The Wall Street Journal has a long account of David Einhorn's announcement that he is shorting St. Joe Co, a real estate company:
Mr. Einhorn's bet that shares of St. Joe have been overvalued sets up a stock pickers steel-cage match against Bruce Berkowitz, the value investor whose Fairholme Capital Management LLC held nearly 27 million shares as of June 30. Mr. Berkowitz declined to comment.
It is reminiscent of Pershing Square Capital Management LP founder Bill Ackman's wager against MBIA Inc., in which Marty Whitman of Third Avenue Management LLC wrongly took the other side of the trade.
It's interesting that Mr. Whitman gets charged with being "wrong" on MBIA when Mr. Ackman was the one who was going around saying the company would go bankrupt. MBIA shares are now up around $11 after trading in the $2 range in early 2009. More on Mr. Ackman and MBIA here. As we noted back then, a short-seller doesn't even have to be right at the outset about the underlying investment thesis; he just has to be able to create enough publicity to destroy confidence in a company and its reputation. If St. Joe's business depends on its ability to sell real estate to consumers, it hurts that business to see an article such as today's in the Wall Street Journal referring to the company's developments as "a ghost town" or "deserted."
What can a company under siege like this do? It can try suing, as has one for-profit college that says it was under siege by an alliance of short-sellers and a state-funded competing college. Or it can hope it has the resources in both time and money to wait the short sellers out until they move on to the next target.