In 2019, short-seller Andrew Left’s Citron Capital returned a searing 43.3 percent, net of fees. But instead of wallowing in glory, Left plans to make some changes to his investment style in 2020.
Foremost, Left intends to zero in on small-cap stocks rather than betting on (or against) major names like Shopify and Tesla, he told Institutional Investor Tuesday.
“My job is not to be right; my job is to generate returns,” Left said. “I’m not doing that by shorting high-concept big stocks.”
Left shared the firm’s 2019 performance in an investor letter Monday, where he also reflected on recent big bets and what’s ahead.
He learned two major lessons in 2019, according to the letter. The first: “Always go back to Citron’s proficiency – exposing fraud.”
In 2019, Citron took a short position in Jumia, a Nigerian e-commerce operation once crowned the “Amazon of Africa.” Left believed it showed “indisputable evidence of fraud,” the firm’s website shows. The company lost 80 percent of its value after Citron published its short thesis on it in May, per the letter.
Despite the success of that play, Left said Citron’s Jumia position could have performed even better. “I knew Jumia was a fraud, but for some reason, I covered too soon,” Left said. “What I learned is that even though you know it’s a fraud, if you keep validating that it is in your mind, you can stay short longer. I should have learned this with Valeant... If you continue to get more information, you can continue to be short and add to the position.”
Left’s second 2019 lesson — drawn from a small Shopify position – was to “stay away from the big story ‘cult stocks.’” Left believed the company would be “unstoppable until it’s not,” according to Citron’s website. Yet Shopify remained unstoppable in 2019. “The problem with Shopify was that it wasted too much of my time mentally,” Left said. “I asked myself: Why am I doing this when there’s no real reward here? Just because I wasted time on it, doesn’t mean I need to keep wasting time on it.”
Left vowed not to repeat this mistake in 2020. Success will come by deploying more capital into fewer positions in small, unknown companies, he believes. Europe is showing signs of promising chicanery, he noted.
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“There are so many stocks out there that people don’t know about or that people don’t talk about on CNBC,” Left said. He finds frauds via tips from outsiders (which produce abundant false leads for a few gems) and his firm’s own research, but has grown skeptical of at least one idea source. So many hedge funds and short-sellers use credit card data from 7Park Data, a Vista Equity-owned provider, that it is no longer advantageous for Citron, he said.
To root out fresh ideas, he’s offering bonuses to his team if they make a certain amount of money on a stock that Citron hadn’t previously shorted.
“I’ll be more focused on reacting than acting,” Left said. “More focused on ideas I can get my arms around. And I’ll be putting more capital to work on fewer ideas.”