Greene King (GNK) Short Selling

[moorfield]

Spotted in City AM yesterday.

According to IHS Markit, 16 per cent of shares in the 3,000-strong pub group are currently out on loan.

It marks a notable increase from 12 per cent at the start of the year.

http://www.cityam.com/280832/glass-half ... rt-sellers

Greene King currently has a similar market cap (lower half of FTSE350) and yield range (6-7%) that Carillion had a few years ago, which prompts interesting questions to those who hold and are trying to apply lessons learnt from that implosion: Are you selling, yet?

And a thought experiment. Let's suppose Greene King is 18-24 months out from announcing a dividend cut. What are you looking for from here that will persuade you to act on any lessons learnt from Carillion, and sell?

M

[Darka]

I might be wrong, but according to Short tracker, "only" 7.83% of shares are shorted - still more than I'm comfortable with I think....

https://shorttracker.co.uk/company/GB00B0HZP136/

regards,
Darka

[monabri]

Short tracker only reports shorting at greater than a 0.5% level. There might be many other "bets" placed at less than a 0.5% level but these are "Invisible" to the Short Tracker.

From the short tracker website

"Notice: The Short Interest Tracker is based on data sourced wholly from the FCA's daily short positions report."

From the FCA website

"A public share notification must be made when the net short positions of shares reach 0.5% of the issued share capital of the company concerned, and again at each 0.1% increment after that - This relates to both increases and decreases of the position (including each time the position drops from 0.5% or above to below 0.5%)."


There are other sites that report all shorting levels and I suspect that this higher figure is what the headlines are running with as the figures are higher and therefore "scarier".


By the way - the statistics for the private punters who short companies are NOT good, not good at all!

[Gengulphus]

And a thought experiment. Let's suppose Greene King is 18-24 months out from announcing a dividend cut. What are you looking for from here that will persuade you to act on any lessons learnt from Carillion, and sell?

See viewtopic.php?f=15&t=9902&p=115812#p115812 for my lesson learnt from Carillion. I cannot see any relevance of that lesson to Greene King, so I think the answer to your question is that while it might be possible for something to persuade me to sell Greene King, it won't in any way involve acting on the lesson from Carillion. I.e. nothing will persuade me to do what your question asks about.

If you can see any relevance of that lesson to Greene King, I would of course be interested to know what it is...

Gengulphus

[moorfield]

If you can see any relevance of that lesson to Greene King, I would of course be interested to know what it is...

With that post Gengulphus, no, but the clue is in the title of the thread - Short Selling. Adopting this as an additional check for buying or holding HYP shares was widely discussed here in the fall out of the Carillion implosion, hence the comparison with the Greene King piece. Now I'm curious to know if people are putting it into practice, quantifying it, and acting upon it (as some do with, eg. dividend cover), and at what level. 5% shares short, 7.5%, 10% .... etc. ?

[TUK020]

While I tend to leave well alone and not tinker, the Carillion debacle has caused me to pay attention to the short selling.
I have now exited rump positions in Sainsburys, Pearson, Cobham, and Balfour Beatty.
I am considering what to do about Wood Group.
I guess this makes my cut off point at 5% short selling.
This is probably too conservative, but helps witht he 'sleep at night' metric
TUK020

[Wizard]

So are we really saying Short Tracker could be showing only half the shorting activity on GNK? If so it would seem to me to be a pretty unreliable source to make decisions on.

Terry.

[Gengulphus]

If you can see any relevance of that lesson to Greene King, I would of course be interested to know what it is...

With that post Gengulphus, no, but the clue is in the title of the thread - Short Selling. Adopting this as an additional check for buying or holding HYP shares was widely discussed here in the fall out of the Carillion implosion, hence the comparison with the Greene King piece. Now I'm curious to know if people are putting it into practice, quantifying it, and acting upon it (as some do with, eg. dividend cover), and at what level. 5% shares short, 7.5%, 10% .... etc. ?

And another clue is in the fact that I said "that lesson", referring specifically to the lesson in my link (viewtopic.php?f=15&t=9902&p=115812#p115812). My point is that your post contained an unstated assumption, namely that what you described as "any lessons learnt from Carillion" necessarily included lessons about short selling. That basically makes it a question of the classic "Have you stopped beating your wife?" variety - basically an unfair question to ask anyone for whom the unstated assumption is not true.

