dLocal Stock Demolished by Short Report

November 17. 2022. 8 mins read

When we publish a negative report about a stock that appears to be under the influence of stock promoters, the accusations are always the same. We’re accused of being short when in fact we wouldn’t short a stock no matter how bad it looks. That’s because the market is not rational, and shorting a stock is akin to speculating. Nonetheless, plenty of “activist short sellers” out there make a living shorting stocks while publishing lengthy reports to support their positions. It’s a controversial occupation, and one of the world’s most notorious short sellers (so sayeth the FT) is Muddy Waters Capital.

Muddy Waters doesn’t use screens to find short candidates – there are too many false positives and false negatives. Rather their process is much more qualitative. Carson pays particular attention to stocks on a tear, to highly promotional management, to CEOs promising the moon. They like companies which are indebted and resort to trickery to preserve covenants. They will read call transcripts for several years to detect broken promises, management prone to using buzzwords, executives who don’t answer questions.

Credit: Behind the Balance Sheet

It takes about three months for Muddy Waters to produce a short report, and the one they released yesterday absolutely decimated a fintech stock we just invested in – dLocal (DLO).

While we have found no pictures of its CEO wearing black turtlenecks, our research leads us to believe that DLO

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