The picture is from Visual China, this article is from the WeChat public account: LatePost (ID: postlate) , author: Liu a palace room, editor: Song Wei
In the second half of 2019, a Shanghai-based fund is considering making Duo Ruixing Coffee (LK, NSADAQ) . They started a survey, but the more they checked, the more convinced that Ruixing could not buy it.
Investors of this fund said that at that time they were squatting at hundreds of core stores in first-tier cities such as Ruixing Beishangguang and found that there was a “jump order” behavior, that is, the store jumped the order number of the order, it seems that the number of orders . At first they thought it was Ruixing’s competitors; later they found that the sales simulated by these store data are not as good as the data of Ruixing’s regional managers, and the latter is not even the Ruixing financial report.
The investor said in January 2020: They speculated that Ruixing was suspected of data fraud.
Everybody knows the later story: Ruixing Coffee released an announcement on April 2, 2020, saying that there was a virtual increase of 2.2 billion yuan in transactions between the second quarter and the fourth quarter of 2019. On the same day, Ruixing’s stock fell 84% before the market and closed down by 75%, becoming a “doom company” in the population. On May 15, the Nasdaq Exchange made a delisting decision. Although Ruixing Coffee can still apply for reconsideration, most investors believe that its delisting will be a foregone conclusion.
For this investment institution, these survey results are difficult to help them make money. They did not go long, but they did not choose to go short. “As a result of short selling, either the stock price rises and the loss is unlimited; or the stock price falls and the gain is limited.” said the investor.
This choice turned out to be correct after the fact. On January 31, Muddy Water issued a short report, pointing to Ruixing’s false increase in sales in the third quarter of 2019 by 69% and 88% in the fourth quarter. After Ruixing publicly responded to denying the allegations, its stock price continued to rebound and even rose to $ 42.77 per share. This means that the short-selling mechanism behind muddy water has a high probability of blood loss.
Facts show that shorting a company that even has financial fraud may be a loss-making transaction. Keynes said well, don’t go short. “The market can stay irrational longer than you can stay solvent.” (The time the market remains irrational can exceed the time you remain non-bankrupt) < / p>
Market professionals believe that the short-selling mechanism allows the market to be both flexible and flexible, but also has the ability to punish bad guys. Bears who see the illusion can be rewarded by the market. But the premise is that the bears need to convince the majority that they are a bad company. The bears hope to use the short-selling report to influence market sentiment, and they failed in the Ruixing short report. butAfter Rui Xing exposed, they had more opportunities.
In the following April, the market witnessed the bears beginning to concentrate on hunting some Chinese stocks with doubts about their performance. A series of short reports on who the online education company learns from has been published in the fifth edition within a month. But these short-sell catchers have frequently missed their shares-the stock prices of those companies with doubts have not suffered a big decline due to short selling, and some have risen. For example, after iQiyi was shorted on April 7, the stock price did not fall but rose 3 days later.
Short selling can be a hedging mechanism, market self-examination method, or a method of suppressing companies. The short-sellers have different mentalities. Some people dismantle the illusion of short-selling, and pull out bad companies such as Ruixing. Still others have no position, fast in and fast out. The Chinese stock market in April left a complicated picture of short selling.
A company executive told “LatePost” that he had dinner with Lu Zhengyao and a group of people a week before Ruixing exposed himself for fraud. During the banquet he asked Lu: Can Rui Xing now get the bottom? Lu Zhengyao replied: Never buy our stock. Today he recalled the story and said, “Thank you, Lao Lu.”
The first person to blow the whistle
Individual investor Zhang Zhao (pseudonym) realized the Ruixing scam earlier than most people. As early as October 2019, he anonymously sent an email with detailed research evidence to a number of global head hedge agencies, including at least three funds that later participated in the Ruixing class action lawsuit-they may have been earlier Withdraw and avoid losses.
Zhang Zhao started his own business, understood the business, and had many years of investment experience in the secondary market. Soon after the listing of Ruixing, he began to investigate Ruixing.
The Ruixing financial scam is like the emperor’s new clothes. Most of them are heard in the industry, but no one has pointed out publicly.
A first-line fund partner said that they had seen Ruixing and believed that their model could not be profitable, and the final project did not pass the investment decision-making committee. Later, he saw Ruixing financing frequently in the primary market, and saw it go public, with a peak market value of more than 10 billion US dollars. Most investors will feel sorry for missing such projects, but for Ruixing, he feels more surprised.
In his eyes, Ruixing does not create incremental value for business, and this view has also been recognized by many dollar head funds. He used to sit in the Ruixing store and observeIt is impossible to think of how Luckin can support the high valuation of the billion-dollar primary market. Ruixing’s market reaction made him suspect that he had accumulated so many years of business judgment. I suspect that I have a blind spot in business logic.
