Unstructured Finance

The volubility index

March 21, 2013

By Matthew Goldstein

With money managers increasingly falling in love with their own voices and so many willing to give them a platform to air their thoughts, I’ve long thought it would be good if someone could come up with a Volubility Index that measured performance against the number of times someone was quoted or made some stock, bond, or market prediction.

It won’t be me because I’m not enough of a math geek or algo genius to even think about how to put something like that together–but it would be interesting to see the results. And given this year’s big surge in money managers spouting off–what with the Ackman-Ichan blood feud over Herbalife and and Einhorn trying to be ever so clever in trying to stop the slide in Apple shares with his iPrefers share class dividend proposal–may be it just will happen.

Anyway, the latest issue of Businessweek with its cover story on David Einhorn and the failure of the “Einhorn effect” to work its magic on Apple’s stock got me thinking again about the Volubility Index. The BW story is a long one and chronicles Einhorn’s long history of driving down the price of stocks he is shorting, but notes his plan to get Apple to unlock its big pile of cash is having limited impact on the stock–even after the Greenlight Capital manager held an unusual press conference to discuss his idea.

Personally, I don’t think it’s much of surprise that the Einhorn effect hasn’t had much impact on Apple. It’s hard for a manager to move a big cap stock like Apple through activism and it’s far easier to do that on the short side–especially with a less widely held stock like Green Mountain Coffee Roasters or for that matter Herbalife, which Ackman caused to plunge late last year with his big short thesis. For more on the trouble with moving big cap stocks, look at Ackman’s trouble with calls to shake up Target a few years back.

Carson Block’s Muddy Waters outfit has gotten a lot of early attention for its short side attacks on Chinese companies that question the accounting practices at those companies. But one short seller told me a lot of the early companies Block’s firm wrote about like Sino Forest were ripe for the picking because no one was really paying much attention.

Yet even some are saying the impact of Block’s critiques may be wearing off. Last November, the folks at ZeroHedge wondered whether Muddy Waters “is becoming a fade,” noting the shares of some of the companies it has criticized more recently have rebounded after falling sharply. For instance,  Reuters reported yesterday that shares of Olam International Ltd. are now trading “above the level before the commodities firm was attacked by short-seller Muddy Waters” in late November.

So maybe even the loud attacks on the short side are no guarantee of moving the needle upwards on the Volubility Index.

 

 

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