World’s Worst Businessman

That would be me. I think I do some things pretty well. I think I can communicate, verbally or in print, in a way to convey even complex subjects to a wide range of audiences. I think I am pretty good at ferreting out good claims from questionable claims. I have been told that I am a good debater. Business acumen, however, is not one of my strengths.

I have known this for a long time. The first time I bought a new vehicle (I was 19), the salesman asked how much I wanted for my trade-in. When I told him, he said “How about we give you $500 more than that?” A car salesman took pity on me. Of course he did so because he had just earned enough on that sale to put his kids through college.

It’s not that I have done badly with my investments, though. I have always invested the maximum contribution into my 401K, and I have put the maximum contribution into an IRA since I was 17. But I have failed to take advantage of many opportunities that could have comfortably made me a millionaire many times over.

The recent Xethanol story provides but a single example (and ties into the energy theme of my blog). The exposé on Xethanol came out on August 7th:

Moonshine Blindness

However, I had advance knowledge of the story. Since I had been asked to comment on the story the previous week, I had several trading days in which to stake a position to take advantage of the fallout from the story. While I understand that there were no shares available to short, I could have sold call options and/or bought put options. So, what did I do? Nothing. I didn’t even seriously consider it. Of course I have to admit that the ethical implications are also bothersome to me, even if it doesn’t qualify as insider trading. I also hate taking advantage of people (which is one reason I am not a good business man).

When I had knowledge that the Sharesleuth story would come out, XNL was trading at $7.50. A few days after the story was published, it closed at $4.97. That is a very big percentage move for a few days work.

Right after the Sharesleuth story came out, Xethanol put out a press release in which they claimed to have addressed the allegations. I used one of my strengths to dissect the press release. I pulled out my BS detector and read through it carefully. It appeared to me that they had not addressed the allegations at all, but had merely danced around the issues. I documented my impressions in an update to my Xethanol article:

Xethanol Story

I concluded with:

So what did the news release actually address? None of the substantive issues. They didn’t address the fact that many people involved with Xethanol have been involved in shady behavior. They didn’t address any questions at all about the plant with no utilities. Their “response” was a complete sleight of hand.

On Thursday, a report from came to a similar conclusion (exactly 1 week after I did):

‘Gaping Holes’ at Xethanol

Xethanol refused to arrange an interview that would have allowed corporate executives to present their side of the story. The company instead stood by an eight-paragraph press release that, while adamant in tone, fails to specifically address many issues in the long report.

The report also reinforces the findings of Sharesleuth, and adds a few findings of its own. Bottom line? Upside potential of XNL appears to be limited.

Oh well. At least this way I don’t have any ethical issues to be concerned about.

5 thoughts on “World’s Worst Businessman”

  1. You make money just the way he said. You buy a put option (if the stock is optionable) and when the stock goes down, the put option goes up in value then you sell the put option. OR you sell call options, get the money from someone who is buying that same call option. When the stock goes down the call option drastically goes down in value and you buy back the call option contract at a lower price, pocketing the difference between what you sold it for and what you bought it back for. You can do the same thing with stock. It’s called ‘selling short’ where you sell the stock you don’t own, then buy it back later. If the stock goes down you make the difference between the sell price and the buy price.

  2. That’s exactly what Mark Cuban did with Xethanol. He shorted 10,000 shares at about $12, which means he is up $70,000 on his investment.

  3. Ok, I know nothing about the stock market so this is very strange to me.

    Scenario: PUT OPTION
    I understand the put option scenario. You buy put options, stock falls, other people can sell to you and you sell to the person that sold you the put option. If the stock rose the person that sold the put pockets the premium. That makes sense.

    Scenario: CALL OPTION
    You don’t own stock yet you can sell a call option?!? This seems dangerous as if the price rises aren’t you forced to buy stock at a high price and sell at a low price?
    Yet when it drops you buy back the call option? Don’t these things expire? Or are there some that never expire?

    What are the premiums like on a $7.50 stock?

    Also, isn’t this insider trading?

  4. You don’t own stock yet you can sell a call option?!? This seems dangerous as if the price rises aren’t you forced to buy stock at a high price and sell at a low price?

    Yes, selling naked call options is very risky. However, in this case it could have paid off enormously.

    Also, isn’t this insider trading?

    I don’t know if you are talking about what Mark Cuban did, or whether it would have been if I had done it. Either way, no it isn’t insider trading. No company insiders were involved. If a company insider had tipped off Cuban to some bad news, and he had profited, then that would have been insider trading. But there is nothing illegal about shorting a stock and then bashing it. Visit the Yahoo boards some time, where this is a sport. However, if you put out false information, you can be sued.

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