Carson Block runs Muddy Waters, a short-selling research firm that earned its reputation by revealing several fraudulent Chinese companies listed in the US. — Profit and Ethics in Short Selling: The Case of Muddy Waters - 7pillars Institute.

Infographic for "Lessons from Carson Block".

On Short-Selling and Activism

  1. On Activist Short Selling: Carson Block: "As activist short sellers, we tend to focus on shorting companies where there is usually an element of wrongdoing or misrepresentation by management, if not outright lying or fraud." — Carson Block on short-selling and where to go long | MoneyWeek.
  2. On Being Provably Correct: Carson Block: "We have to be provably correct at the time we speak about our theses." — Carson Block on short-selling and where to go long | MoneyWeek.
  3. On Bad Bets for Traditional Short Sellers: Carson Block: "From a traditional short sellers' perspective, our type of companies are the worst to bet against because when you have managers working to push the stock up and deceive investors, they can generally keep going unless and until somebody tells the market what is going on." — Carson Block on short-selling and where to go long | MoneyWeek.
  4. On Taking the Punches: Carson Block: "Now that said, if you do and you can take the punches, it's an okay business." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  5. On Investors Not Paid to Care About Risk: Carson Block: "But basically, you have this mix where investors, equity investors really want, they're no longer remunerated for caring about risk for the most part." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  6. On the Gentlemanly Code: Carson Block: "Wall Street has never liked short sellers but they’ve been tolerated so long as they abide by this gentlemanly code; take your position but don’t try to embarrass the company." — Carson Block on His Short Bet Against Sino Forest – Full Transcript (Hedge Fund Alpha).
  7. On Cycles in the Short-Selling Industry: Carson Block: "So, in terms of the industry writ large, you have these cycles where it looks attractive and smaller players dip their toes in thinking, this is great and then they get hit with their first lawsuit and they're gone." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  8. On Needing a Strong Stomach: Carson Block: "So, the hard parts about this business are also now that you get sued more often, and regulators have kind of been, I'd say compromised by, or co-opted by the companies and their high-priced attorneys who used to work at the regulatory agencies, so you have to have a pretty strong stomach." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).

On Fraud and Due Diligence

  1. On Companies Spending to Discredit Research: Carson Block: "Sino Forest actually spent $50 million trying to discredit our research." — Carson Block on His Short Bet Against Sino Forest – Full Transcript (Hedge Fund Alpha).
  2. On Equipment That Looks Like Old Toys: Carson Block: "When we saw pictures of the company’s factory (as shown on slide) you can see that their equipment looks like old toys, nothing like the similar, more up to date equipment competitors were using." — Carson Block on His Short Bet Against Sino Forest – Full Transcript (Hedge Fund Alpha).
  3. On Short Selling Being Eternal: Carson Block: "Provided that there are capital markets, I think our profession will be as eternal as that of prostitution." — Carson Block on fraud, death threats and why he's sniffing around UK firms.
  4. On Reading What the Company Disseminated: Carson Block: "I want to look at the information that the company has disseminated whether it be in financial statements in transcripts and what have you." — Carson Block on His Short Bet Against Sino Forest – Full Transcript (Hedge Fund Alpha).
  5. On Being Raised to Believe Managements Tell the Truth: Carson Block: "I grew up in the investment industry and I was raised to believe that managements are good, and they tell the truth." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  6. On Insider Selling as a Warning: Carson Block: "When you see significant insider selling, that is worrying, especially in cases when these executives hold large numbers of shares." — Carson Block on short-selling and where to go long | MoneyWeek.
  7. On Being Lied To All the Time: Carson Block: "And yeah, it turns out that we were getting lied to all the time, but that wasn't just the usual micro-cap sort of phenomenon." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  8. On a Disillusioning Start: Carson Block: "And the earliest part of my full-time career, 1999 through 2002, was extremely disillusioning." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  9. On Being Investigative Financial Journalists: Carson Block: "I mean, we're basically investigative journalists, we're investigative financial journalists and we're usually saying the company is deceiving you in some way." — #15 - The Short Seller - Behind The Balance Sheet.

On China and International Markets

  1. On China Co-Opting US Financial Services: Carson Block: "The government of China has co-opted much of the U.S. financial services industry — from the exchanges to the asset managers, investment banks and index providers." — Muddy Waters’ Carson Block Says Wall Street Is ‘Thoroughly Compromised by China Money’ | Institutional Investor.
  2. On Abuse of the Capital Markets: Carson Block: "I firmly believe that it is also official policy of the government of China to abuse the capital markets to facilitate the trade practices that are deleterious to the American economy." — Muddy Waters’ Carson Block Says Wall Street Is ‘Thoroughly Compromised by China Money’ | Institutional Investor.
  3. On a Business Built on Click Fraud: Carson Block: "The issue was, as we suspected, was that the company was defrauding its clients, the business was built on click fraud." — Carson Block on His Short Bet Against Sino Forest – Full Transcript (Hedge Fund Alpha).
  4. On a Major Realignment Around China: Carson Block: "It became clear to me about four years ago that the world was going to go through a major realignment, and it was all going to revolve around the various countries of the world's relationships to China, and that a lot of investment that would've flowed to China will go elsewhere." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  5. On a Clubby Investing Culture: Carson Block: "We all know each other from way back when you're, you're one of us, I'm one of you, we're not going to embarrass each other." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  6. On Vietnam as a Beneficiary: Carson Block: "And we think the single largest beneficiary of that relative to the size of its economy and markets will be Vietnam." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).

