Mark Cuban's Share Sleuth Site

[softwareNerd]

Mark Cuban has started a new web-site called ShareSleuth. It works like this: he shorts a company that he figures is a bad investment; he says so on his site, and explains why he thinks so. Predictably, Mr. Cuban has been accused of being unethical. BusinessWeek says Cuban “may be out of bounds”; a Barron’s reporter questions if the site is ethical; various bloggers have said that they’re uneasy about Cuban mixing journalism and trading.

Cuban has responded well , justifying what he’s doing and also pointing out the hypocrisy of mainstream journalists in pooh-poohing the idea of making money from news.

Today, when someone praises a stock (say on CNBC) the journalists will go through a standard declaration of interest. Does the person own the stock? Does he have a relationship with the company? What does this gain us: if the person praising a stock owns the stock, should the viewer discount the advice, or should the viewer discount the advice of the person who talks the talk but has not walked the walk?

I’m always suspicious of people who praise a stock but will not put their money where their mouth is. For stock tips, I look to quarterly reports of various mutual fund managers I respect (and to sites like GuruFocus) I will only listen to people who are serious enough to buy the stock. Could someone be trying to “talk up” a stock that they bought? Yes, it could be… but I’m a responsible adult. Anyone who is investing for themselves — rather than via a mutual fund — ought to assume the responsibility of the decisions they make. If they go by what someone else says, without giving any consideration to that person’s motives, then they deserve any downside they reap.

The same is true of shorting. I’m not interested that someone does not like a stock unless they have just sold some — either earlier holdings or by going short. Could they be trying to “talk down” the stock? Could be, and the same comment as above applies here. Further, if a stock can be talked down, surely the good owners of the great company in question should happily view it as buying opportunity.

Since Cuban has declared his interest, he passes the honesty test. I recommend that he should add the following caution to his site: “Readers are cautioned to assume that I am trying talk-down the price of stocks I have already shorted. If you do not know me, don’t trust me.”

I cheer Mark Cuban and hope to see many sites like ShareSleuth.

I wouldn’t be surprised if Cox’s SEC pokes its nose into this and tries to restrict him. There’s also the risk of civil suits by the crooks who find their game is up. With our legal system, he might also end up being sued by someone who shorts a stock that is critiqued on the site and loses money doing so. Hence, my suggestion that he should include even stronger cautionary language.

[Musashi]

I cheer Mark Cuban too. As a basketball franchise owner he has done some very innovative things. Like creating sideline chairs that are worthy of the great players that sit in them. And making the “coaching” staff for his Mavericks team, three times larger than any other NBA team. He has turned around a team that consistently dwelled in the cellar of the NBA, and was headed towards bankruptcy.

But in this instance if there is truth in this shorting scheme, I can’t applaud or agree with it. While it may seem like a purely free market maneuver, it is not.

It would be one thing for a famous person to conduct a normal market transaction (say a short), and to accept the outcome as any other investor. However by advertising that he has shorted, he creates negative bias on the stock that did not exist prior to his declaration. In short, the declaration becomes an adverse event. And this event is solely under the control of this famous person.

If this tactic were widely used, I think the entire stock market would collapse. How could anyone invest in a company, when at any time a famous person could sweep in: short the stock; make some negative declarations; close his position and walk off with a bag of money. It is theft.

And I suspect Mark Cuban is not behind this link here or the scheme. I suspect someone is exploiting his good name to commit fraud. Cuban is not stupid, and he’s got ample legal advice. This scam is black and white, fall off a log easy to recognize as illegal. The penalty for a famous person convicted of this crime would make Martha Stewart’s sentence look like a weekend in the Hamptons. A wealthy man, like Cuban, is not going to risk going to jail just to make a little more money. He’s already got plenty of money.

The person doing this will get caught. And a smart investor would do well to ignore the site. Unfortunately the investors with positions in these slandered companies will pay the price of this crime.

[softwareNerd]

Mark Cuban does own ShareSleuth; there's no doubt about that. This is no impersonation.

As for the rest of your post, I disagree and find that you offer no reason why the government should deny you the right to talk up or talk down a stock, particularly when you openly declare your interest.

I realize you're not an Objectivist, so I'll ask specifically: are you're familiar with "Capitalism; The Unknown Ideal" and/or "Virtue of Selfishness"? Knowing this will help answer you in terms that are understandable.

[Musashi]

Mark Cuban does own ShareSleuth; there's no doubt about that. This is no impersonation.

As for the rest of your post, I disagree and find that you offer no reason why the government should deny you the right to talk up or talk down a stock, particularly when you openly declare your interest.

