- Citron Research founder Andrew Left says that understanding the reasons people buy a stock is critical to his process of betting against it.
- Left also tells Business Insider that he's not shorting a lot of soaring "work from home" stocks in spite of their big gains because it's simply the wrong time.
- He's concerned about both the prevalence of day trading in troubled companies, and by the effects of a rising stock market during a period of deep economic pain.
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It's been almost 20 years since Andrew Left became famous, or infamous, for his bets against stocks.
He's asked for his opinions a lot. But to hear him tell it, his views are not the most important element of what he does.
"The key thing is I've learned over the years, is this kind of a secret as a short seller: Forget about finding out why I am short. What I have to do is find out why the next guy is long," the Citron Research founder told Business Insider in an exclusive interview. "It's very important to find out why people own the stock."
In other words, even when Left has grave doubts about a company's numbers, its long-term prospects, or any other aspects of its valuation, it won't matter — not unless Left's information is going to make other investors change their minds and sell the stock, which is the only way his short position will win out.
He's a man with strong opinions and a strong track record of being right. But Left also says a critical part of his approach is asking, again and again, if he could be wrong.
"I ask myself one question. If I wasn't short the stock, would I be short it today?" he said. "You have to recheck your thesis every day."
He explains that it's better to acknowledge your call isn't working out than to stick to it out of habit. He recently did that with online home-goods retailer Wayfair.
Left says he has doubts about many of the market's biggest winners, but taking out a short bet against a company like Zoom would clearly be a losing proposition right now.
"I'm not short a lot of these high-flying internet stay-at-home stocks because you have to acknowledge when things change," he said.
Another thing that seems to have changed recently is that all of a sudden, everyone loves the stock market and wants to get in. That's a change Left isn't wild about and it's one he — like a growing number of veterans and experts — has grave doubts about.
With stocks up 43% from their late-March low, he says he's had to look through more potential short investments than ever. But a key part of his work involves figuring out the buy thesis on stocks, and he thinks many people simply don't have one and are buying cheap stocks because they're bored.
"People are sitting at home, opening up accounts, buying stocks with no knowledge involved. ... It's more like gambling," he said.
Some of those traders have scored remarkable wins over the past few weeks, but Left doubts that it can last.
"The rationale is 'they're going up,' so when they stop going up, people will sell them," he said. "Carl Icahn, one of the greatest investors in the past hundred years, who knows Hertz better than anyone else ... sold this stock last week at 75 cents. Hertz says they're going bankrupt. It's trading $5."
But Left is bearish about today's market, and has a deeper fear about the rally that can't be laid at the feet of day traders. He says the combination of a soaring stock market and a suffering economy is bad for the country.
"It's just not good to have a booming stock market and a languishing economy," he said. "... Worse than crashes, it leads to social disorder. Hopefully the Fed will take the foot off the gas."
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