Whitney Tilson, noted value investor and co-manager of the hedge fund T2 Partners, has made waves of late for a variety of reasons. He wrote an op-ed piece for the Washington Post in support of the “Buffett Rule” on April 11th, and he’s long been considered one of the more prominent proponents of the Buffett-Graham school of value investing.
However, Tilson’s most notable statements recently came in an interview on CNBC on Friday, April 20th. In it, Tilson explained his short position on Nokia (NOK), Research in Motion (RIMM), and First Solar (FSLR), proclaiming that each company’s future held even more dark clouds than currently existed.
“This week, Nokia, RIMM, First Solar are all in the headlines. The businesses are in full scale collapse,” he said. “The stocks are down 60 to 80 percent, yet we are short those three companies because we don’t think their businesses will stabilize. We see lots more bad news coming. So the key is you have to invest in businesses that are at least going to stabilize their operations and the bad news will fade. If the bad news continues you’re in a value trap.”
Rough Times Getting Rougher
At first blush, the three companies Tilson has shorted would seem to be a value investor’s dream, offering P/B values of 0.88, 0.69, and 0.49 respectively. However, that’s what it means to be a value trap, a company that appears to be cheap because of depressed share prices that’s really worth nothing. And for Tilson to not only be bearish on the stocks but to short them displays a fairly strong opinion. First Solar is already off almost 90 percent of its value from February 18th of last year, leaving it relatively little room to keep falling. Research in Motion has lost over 80 percent in the same time period, and Nokia has lost over 65 percent since February 4th of 2011.
While some might think that the companies are bottoming out and be looking to get in, Tilson clearly sees them as headed all the way to zero. Either way, shorting the companies shows a strong degree of confidence in this opinion as the crashing share prices would seem to indicate that Tilson honestly believes these companies are headed for bankruptcy.
Share Prices Take Hit
Monday morning saw what would appear to be the immediate impact of Tilson’s remarks. Shares of all three companies were off in after hours trading, and each opened down on Monday. Nokia opened just over 2 percent lower, Research in Motion was off by just over 4 percent in early trading, and First Solar took yet another big plunge, losing over 6.5 percent.
If any of these stocks can find a bottom and begin to recover, they’ll clearly be able to make Tilson eat crow. However, in the short term, investors have clearly responded to Tilson’s remarks with at least a partial sell off.