How can you claim that a crime as simple as theft, is a valid right of any individual? What difference does it make, if I a first openly declare that I intend to steal from you and then I complete the act. There is little difference in this situation.

The street calls this scam, “the dump and pump”. Many people have been prosecuted for this type of behavior.

And returning to reason, I did not disclaim your assertion. I merely recorded my doubts about their validity. Obviously it will take an in depth investigation to determine, if Mark Cuban pushed the return key and posted this information on the web. For his sake I hope he didn’t, and further I hope he gets the benefit of the doubt until he is convicted.

I realize you're not an Objectivist, so I'll ask specifically: are you're familiar with "Capitalism; The Unknown Ideal" and/or "Virtue of Selfishness"? Knowing this will help answer you in terms that are understandable.

Actually I do identify with Objectivism, and consider myself to be an Objectivist.

There are only two fundamental questions that determine the nature of any social system.

1 Does a social system recognize individual rights?
2 Does the system ban physical force from relationships?

The answer to the second question is the practical implementation of the answer of the first.

You as a stockholder have a right not to be stolen from. Market forces can reduce or increase your investment, but no one should be allowed to take part or all of your investment simply because they choose to.

I think you need to revaluate your principals my friend. You are standing on the side of the looters when you support crimes against the rights of the individual.

Edited August 11, 2006 by Musashi

[softwareNerd]

Calling something theft does not make it so.

[Musashi]

Calling something theft does not make it so.

Ok let’s break it down.

Francisco d'Anconia. "Have you ever asked what is the root of money? Money is a tool of exchange, which can't exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce.

Answer what does the ‘dump and pumper” (here forward called the scammer) give in trade to the stock holder that looses value as a direct result of scammer’s statements?

In this instance there is no reciprocity, no value for value. Simply one party (a scammer) taking money because he can. You can call this a lot of things, I call it theft.

[shane]

Cuban is no scammer. He will offer his opinion. If other people agree they will accept his opinion and short the stock. But they can also choose not to short, or indeed, choose to buy the stock. I see nothing that infringes on other people's rights

[softwareNerd]

... what does the ‘dump and pumper” ... give in trade to the stock holder that looses value ...?

Okay, let's change the example a bit. Let's say a famous actress says that long hem lines are "in" and short skirts are "out". Let's say she's influential enough to cause a change of fashion in a particular demographic group. As a result, some girls in that group find that last season's skirts have lost value. In your opinion, has the actress stolen that value?

If not, how if is different from an "influential person" offering an opinion on a stock?

If Cuban is right in his opinion, and the shareholder loses value, then the loss is not caused by him... the value was not there in the first place. If Cuban is wrong in his opinion, then the stockholder should be happy that some suckers will sell cheap... it's time to load up on the stock and show Cuban he's wrong.

[Spano]

It is absurd to label as theft any tactics having to do with the stock market. Theft requires that a thief use force to expropriate some value from a victim. There IS NO force in a market where shares are being freely traded -- buyers purchase shares of their own free will, sellers sell shares of their own free will. Please point to the fact of reality in which Cuban, or any other person buying and selling stocks, has stolen a dime from anyone, and who is this victim?

To clarify a bit more, look at what happens if Mark Cuban shorts a stock and then declares his negative appraisal of that stock. Let's even say he so declares specifically to exploit social factors to push the price down further, for profit. Now, what has to occur for Cuban to make his profit? He needs to buy discounted shares from people WILLING to offer him such shares at the newly discounted price. He forces nobody. They are under no illusion, no fraud. Even if Cuban thought "dump and pump" is a successful long term strategy, which it clearly is not, he would be fully within his rights to do so.

[Musashi]

Okay, let's change the example a bit. Let's say a famous actress says that long hem lines are "in" and short skirts are "out". Let's say she's influential enough to cause a change of fashion in a particular demographic group. As a result, some girls in that group find that last season's skirts have lost value. In your opinion, has the actress stolen that value?

If not, how if is different from an "influential person" offering an opinion on a stock?

Well your analogy breaks down at several points. First she should at least have a profit interest in the fashion she is endorsing. We can give her that. But most importantly the “long skirts” are a different product than “short skirts”, where a stock is a solitary item. Bad analogy, let’s stick to the original post.

Your initial post is clear-cut, the famous person has a position to benefit and then takes direct action to move the market. Remember a market is similar to a herd of cattle. You only have to effect a small number of cows to get the whole herd to stampede. By virtue of his fame, this sort of scammer knows a small group of people will act upon his musing just because of the person’s fame. The small group, triggers a larger movement the price plummets. The famous person cashes in. They are using the force of their fame to commit a crime.