Until Rui Xing exposed himself, his first reaction was that the biggest question in his mind for the entire 2019 year finally had an answer.
A startup company experimented with take-out coffee projects in 2019, but it shut down a few months later. A senior executive told reporters that the coffee delivery model couldn’t run. “We compared our operating model with Ruixing’s financial data, and realized at the time that Ruixing’s financial model was not reasonable.
Like them, the conclusions drawn by Zhang Zhao ’s research are all oriented: this is a business that can only continue to attract customers through subsidies and may never be profitable. But at the time, the sales, stores, and stock price of Cyclonus constantly stimulated investors and created a huge illusion: if you can’t count Ruixing’s future, it may only be that you don’t understand.
Zhang Zhao said that he used the captured information and the information from the store interviews with the staff to find that the difference between the single quantity announced by Ruixing was extremely large, “about 35% difference”.
How could such a company not be exposed? Zhang Zhao was very confident, so he invested a lot of money and used ten times the leverage. From August to November 2019, he directly or indirectly held more than 50% of Ruixing short options and some short votes in the market. In the same period, the data and inferences were written into an email, and it was estimated that this stock would depreciate rapidly in the near future. He anonymously sent an email to the institutional fund holding Ruixing top10.
This email was later referred to by organizations as “a report that is as detailed as muddy water”, although no one has been able to confirm whether this email is directly related to the report published by muddy water.
Until one day in October 2019, Zhang Zhao accidentally saw a photo in the circle of friends.
That was Lu Zhengyao, chairman of Ruixing, and some investment bankers. Lu Zhengyao sat at the center of the conference table and talked happily, and the people on the left and right were all grinning with smirk.
At that time, Rui Xing was issuing a roadshow for January 2020. This additional issue turned out to be a bigger scam: Ruixing revealed that the data fraud began in Q2 of 2019, but this additional issue involves Ernst & Young’s review, underwriting the signature column, and Credit Suisse, Morgan Stanley, CICC , Haitong International and other institutions. In other words, almost all the head funds present did not know that the data they surveyed was false. Ruixing finally raised US $ 865 million through additional issuance and issuance of convertible bonds.
Zhang Zhao originally wanted to slip past, but he noticed that this photo is a hedge fund (hereinafter referred to as A fund) partner Published by Zhou Yan (pseudonym) .
In an instant, this photo becomes dazzling. Zhang Zhao suddenly remembered that just recently, some people reminded some friends in private “Don’t touch Ruixing, they (Suixing) the road is too wild” .
“This photo saved me.” Zhang Zhao told “LatePost”.
In November 2019, Zhang Zhao sold all his positions in time, only because he learned that Lu Zhengyao used false data to raise funds in a Hong Kong roadshow. Since then, Ruixing’s stock price has risen by 255% for 65 days, and then 87 days after Ruixin exposed itself, the stock price fell by 93%.
“Because of this photo, I went to check the news in advance and stop the loss in time, otherwise the debt would burst.” Zhang Zhao said that 90% of his funds were empty and Ruixing, and 10% of the funds were empty Study, are “forced to empty.” Later, after the clearance, he destroyed all the information in the computer, leaving only an account with a loss of millions of dollars.
As an entrepreneur who understands the business and is sensitive to information, he saw Luckin ’s loopholes. He believes that the data evidence he listed is powerful enough to convince the head fund to join the short sale; as a senior investor, he believes Shorting an obvious bad company can make him money.
But he is miscalculated. Not only did Ruixing’s stock price not fall, but its stock price rose rapidly. At the same time, the e-mails sent in the past are as heavy as the sea. If Zhang Zhao did not close the position in time, his loss would enter a bottomless black hole around January.
As an investor who has seen the ups and downs of the market, such losses are not enough to despair him. Disappointment may better summarize his experience—obviously, most investors did not accept his report, or at least did not respond to it in the short term. The market’s enthusiasm for Ruixing far exceeded Zhang Zhao’s expectations.
Whether it is out of the defense of market justice or the ambition of poor cognition, Zhang Zhao has done almost everything a prospective investor can do, but in the end lost.
“I learned the mostThe lesson is that truth is only one part of this market, and humanity is another part, and it even accounts for a larger proportion. “Zhang Zhao said to” LatePost “.
Missed Hunter
Not only Zhang Zhao, even the organization behind the muddy water report, may not have made a lot of money-after Ruixing responded, his stock price fell briefly, continued to rebound, and even rose to $ 42.77 per share.
The night when the short report was released, due to too many short sellers, the rate for brokers to lend Ruixing stock soared from 2% to 50%. Judging from the results, it may not be the people who see the truth and pierce the bubble who make money-the short sellers who flooded in after the short report was released may have ended in losses.
