

Re: How a 25-Year-Old Investor Spurred Lumber Liquidators’ Plunge

#13

Post by vec »

ansible wrote: post #10
jordan0day wrote: post #9

Earlier quoted context omitted.

Who would pay for it? We've already seen that people aren't willing to pay for quality journalism, so we're left with advertisers? Who obviously don't want their own products being investigated. Perhaps though if somehow you could get companies to pay for investigations into their competitors? Like an anti-advertising model? I presume this would end up a zero-sum game though, and companies would opt to not play at al…

Or just fund it like Xuhua Zhou did, with short-selling. Maybe some combination of these, banding together with the Consumer's Union and other interest groups.

Short selling is necessary and good as a stopgap measure, but there's at least one good reason we shouldn't want it to be a go-to reward strategy. Most investments have a bounded worst-case loss. You can only lose as much money as you put into it. Short selling, however, is backwards; you have a strictly bounded best-case profit and the theoretical maximum loss is infinite.

Re: How a 25-Year-Old Investor Spurred Lumber Liquidators’ Plunge

#14

Post by fnordfnordfnord »

jordan0day wrote: post #5
mc32 wrote: post #3

Earlier quoted context omitted.

Yeah this is pretty great. Good work and good result. My only caveat would be unscrupulous people spreading unfounded rumors or uninformed opinions passing as fact which could result in innocent companies suffering from lack or rigor on the did of citizen investigators. At least it appears sixty minutes did son of their own investigation --althouh I imagine they went in with guilt in mind, which worked out in this ca…

On the one hand, I'd love to believe that people were rational and would actually examine the data before rushing to follow some advice they got on a site like seeking alpha, so that bad actors wouldn't be able to profit by spreading false accusations. Not having to rely on a drawn-out (and sometimes unreliable) legal process would be great. On the other hand, we have plenty of evidence that people are really bad at…

The trend in measles cases is troubling, but to call it a "roaring" comeback is hyperbole.

http://www.vox.com/2015/1/29/7929791/measles-outbreak-2014

tl;dr Measles was imported to a group of unvaccinated Amish by a resident returning from a missionary trip. The Amish accounted for a large portion of those infected in the US. The good news is that many Amish opted to take the vaccine after seeing the effect of measles in their community.

Here is an older article (2024)

http://www.nytimes.com/2014/05/30/health/measles-cases-in-us...

A few snippets from the article.

  * There were fewer than 200 cases last year (2013); the record low was 37 cases in 2004.
  * Eighty-five percent of this year’s cases were in people not vaccinated because of religious, philosophical or personal objections, Dr. Schuchat said.
  * Almost half the cases were part of a continuing outbreak in Amish communities in Ohio 
  * In an unusual twist, over half were ages 20 or older. They may have included adults whose parents refused to vaccinate them years ago, she said.
  * Forty-three of the 288 who contracted the virus were hospitalized, most with pneumonia. None died.
  * There were 60 cases in California, mostly in the San Francisco Bay Area and in Orange County, where large numbers of wealthy parents refuse to vaccinate their children.
And to put it in perspective

* France, the world’s most popular tourist destination, had an outbreak of 20,000 cases from 2008 to 2011.

The 2014 CDC MMWR report if you want

http://www.cdc.gov/mmwr/preview/mmwrhtml/mm6322a4.htm?s_cid=...

Re: How a 25-Year-Old Investor Spurred Lumber Liquidators’ Plunge

#15

Post by bradleyjg »

vec wrote: post #13
ansible wrote: post #10

Earlier quoted context omitted.

Or just fund it like Xuhua Zhou did, with short-selling. Maybe some combination of these, banding together with the Consumer's Union and other interest groups.

Short selling is necessary and good as a stopgap measure, but there's at least one good reason we shouldn't want it to be a go-to reward strategy. Most investments have a bounded worst-case loss. You can only lose as much money as you put into it. Short selling, however, is backwards; you have a strictly bounded best-case profit and the theoretical maximum loss is infinite.

If you know the time frame you expect the market moving news to come out you can go short with limited downside by buying put options. You also get more leverage that way.

Re: How a 25-Year-Old Investor Spurred Lumber Liquidators’ Plunge

#16

Post by hga »

mc32 wrote: post #3
parfe wrote: post #2

The idea of private citizens both being able to investigate companies for wrong doing and earn income for their work appeals to me. No lawsuit, no legal process. After doing some investigations, just some quick transactions on a trading account, and a blog post later.