And it isn't true in my case: the lesson described in the link is the only lesson I've drawn from Carillion, so far at least - and even it is a rather tentative lesson. I know that people have extensively discussed short selling as a danger signal in the case of Carillion, and indeed about quite a few other shares - but I haven't been convinced by those discussions.

Why not? Basically because I want at least one of two things before I accept a suggested danger sign as real. The better (but much more difficult) one is a proper study (*) of a decent-sized, unbiased sample of cases where the danger sign existed, and another of a similar sample of cases where it didn't exist, looking at all the outcomes (meaning reasonably long-term outcomes in this case, since it's in a HYP context) to see whether the cases where it did exist have a poorer average outcome than those where it didn't or they had a sufficiently high chance of seriously bad outcomes to put my HYP as a whole in excessive danger from happening by chance to get more of them than statistically expected. The other and easier one is to produce a reasonably convincing connection between the suggested danger sign and the company being in trouble. In the case of shorting levels, they're obviously driven by the short-selling and short-covering decisions of those market participants who are willing and able to short HYP shares, which in turn are driven by their trading opinions about the merits of such trades.

So if I were to guess that the question you meant to ask (as opposed to the one you did ask) is along the lines of "What are you looking for from here that will persuade you that there is a lesson to be learnt from Carillion about shorting levels that also applies to Greene King, and sell?", the answer is basically "convincing evidence that the trading opinions of market participants who are able and willing to short shares about the merits of short-selling and short-covering trades are worth paying attention to", either in general or under specific conditions that apply to both Carillion and Greene King (and with a caveat that such conditions aren't 'contrived').

As I hold the general opinion that the trading opinions of market participants aren't worth paying attention to and have seen a good deal of evidence to suggest (though by no means prove) that that's the case, anyone wanting to supply me with such evidence is definitely facing an uphill task!

And to answer the obvious question "What's special about your own trading opinions that makes them worth paying attention to?" before anyone else asks it, I'm by no means convinced that there is anything special about them that makes them worth paying attention to - at least as they relate directly to specific shares. MY HYP trading decisions are generally driven by:

* A general investment principle that it is better to be invested in shares than to remain in cash, beyond enough cash to deal with plausibly-foreseeable short-to-medium-term cash needs.

* A general investment principle that because of trading costs, it is better not to trade, unless one has a reasonably-significant reason to trade.

* My own psychological comfort, which is 'special' because it's highly specific to me and basically known to me, not to anyone else. E.g. I can know whether I find getting 10% of my income from a single shareholding uncomfortable (I do) or whether I find holding a widely-shorted share uncomfortable (I don't). The most anyone else can do about those questions is hold an opinion on whether I ought to find them uncomfortable.

* My tax planning (especially CGT), which again is 'special' because it's highly specific to me and basically known to me, not to anyone else.

* Maybe other reasons that are similarly 'special' - I cannot think of any offhand, but that isn't a guarantee that they don't exist!

* And of course various combinations of those factors - in particular, it's quite common for a sale I'm considering to have both 'psychological comfort' and CGT effects.

Having said that, those factors aren't very helpful about buying decisions. The first of them says that when I've got spare cash to invest, I should buy, and the 'psychological comfort' factor says I shouldn't buy shares in companies to which I have ethical objections or top up holdings that are already verging on being too big for comfort. But that's it: deciding between the many possible purchases after that has to depend on somebody's trading opinions about their share-specific merits. And making it my trading opinions rather than anyone else's has some 'psychological comfort' advantages as far as I am concerned - in particular, it means that I know the person whose trading opinions I am paying attention to has my interests at heart, and it makes the "who is to blame?" question when things go wrong very easy to answer!