And what if a dozen famous people decided to dump and pump, in sequence? Could they drive a stock price to zero? Could they pick a second stock and do the same thing? And a third and so on? Would you buy stock in this environment? I wouldn’t.

And tell me how many other famous people have you seen running the “dump and pump” scam. Aside from this post, I have not heard of any. It is a simple scheme. Why do you suppose more people are not doing it? Let me help you - There are laws against it.

If Cuban is right in his opinion, and the shareholder loses value, then the loss is not caused by him... the value was not there in the first place. If Cuban is wrong in his opinion, then the stockholder should be happy that some suckers will sell cheap... it's time to load up on the stock and show Cuban he's wrong.

Ah you are getting closer to the collectivists by the post ! This rational has a single-point economic perspective. AKA a stock has a true value. A loaf of bread has a “true price” and Uncle Joe sets the price. Any other price above or below the “true price” is speculation, and speculators deserve to be punished.

The stock market does not work that way. The value of a stock at any given time is based upon the perspectives of the buyers and sellers. If someone intentionally uses the force of his fame to move that perspective it is a crime.

[DavidOdden]

They are using the force of their fame to commit a crime.

There is no such thing.

[Musashi]

Now, what has to occur for Cuban to make his profit? He needs to buy discounted shares from people WILLING to offer him such shares at the newly discounted price. He forces nobody.

In answer to your question, sort of yes, and definitely no. Certainly for the bottom sellers they have some responsibility for their loss, the pumper may have pushed the price down, but they decided to recognize the loss. Sort of yes.

But what about the longs? The people that hold the stock and do not sell. The value of their asset has been reduced by the pumper. There was no willingness, or cooperation on their part, and yet they still lost money. Definitely not.

They are under no illusion, no fraud. Even if Cuban thought "dump and pump" is a successful long term strategy, which it clearly is not, he would be fully within his rights to do so.

The pumper can provide perfectly accurate information, and yet by the construction of their story create an illusion. Dwelling specifically on negative facts, and diminishing or failing to state positive information, paints a negative picture.

And no, by the rules of the stock exchange this is not his right. Lots of everyday investors have been prosecuted for this type of scam. Heck they have even caught two man teams, that separate the dumping and pumping roles. It is not a new scam.

[Musashi]

They are using the force of their fame to commit a crime.

Really? So the only force in the universe is physical force? I suppose when you spend too much time in the sun you don’t get a sunburn. But I do. Light is not a physical force.

There are all manners of force. And any of them can be corrupted.

Let’s say the physical force, is the scammer triggering the electrons to light up the computer display, and the light impacting the retinas of the “weak willed hero worshipers” that mindlessly act.

[shane]

Let’s say the physical force, is the scammer triggering the electrons to light up the computer display, and the light impacting the retinas of the “weak willed hero worshipers” that mindlessly act.

You better not look at your computer screen again lest it cause you to mindlessly act. I am not trying to be mean, but my computer display made me do it.

[Musashi]

You better not look at your computer screen again lest it cause you to mindlessly act. I am not trying to be mean, but my computer display made me do it.

Good one, yeah that electron spiel is pretty silly.

[RationalBiker]

Really? So the only force in the universe is physical force? I suppose when you spend too much time in the sun you don’t get a sunburn. But I do. Light is not a physical force.

Strawman argument.

David's statement simply refutes that "fame" is a form of force. His refutation is within the context of what a man can do to another man to make him act against his will. You sidestep his disagreement not by explaining how "fame" can be a form of "force" but instead you introduce a different context (in fact an entirely different meaning of the word "force") for the word "force" that has absolutely nothing to do with the interactions of men.

There are all manners of force.

There may well be, but it would be constructive if you keep your argument within the context pertinent to this discussion, that being how men can make other men act against their will, not that radiation can cause chemical reactions.

Or more specifically, explain how one person's "fame" can make another person act against their will.

You also sidestepped softwareNerd's question;

I realize you're not an Objectivist, so I'll ask specifically: are you're familiar with "Capitalism; The Unknown Ideal" and/or "Virtue of Selfishness"?

You "consider yourself to be an Objectivist", but you don't answer his question. Are you familiar with "Capitalism: The Unknown Ideal" and/or "Virtue of Selfishness"? For the sake of clarification, I'm assuming by "familiar" he means more than just being aware of the titles of the books and more like actually having read them or understanding the contents of the books.

Edited August 12, 2006 by RationalBiker

[Spano]

They are using the force of their fame to commit a crime.

...

If someone intentionally uses the force of his fame to move that perspective it is a crime.

It's odd that you refer to yourself as an Objectivist because you have evidently never read or at least understood one of Ayn Rand's most important essays, "Man's Rights". In it, she clearly explains the definition of force in relation to the violation of individual rights -- namely, that such force means physical compulsion.

