Ibrahim Hanif will remain a bear for most of 2020. “We are the closest we can visibly get to market corrections being due,” says Hanif. “If there ever is a time to go short on mismanaged businesses, it is now.”
In a whitepaper circulated to partners at Hangman Capital, Ibrahim states three methods to spot business-destroying mismanagement. The overlap between two or more of these flaws in a public company, Ibrahim believes, can expose a strong possibility of its stock plummeting.
First Symptom: Cannibalizing Own Business.
Due to poor research at the consolidation stage, businesses can end up acquiring multiple businesses that compete against each other. If the market is small enough this can lead to multiple businesses of the same parent company cutting into each other’s margins.
This can also happen with business owners who attempt income multiplication by cloning one of their brands. If this is done without a specialized marketing team working on differentiating the audience, the result is self-competition.
Second Symptom: Inconsistent Strategy.
If an organization’s c-suite turnover is higher than average, its strategy suffers. New decisionmakers step in to change, not comply with, the previous strategy. Therefore, the turnover produces an inconsistency which takes a toll on productivity and at best delays ROI.
A vicious cycle starts with changes that are made in strategy due to a delay in ROI. These changes delay and even cancel out the ROI gains. Ibrahim believes shorting public companies with a revolving door of decision-makers is a self-evidently the better choice.
Third Symptom: Financials that do not add up.
Fundamental analysis of financials is a bear’s best tool. “The key is to not just look at the numbers, but the context,” says Hanif. “Numbers can be cooked, but if the performance does not make sense in a wider industry context, the least you would do is dig further.”
However, with this strategy, one would have to go short for a substantial period before seeing returns. The reason for this is sheer time it takes for losses to unlock when there is corruption involved.
About Ibrahim Hanif:
Ibrahim Hanif is a business strategist and investor best known for the management of Hangman Capital. He also produces educational content and business research for entrepreneurs in the United States, Asia Pacific, and the Middle East.