Businesses that are generally bad for society have often been very good for investors, according to Carson Block, the founder of Muddy Waters Research. That’s because investors are told to ignore their morals.
Block had a call to action for attendees at the Kase Learning Short Selling Conference in New York: Put an end to amoral investing.
“The question I ask is: Should this business be running the way it is? Should it exist the way that it does, regardless of the way it generates money?” Block said on Monday.
“If the answer is no, then get the f— out.”
He said “scummy businesses” are often very profitable for investors, acknowledging that his advice goes against investment managers’ training. He labeled the healthcare industry as “ground zero” for this type of investing, mentioning companies such as Insys Therapeutics, Acadia Healthcare, Health Insurance Innovations, and Medifast by name. Block’s firm does not have positions in any of the companies, he said at the beginning of his presentation.
Insys, which settled with the Department of Justice in August to pay $150 million for paying doctors to push an opioid it manufactured, “killed people” with its drug marketing, Block said. Analysts had buy ratings on them following the settlement announcement, he said.
Short sellers in particular “should put the world on notice” when they take a stance, he said, by naming not only the names of executives at “amoral” companies but the portfolio managers and analysts who prop them up as well.
“Make them explain their positions to their kids,” Block said.
The growing business of environmental, social, and governance, or ESG, investing, which focuses on investing in companies with good standards in those areas, does not go far enough for Block. He said it is “checklist-driven for companies that want to be able to say they looked out for bad stuff.”
“This is the purest form of ESG investing,” he said about his strategy of going after companies and their executives.
Insys, Acadia, Health Insurance Innovations, and Medifast did not immediately respond to requests for comment.
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