The concept of a "right" pertains only to action—specifically, to freedom of action. It means freedom from physical compulsion, coercion or interference by other men.

...

To violate man's rights means to compel him to act against his own judgment, or to expropriate his values. Basically, there is only one way to do it: by the use of physical force.

There is no such thing as the "force" of fame because that renders the word meaningless. Fame is perhaps a means of persuasion, but persuasion involves people free to make decisions according to their own judgement. Mark Cuban can try all he wants to convince me that a certain stock is bad, but until he lays a finger on me, he has no means to make me sell except by my own free decision.

[Spano]

But what about the longs? The people that hold the stock and do not sell. The value of their asset has been reduced by the pumper. There was no willingness, or cooperation on their part, and yet they still lost money. Definitely not.

There is no such thing as the "right" to have your stock portfolio increase in value, or to be free from risk. By buying shares, you are accepting the risk of having the price go down in the future, i.e. of others being less willing to buy your shares from you later on. If the willingness of buyers disappears, there is nobody to indict on charges of theft -- you simply have to deal with this fact of reality.

To hammer the point again, a stock's price is the result of an aggregate of free decisions and judgements by buyers and sellers in the market, and if the price goes down, tough luck. If Mark Cuban manages to convince everyone that shares of company XYZ are worthless, then you have the right to convince them that Cuban is full of crap. Otherwise, buy as many shares as you can, and reap your profit at the expense of all those apparently weak-willed, fame-awed sellers.

[Musashi]

Strawman argument.

David's statement simply refutes that "fame" is a form of force. His refutation is within the context of what a man can do to another man to make him act against his will. You sidestep his disagreement not by explaining how "fame" can be a form of "force" but instead you introduce a different context (in fact an entirely different meaning of the word "force") for the word "force" that has absolutely nothing to do with the interactions of men.

There may well be, but it would be constructive if you keep your argument within the context pertinent to this discussion, that being how men can make other men act against their will, not that radiation can cause chemical reactions.

Or more specifically, explain how one person's "fame" can make another person act against their will.

You also sidestepped softwareNerd's question;

You "consider yourself to be an Objectivist", but you don't answer his question. Are you familiar with "Capitalism: The Unknown Ideal" and/or "Virtue of Selfishness"? For the sake of clarification, I'm assuming by "familiar" he means more than just being aware of the titles of the books and more like actually having read them or understanding the contents of the books.

In reverse, I believe you will see that I referenced an excerpt from “"Capitalism: The Unknown Ideal" to respond to SoftwareNerd’s question. I have read it and I believe it sheds light on the topic. You are mistaken.

Or more specifically, explain how one person's "fame" can make another person act against their will.

Who said anything about making a person act against their will? Physical force can be used to end a person’s existence, but it can not make them act against their will. I claimed that Fame is a force, and that it can be abused.

Further you claim this question was in the context of David’s original statement, it was not. Perhaps you inferred it in the subtext?

Edited August 13, 2006 by Musashi

[Musashi]

Very well, I accept your views 4 to 1. By your standard, to be an Objectivist is to be an anarchist. Any form of dodge or con is “A OK” in your book. By your own standard please consider my reasoning as nothing more than a con, and therefore just as acceptable as any other point of view.

Unfortunately it is not what I understood when I read Rand’s novels and essays. Her epic hero’s were NOT confidence men.

Do you also embrace murder?

[RationalBiker]

Who said anything about making a person act against their will?

Well, namely that is exactly what Ayn Rand talks about at length when she refers to coercing men into making decisions or taking actions that are not voluntary or freely chosen; that violate their rights. She explains quite thoroughly how she uses the term force and the way you are using it is entirely outside of that context. By your incredibly broad usage of the term 'force' (as evidenced by your example) it is a violation of a person's rights to get sunburn from the sun. It's quite clear that whatever you have read about "Man's Rights" and "force" in Objectivist literature you have seriously failed to grasp.

As evidence from The Virtue of Selfishness, Chapter 14 - The Nature of Government;

Man's rights can be violated only by the use of physical force. It is only by means of physical force that one man can deprive another of his life, or enslave him, or rob him, or prevent him from pursuing his own goals, or compel him to act against his own rational judgment.

It can't be made much clearer than that.

I claimed that Fame is a force, and that it can be abused.

Yes, we see that you claimed it, but you have neither explained how it can be a form of force in the Objectivist context such that it is a violation of a man's rights nor have you substantiated your claim by any evidence.

Further you claim this question was in the context of David’s original statement, it was not.

Yes, it most definitely is in context with David's refutation of your claim regarding fame.