Yeah this is pretty great. Good work and good result. My only caveat would be unscrupulous people spreading unfounded rumors or uninformed opinions passing as fact which could result in innocent companies suffering from lack or rigor on the did of citizen investigators. At least it appears sixty minutes did son of their own investigation --althouh I imagine they went in with guilt in mind, which worked out in this ca…

From The Fine Article:

"When Zhou began looking into the Toano, Virginia-based company back in 2013, he says he found online complaints about its Chinese-made flooring. So he bought products from Lumber Liquidators and paid to have them analyzed. The results led him to publish a post on investing website Seeking Alpha on June 20, 2013, that advocated shorting the stock because the tests showed levels of formaldehyde above California requirements."

So while others might indeed lie, we seem to have enough confirmation from the subsequent investigations that Zhou did not. And there was no reason to believe he lied, this is a target rich environment after all.

And while 60 Minutes is entirely untrustworthy (I've watched them lying on the air for decades, since the '70s), likely would have started with "guilt in mind", in this case they chose a worthy target.

Re: How a 25-Year-Old Investor Spurred Lumber Liquidators’ Plunge

#17

Post by gvb »

stygiansonic wrote: post #8

The original article that Zhou published on Seeking Alpha outlining reasons for going short against LL is available here: http://seekingalpha.com/article/1513142-illegal-products-cou... The lab report of the analysis carried out: https://app.box.com/s/mhzih9apu2q2gdeuty8i

Some background on the CA law: http://greensource.construction.com/news/080107CARB.asp

"The new CARB rule sets thresholds for emissions of formaldehyde from various panel products that take effect in two phases between 2009 and 2012 (see chart). It is difficult to compare these limits with their counterparts in Europe and Japan due to the differences in testing protocols. The phase-one targets are designed to establish a reasonable baseline based on today’s common practice, while curtailing low-cost, high-emitting, imported products. Phase two, on the other hand, is intended to force manufacturers to shift to advanced and emerging technologies. CARB officials tout the fact that, once fully implemented, its formaldehyde emission limits will be the tightest in the world. Products sold for use in manufactured homes are exempted from these new requirements because state law cannot supersede federal rules in this area."

Re: How a 25-Year-Old Investor Spurred Lumber Liquidators’ Plunge

#18

Post by mindslight »

Qworg wrote: post #11
parfe wrote: post #2

The idea of private citizens both being able to investigate companies for wrong doing and earn income for their work appeals to me. No lawsuit, no legal process. After doing some investigations, just some quick transactions on a trading account, and a blog post later.

This exists - many manufacturing companies get hit up by chemical engineers who discover something in their product, backed by a lawyer. They get damages + fees and the product gets a "This is known to cause cancer in the State of California".

To be fair, everything gets "This is known to cause cancer in the State of California". The only thing that label tells you is that the state of California likes to pointlessly sacrifice lab animals.

Re: How a 25-Year-Old Investor Spurred Lumber Liquidators’ Plunge

#19

Post by sk5t »

Qworg wrote: post #11
parfe wrote: post #2

The idea of private citizens both being able to investigate companies for wrong doing and earn income for their work appeals to me. No lawsuit, no legal process. After doing some investigations, just some quick transactions on a trading account, and a blog post later.

This exists - many manufacturing companies get hit up by chemical engineers who discover something in their product, backed by a lawyer. They get damages + fees and the product gets a "This is known to cause cancer in the State of California".

Are you sure you mean chemical engineer and not chemist? Chemical engineers are usually more concerned with, e.g., how to produce something to a certain level of purity, designing a process or plant to work effectively, etc.

Re: How a 25-Year-Old Investor Spurred Lumber Liquidators’ Plunge

#20

Post by koenigdavidmj »

parfe wrote: post #2

The idea of private citizens both being able to investigate companies for wrong doing and earn income for their work appeals to me. No lawsuit, no legal process. After doing some investigations, just some quick transactions on a trading account, and a blog post later.

There was a case study of short selling on NPR's Planet Money a few weeks ago: http://www.npr.org/2015/01/30/382587945/winning-at-short-sel...

Basically, the guy discovered a Chinese test prep company (think College Board) that had recently started to be listed on American stock exchanges, and discovered that their payment system returned an error. He emailed their support address, and it bounced. He hired a guy on Craigslist to go look at their business address in China, and it was discovered to be empty. He shorted the ever living crap out of the stock, broke the news, and won big.

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