No hedge fund manager has a greater propensity for histrionics than Bill Ackman, founder of Pershing Square Capital Management. In July 2014 the billionaire activist rented out a 487-seat auditorium in midtown Manhattan to present his case against nutritional-supplement maker Herbalife, calling its multilevel marketing program a “pyramid scheme” and “an ingenious fraud.” Ackman, who has been betting against Herbalife since 2012, is one of ten investors profiled in Richard Teitelbaum’s The Most Dangerous Trade: How Short Sellers Uncover Fraud, Keep Markets Honest, and Make and Lose Billions. The others include Jim Chanos, Marc Cohodes, David Einhorn, Doug Kass and Paolo Pellegrini.
Teitelbaum, a senior contributing editor for Institutional Investor and a longtime financial journalist, provides an inside look into the world of short-sellers — investors who sell borrowed shares of companies they expect to stumble. “At its crux, short selling is about failure,” he explains in the preface. “The natural state of a collapsing universe is the breaking down of order. Short sellers understand this and seek to profit from it.”
Short-sellers have been viewed throughout history as pariahs — bottom feeders looking to take advantage of other people’s misery. Manuel Asensio, one of the stars of Teitelbaum’s book, received a lifetime ban from the securities industry by the National Association of Securities Dealers a decade ago. Chanos, founder of renowned short-selling firm Kynikos Associates, lost his research analyst job at a subsidiary of Deutsche Bank after a 1985 Wall Street Journal cover story named him as part of a network of short-sellers who “aren’t above innuendo, fabrications, and deceit to batter down a stock.”
For its part, The Most Dangerous Trade is about success, not failure, and it achieves something rare among financial books: It delivers insights into the personalities of its subjects, as well as their business and its place in society.