On Investment Philosophy and Market Dynamics

  1. On Having No Money to Short: Carson Block: "I was borrowing from my father, so I had no money to short this thing." — Transcript: Carson Block (Masters in Business, The Big Picture).
  2. On Being Intellectually Diverse: Carson Block: "Be intellectually diverse. Never stop learning." — Carson Block: Muddy Waters 101 Presentation [SLIDES].
  3. On Aiming for Mistakes: Carson Block: "Aim for mistakes, learn how to manage risk." — Carson Block: Muddy Waters 101 Presentation [SLIDES].
  4. On Shorting in Any Market: Carson Block: "Sometimes you get beta moves but I think a good activist short is short in any market environment." — Carson Block on His Short Bet Against Sino Forest – Full Transcript (Hedge Fund Alpha).
  5. On Piercing the Bubble Investors Build: Carson Block: "So as an activist short seller, we sometimes, that's the hardest part is figuring out whether the issues we found with a given company are going to kind of pierce that bubble that investors can put themselves in where they try to ignore bad news." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  6. On Applying Pressure: Carson Block: "The idea with a short selling campaign is that you put so much pressure on the company that things fall apart pretty quickly." — Carson Block on His Short Bet Against Sino Forest – Full Transcript (Hedge Fund Alpha).
  7. On Management Behaviour: Carson Block: "One the things I want to leave you with is something that is certainly underappreciated by investors and that’s management behaviour." — Carson Block on His Short Bet Against Sino Forest – Full Transcript (Hedge Fund Alpha).
  8. On Not Chasing Hype Stories: Carson Block: "Don't Chase The Hype Stories. Reality Catches Up." — Human Verification.
  9. On Misconceptions About a Good Short: Carson Block: "When I talk to investors there are a lot of misconceptions about what a good short is." — Carson Block on His Short Bet Against Sino Forest – Full Transcript (Hedge Fund Alpha).

On Ethics and the Role of a Short-Seller

  1. On a Culture That Discourages Public Questioning: Carson Block: "And in addition to the filth, there's also an investing culture there that very much discourages public criticism, public questioning." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  2. On Subsidies Turning Into a Grift: Carson Block: "And what I hadn't really thought about before is that when you have that situation, I think it almost is guaranteed to turn into a major grift." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  3. On the ESG Subsidy Grift: Carson Block: "From that perspective, ESG will continue to be fertile because there's a huge subsidy grift that goes on, at least in the environmental space." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  4. On the Research Being Excellent: Carson Block: "The research we did was excellent and I’m happy to tell that to people who question it." — Carson Block on His Short Bet Against Sino Forest – Full Transcript (Hedge Fund Alpha).
  5. On Winning Lawsuits Against Activists: Carson Block: "But now we're in a totally different environment where people cheer on the companies doing this, even if it's a complete waste of company time and money because it's very hard to win in the United States to win a lawsuit against an activist shareholder or an activist short seller." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  6. On Starting on the Long Side: Carson Block: "But I got onto the short side, I mean, by having started out my career on the long side." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  7. On Bringing Bad Guys Down to Earth: Carson Block: "But there are a few of us who've been around for a number of years, and I think we're doing well and we're robust, and just every day is new chance to try to bring one of these bad guys down to earth." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).
  8. On Being Front Run: Carson Block: "The number one thing that went wrong here was that we were massively front run and that’s a big risk in this business." — Carson Block on His Short Bet Against Sino Forest – Full Transcript (Hedge Fund Alpha).
  9. On Not Kidding Yourself: Carson Block: "Don't kid yourself about who you are." — Carson Block: Muddy Waters 101 Presentation [SLIDES].
  10. On Winners Who Game the System: Carson Block: "I think when you look at an economy that's effectively created by and dominated by government subsidies, I think it's almost inevitable then that the winners are the ones who game the system the best." — Outlook for Activist Investing & Short Selling (EisnerAmper podcast transcript).

Learn more:

  1. Carson Block on short-selling and what investors should watch out for when going long
  2. Carson Block on fraud, death threats and why he's sniffing around UK firms - City AM
  3. #15 - The Short Seller - Behind The Balance Sheet
  4. Muddy Waters' Carson Block Says Wall Street Is 'Thoroughly Compromised by China Money' | Institutional Investor
  5. Carson Block: Muddy Waters 101 Presentation [SLIDES] - Hedge Fund Alpha
  6. Carson Block's Advice For Investors: “Don't Chase The Hype Stories. Reality Catches Up.”
  7. Profit and Ethics in Short Selling: The Case of Muddy Waters - Seven Pillars Institute