Bronte Capital

Lots of people building real businesses do shady things on the way up. John Hempton wrote up a great example of this about a failed short play against Steve Madden Shoes[0]. Steve Madden may have been a fibber, but he made shoes people wanted to buy. The value of the shoes was larger than the fakery.

But when you are selling financial services, this kind of fakery almost always blows up because the accounting is the product. And if the accounts are fake, the thing is fake. Fake accounts always leave a hole that can only grow with each cycle of fraud. Dan Davies wrote a great book titled "Lying for Money" on the whole sorry process[1]. Galbraith called it the "bezzle".

[0] - http://brontecapital.blogspot.com/2011/05/steve-madden-counter-example.html
[1] - https://www.goodreads.com/book/show/38605195-lying-for-money

An alternative viewpoint:

https://brontecapital.blogspot.com/2019/08/the-flat-out-silly-markopolos-ge-report.html?spref=tw

As Charlie Munger says, always look at the incentives to understand people's behavior. Markopolos' sponsoring hedge funds are shorting GE:

https://www.bloomberg.com/news/articles/2019-08-15/ge-drops-as-madoff-whistle-blower-levels-accounting-accusations?srnd=premium

"Markopolos is working with a hedge fund he didn’t identify and stands to benefit from bets that GE’s stock will decline, according to the Wall Street Journal, which reported earlier on the accounting report. Markopolos and his colleagues also hope to collect a whistle-blower reward by reporting their findings to regulators, the Journal said."

Valeant is especially pernicious case of credulous investors looking at a rising stock price and skipping their due diligence. There's a lot of amazing blog posts from John Hempton and others outlining the problems with their story.

http://brontecapital.blogspot.com/2015/10/some-comments-on-valeant-conference-call.html
http://brontecapital.blogspot.com/2015/10/simple-proof-that-philidor-has-shipped.html
http://brontecapital.blogspot.com/2015/10/valeant-and-its-captive-pharmacies-some.html

http://azvalue.blogspot.com/2015/08/valeant-detailed-look-inside-dangerous.html
http://azvalue.blogspot.com/2015/08/valeant-detailed-look-inside-dangerous_27.html

There's a difference between lack of clarity and fraud.

Bronte Capital discussed Single's Day, Alibaba / China's equivalent of black Friday. Taking Alibaba's claim of 278m package deliveries at face value, he compares the scale of infrastructure and employees required for Amazon plus Amazon Logistics/UPS/Fedex to deliver significantly fewer packages than Alibaba's claim to Alibaba's infrastructure/employees. The conclusion appears to be that what Alibaba is claiming is largely impossible and the numbers are very wonky.

http://brontecapital.blogspot.com/2015/09/job-interview-questions-size-and-scope.html

Here’s a quick blog post that points out a few problems with the report.

https://brontecapital.blogspot.com/2019/08/the-flat-out-silly-markopolos-ge-report.html?m=1

It looks like Markopolis claimed GE’s margins were too good to be true, even though they’re below the industry average.

Also he compares this section of the business with another company that GE spun off, seemingly not knowing that they were originally linked.

Doesn’t seem like a very credible report if these 2 things are true.