(*) Such a study would be possible in principle: start collecting shorting and performance data on e.g. all FTSE350 shares that meet some basic conditions for being HYP shares - a high yield and maybe some simple, widely-accepted dividend safety criteria (if there are any that are widely-accepted!). Also decide on what shorting level(s) you want to test for being dangerous. Continue collecting the data until you've got enough to have a decent sample both of cases where the shorting level is above the 'dangerous' shorting level and of those where it is below, for each 'dangerous' shorting level you want to test, and over a decent variety of market conditions - I reckon at least 5 years' worth and very possibly quite a lot more if market conditions happen not to change much. Then continue collecting at least the performance data for long enough to have a decent view of the long-term outcome for all of those cases - I reckon at least another 5 years' worth. After that, you have the raw data whose statistics you want to study...

But it's also clear from that description that such a study would involve a massive investment of both time and effort! The time requirement could possibly be reduced by using historical data, provided you can get historical data that is unaffected by survivorship bias and other forms of hindsight bias and the criteria you use to decide whether a share is a HYP share are strictly objective ones, also not affected by those forms of bias. That isn't easy, and would increase the effort requirement... All in all, I think it would be prohibitively difficult for the vast majority of HYPers, including me.

Gengulphus

[spasmodicus]

hmmm, this is all very theoretical imo. As an (ex) holder of Carillion, I cut back my holding considerably in the months before the final crash after assessing its prospects from the accounts, interims etc and taking note of dividend cuts.

I also hold Greene King, so the question is somewhat relevant but it brings to mind Donald Rumsfeldt's famous observation

"Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don't know we don't know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones"

So my question is "what is it that shorters of GNK know that I don't know and, possibly, cannot know?"

Well, the annual accounts (as on Hargreaves Lansdowne's summary to March 2017) don't look too bad and the interims last June quite upbeat. But looking at advfn I see a recent quote (origin unknown)

"Trouble brewing at pub giant Greene King from short sellers Short sellers circling Greene King as sales and shares fall flat February 18 2018, 12:01am, The Sunday Times Greene King has faced increased competition from casual dining chains Greene King is being preyed on by short sellers who are betting that the pubs owner will come under increased pressure this year. Some 16% of the company’s shares are out on loan to investors — up from 12% at the beginning of January and the highest level in three years, according to the analyst IHS Markit. The increased position, equivalent to £250m of the stock, suggests that short sellers are hoping for a repeat of last year, when the share price fell 20%. Greene King is one of the pub chains that have shifted their focus towards food in the wake of the 2007 smoking ban, which has dented sales for traditional drinking holes."

That falls into the category of "known unknowns". We know that changes in casual dining habits, for whatever reason (pressure on houshold bugets etc) might affect the likes of GNK. The key question is whether this will really happen and whether Greene King management are doing anything to forestall such an eventuality.

The unknown unknowns include the possibility that GNK's management and/or auditors are lying through their teeth,a la Carillion.

I dunno.
Holding for the time being.
Anyone else really know?

S
(If I was in the country, I would be heading out shortly to ponder this question some more, while sampling some of GNK's wares at a local outlet)

[maximan]

Well at least Deutsche bank have increased their holding. Makes a change from increased shorting.

https://www.investegate.co.uk/greene-ki ... _source=FE Investegate Ale

[moorfield]

My point is that your post contained an unstated assumption, namely that what you described as "any lessons learnt from Carillion" necessarily included lessons about short selling.

No it wasn't intended as such and apologies if I've wasted your time writing that opus Gengulphus.

[westmoreland]

they operate in a tough business. costs are increasing but they struggle to pass these on.

does anyone have any view on the spirit pubs acquisition? in my view, these sort of chains work best when grown organically with an offering that customers love - jd wetherspoon, greggs, domino's pizza etc. in hindsight the timing of the acquisition was very poor.

[Arborbridge]

" Some 16% of the company’s shares are out on loan to investors — up from 12% at the beginning of January and the highest level in three years, according to the analyst IHS Markit. "

Well, that's good news! i.e. - shorting may have been higher on previous occasions and the company survived. I wonder how high the shorting has been during my twenty-odd year ownership of Green King without my even being aware or concerned about it?

Arb.

[Arborbridge]

they operate in a tough business. costs are increasing but they struggle to pass these on.

does anyone have any view on the spirit pubs acquisition? in my view, these sort of chains work best when grown organically with an offering that customers love - jd wetherspoon, greggs, domino's pizza etc. in hindsight the timing of the acquisition was very poor.

