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John Hempton's Valeant Short
- John Hempton shorted Valeant Pharmaceutical, identifying its business model as unsustainable and fraudulent.
- His calls on Valeant became a career-defining win after exposing accounting irregularities and shady sales tactics.
Challenges of Shorting Frauds
- Finding an edge by knowing a stock is worthless is valuable, but exploiting it is risky.
- Fraudulent companies keep lying and can cause losses even if you are ultimately right.
Use Shorts for Negative Correlation
- To achieve returns uncorrelated with the market, consider short bets that profit when markets fall.
- Such negatively correlated returns let you buy quality companies when the market dumps.