In the stock market, a bassist is not understood to mean a musician who plays a four-stringed instrument, but the one in charge of practicing a slightly more lucrative melody, that of buying cheap and selling expensive, only by altering the order of the factors. Convinced that the value of a listed company will fall, these opportunistic investors order a package of shares to sell at a good price and then, when the time comes to return them, buy them back cheaper, provided their forecast is ‘have fulfilled In most cases they do it as a bet or to diversify financial risks, but there are also times, as happened this week with Gotham City Research and Grifols, who take sides with their opinions in the fall in the value of the listed company.
In the Spanish stock market this week there were open short positions for almost 600 million euros in eleven companies, according to the records of the National Securities Market Commission (CNMV). They correspond to a dozen funds that range from specialists in the field, such as Ako Capital, Otus or Point72, to conservative and versatile investment giants, including the pension funds of Canada, JPMorgan or BlackRock. All have in common their Anglo-Saxon origin, because these operations are widespread in the United States.
In reality, the volume of these bets is small in Spain if compared with what it represents in other markets and with the capitalization of all listed companies in the country, of 1.1 billion euros. It is also much lower than recorded years ago, when the crisis left some companies in the hands of these opportunistic investors, who came to take positions of up to 10%. Now equity has been on the rise for months and it is not easy to predict falls.
CNMV sources explain that bearish investors are subject to a European regulation in which they are required to declare positions of more than 0.5% in the listed companies, and that there is no debate on their eventual ban, more beyond the suspensions contained in the regulations for cases in which there is no “orderly trading” on the stock exchange.
Short positions currently do not exceed 2% of any of the listed Spanish companies, except for Audax, in which two bearish funds have leased 3.6% of the capital, valued at 21 million. The most important bearish position in terms of volume is that of 278 million euros by the pension fund of Canada and BlackRock in Telefónica, representing 1.3% of the capital.
The bears have more bets of 80 million in ACS by 0.73%, of 77 million in Enagás by 1.9%, of 64 million in Bankinter by 1.2% or of 27 million in Fluidra by 0, 78% Grenergy, Meliá, Solaria and Unicaja also have these inconvenient stowaways on board in their capital. In Grifols, Gotham has already left in search of other destinations.
Market sources assure that short operators enjoy a bad reputation in Spain, but that in the United States, as long as they do not spread false information, they have their usefulness and can even act as a “canary in the mine”, which warns of corrections of value Some remain hidden in the company’s capital for months, waiting for them to fall on the stock market. In their own way, they also have to earn a reputation, since a false report or position deteriorates their credibility in the market.
The CNMV has only twice suspended the activity of bear traders in anticipation that they could worsen an already disturbed stock market trading. It was 11-S and in the worst months of the pandemic, between March and May 2020. Since 2012 the supervisor has forced these operators to report their positions and has recently approved the reporting criteria with those of the rest of the surrounding countries.
For Lydia Martínez, member of the board of the Association of Financial Investment Advisors (AIF), the case of Gotham and its activism in Grifols can generate “moral and ethical doubts”. In his opinion, the key is for the investor to have “a reliable system that guarantees” the veracity of the information transmitted to the market. “Market freedom must exist, but always audited by completely objective bodies,” he says.
The moral lesson can come from the market itself, in the form of campaigns to raise the value of companies besieged by bearers. At the beginning of 2021, these opportunistic funds came up short in their bet against the US video game company Gamestop. Investors rallied on social media to blast bearish funds’ short positions in the company, which, far from falling on the stock market, soared and caused speculators to lose $6 billion.
From that episode the bassists seem to have learned the lesson that it is not appropriate to mess with the popular high school student. It’s even better to operate using catchy names, such as Gotham, taken from the Batman comics.
Added to these market reactions is how risky the bearish bet itself is, which often goes wrong. According to Bloomberg calculations, in 2023 they lost $195 billion worldwide on their ill-advised short positions, adding to the red numbers in 2020 and 2021 as well. The only recent years in which they have well it was 2022 when they made a profit of 300 billion. At the moment, the last play that has gone well is Gotham, which has withdrawn from Grifols with a loot of around 20 million euros.