Greene King has historically bought out pub groups which have fallen on hard times and integrated them successfully. I my view, they have thrived by doing so. I think most of us would prefer organic growth, but it isn't the only way. Snapping up a bargain to increase your size is perfectly good if one is adept at it like Greene King.As regards Spirit, only time will tell if it has worked as well as usual for GNK.

Arb.

[jackdaww]

the dividend is twice covered , directors have been buying ,

i continue to hold.

[Arborbridge]

So are we really saying Short Tracker could be showing only half the shorting activity on GNK? If so it would seem to me to be a pretty unreliable source to make decisions on.

Terry.

Yes, that's a bit worrying. OTOH, if we look at the relative positions of CLLN and GNK on the Short Tracker we see there is still a yawning gulf between them. CLLN reached over 20% (25% at max) whereas GNK at 7.8% is a toddler. Marks, Morrisons and Sainsbury are all higher.

I guess the shorts below 0.5% may be regarded as "non-conviction" and therefore deserving of little credance.


Arb.

[Gengulphus]

I guess the shorts below 0.5% may be regarded as "non-conviction" and therefore deserving of little credance.

IIRC, shorts below 0.5% simply aren't required to be declared.

And the 0.5% figure is the percentage the short holding is of the company's shares in issue, or equivalently that its value is of the company's market cap. One might get some sort of indication about whether any short is 'conviction' or not from the percentage its value is of the investor's total investable funds, but that's likely to be a totally different figure. For instance, a short in Greene King would have to have a value of around £8m to be required to be declared. I'm pretty certain that with very few exceptions (if any!) investors here would think of a short that they might hypothetically engage in as a 'conviction' one long before it reached that value!

In any case, what's the connection between an investor making 'conviction' investments and placing credence in what they're doing? Incompetent investors are just as capable of acting out of conviction as competent ones. Indeed, if anything, I'd regard an investor acting out of conviction as a slight negative sign about the credence one should place in their investing abilities - in particular, if someone believes that an investment is a sure thing, can't go wrong, etc, I will very strongly suspect that what it actually indicates is a lack of imagination on their part about what could go wrong!

Gengulphus

[Arborbridge]

I guess the shorts below 0.5% may be regarded as "non-conviction" and therefore deserving of little credance.

IIRC, shorts below 0.5% simply aren't required to be declared.


In any case, what's the connection between an investor making 'conviction' investments and placing credence in what they're doing? Incompetent investors are just as capable of acting out of conviction as competent ones. Indeed, if anything, I'd regard an investor acting out of conviction as a slight negative sign about the credence one should place in their investing abilities - in particular, if someone believes that an investment is a sure thing, can't go wrong, etc, I will very strongly suspect that what it actually indicates is a lack of imagination on their part about what could go wrong!

Gengulphus

I was thinking of "conviction" in the same sense that we think of succesful "conviction" investors such as Nick Train. It seems reasonable to believe that investors like him who take large positions have done a decent amount of research which has informed their conviction: it may also be true that the same can be said of shorters.

[westmoreland]

the way i view the short ratio is that it reflects the consensus view of the company going forwards. if it is just negative sentiment without being backed up in the numbers, i ignore it. if the negative sentiment is clearly a reflection of poor operational performance, that's when you have a decision to make.

if you're picking shares yourself you should be satisfied that the business is attractively valued having assessed the strengths and weaknesses tirelessly. in my experience, anything less than having a very good understanding of the business, backed up by the numbers stacking the odds in your favour, is not enough.

[idpickering]

While I tend to leave well alone and not tinker, the Carillion debacle has caused me to pay attention to the short selling.
I have now exited rump positions in Sainsburys, Pearson, Cobham, and Balfour Beatty.
I am considering what to do about Wood Group.
I guess this makes my cut off point at 5% short selling.
This is probably too conservative, but helps witht he 'sleep at night' metric
TUK020

I must admit that I am concerned regarding my Sainsbury's holdings in my HYP. I'd rather just leave them alone and employ SI to be honest. Maybe I'm wrong? I don't know either way.

Ian.