A few weeks ago, one of my Dividend Hunter recommended stocks was the target of a short attack press release. The company has a stable, profitable business. The small market cap becomes the main appeal to short sellers, making it easier to manipulate the share price.
Here’s how to tell if the short attack is legitimate – and how to act accordingly…
Arbor Realty Trust (ABR) is a finance REIT that caught the eye of short-sellers. The recent report was the second such attack on the ABR share price this year.
A report titled “Arbor Realty Trust – Slumlord Millionaires” was published by an outfit called Viceroy Research. The report scared ABR investors, and the stock price shed 12.5% in a few days.
A short-selling outfit like Viceroy will have established a short position in the target stock before they publish this type of article. This excerpt is from the disclaimer you must acknowledge before you can see any content on their website:
“You should assume that the authors have a direct or indirect interest/position in all stocks (and/or options, swaps, and other derivative securities related to the stock) and bonds covered herein, and therefore stand to realize monetary gains in the event that the price of either declines.”
Here are some clues: a negative report on one of your stocks is an attempt by a short-selling firm to drive down the share price.
- A clickbait title. This type of report needs to spread fast to have the desired effect on the share price. A provocative title gets investors to click and read. These articles spread through social media and not traditional financial news sources.
- You have never before heard of the publisher of the article. Outfits like Viceroy Research only publish reports about stocks they plan to sell short.
- The article is not picked up by mainstream financial press. Yahoo Finance or Seeking Alpha did not pick up the Viceroy ABR hit piece, and it was not included in the ABR research page in my Charles Schwab account.
A short seller must borrow shares to enter a short-sell trade. Shares not owned are sold short and bought back later at what is hoped to be a lower price. The short seller profits from the falling stock price. By the time regular investors see the price drop, the traders at Viceroy Research are already locked in their profits.
My email blew up with questions from subscribers about ABR. I put out a Weekly Mailbag video where I answer questions about these types of events.
ABR is an outstanding income stock with a growing dividend. The current 13% yield makes buying or adding shares an easy, let’s do it, decision.