A short seller said that he has not recognized its commercial value since the listing of Ruixing. “This stock should be worth $ 0.” Therefore, as early as November, when Ruixing was $ 18, he began to open a position and short Ruixing. When Ruixing’s stock rose to more than 30 dollars, the account loss was difficult to support, and he chose to close the position.
The muddy water report was released, and he rekindled new hopes, reopening short positions from around $ 33. As a result, Ruixing’s stock price fell only briefly for three days, and the highest decline was only 10% of the first day of the short report.
“Watching the stock price rise all the way, I’m about to collapse.”
Finally, he had to close his position at around $ 40, losing hundreds of thousands of dollars.
More profitable short-sellers may come from the disclosure of the scam, and the net profit rate of Ruixing shorts on April 3 was up to 126%. An investor who joined the short after Rui Xing exposed himself told reporters that he added positions twice in succession, “may have earned five years of coffee money.”
“What I learned from Ruixing is—don’t go short, or just go short by long.” An investor with many years of short selling experience said.
This investor gave an example. During the epidemic, he was short on Disney and airlines based on the macro environment and consumption habits. This is to go short in a long way and get a good return. But for Ruixing, his hollow attitude is to wait for this company to have an accident.
He had successfully short-sold companies such as Ruijin Mining and Hanergy Solar, but he was severely defeated by the Ruixing incident. After Ruixing went public, he opened short positions twice and eventually could not withstand the increase in stock price. The loss ended at US $ 20 million.
In his eyes, short selling is an investment with limited gains but unlimited losses-this not only reduces the tolerance of short sellers’ positions, but also requires short sellers to grasp the time accurately. Because the opponent of the short-seller game, the bad company, may have more information under control, or it may find more funds to boost the stock price.
“Short-selling means pigs and pigs wrestling, rotten companies are pigs, short-sellers play with rotten companies, and pigs. Onlookers participate, even pigs.” Another hedge fund partner told reporters. In his eyes, it is not a sustainable investment behavior to make money from bad companies, and to make money from bad companies. It will even make investors defy Buffett’s advice: you must be happy to invest.
Unclear Ruixing
Zhou Yan, the founding partner of A Fund, did n’t expect that this would affect a person ’s investment decision when he posted the photo of his circle of friends, and even helped him pull back from the loss of tens of millions of dollars.
In the complicated case of Ruixing, it has always been accompanied by confusion and confusion of many investors. Photos, research, and even a casual compliment may all coincidentally constitute factors that influence others ’investment strategies.
It was a very lively day in Hong Kong’s financial circle on November 14, 2019, and also a day of intense street conflict. Several roadshows including Canaan IPO were held at the same time. Zhou Yan went to several roadshows in one day. He crossed countless roadblocks and also got a tear gas.
I heard that Lu Zhengyao would attend, and Zhou Yan couldn’t help but want to see it. That photo was taken at the additional roadshow organized by Credit Suisse for Ruixing Coffee. Credit Suisse is not only the main co-underwriter listed on Credit Suisse, but also led the sale of US $ 460 million in convertible bonds. Credit Suisse is also the guarantor of Lu Zhengyao ’s US $ 518 million margin loan.
A Fund is a medium-sized hedge fund located in Hong Kong, focusing on investing in Chinese and overseas technology companies. The establishment of the A fund is not long. Zhou Yan started from a small scale and slowly rolled out. However, due to its extensive network, in-depth research on the company and extremely high fund return rate, it has risen rapidly in the industry.
A Fund ’s judgment on Ruixing has gone through the process of questioning, optimistic, longing, doubting, withdrawing, and then short-selling. Their experience can better reflect the lucky investors who are difficult to understand and summarize in the eyes of investors.
When I met Lu Zhengyao in November, Zhou Yan, like most investors, was curious about this fast-growing innovative company. It was Ruixing 201Before the release of the Q3 financial report for 9 years, A Fund saw that Ruixing fully used the Internet and opened a store based on big data, doing marketing and subsidizing, and obtained the user’s mind. At the same time, it had a huge advantage in cost structure and peers to form its own products Selling point.
Automatic coffee vending machines also have the opportunity to achieve self-subversion. Not only is it possible to triple profits, but if executed well, it may liberate the value of retail companies from physical stores and become DAU and MAU like Internet companies. Look at the direction of brand value. A Fund expects that this financial report may be the first turning point for Ruixing and the first step in the verification of its business model. They decided to buy a priori position.
At the road show, Zhou Yan sat very close to Lu Zhengyao and mentioned a single store UE (Minimum Unit Economic Unit Economic) Model problem.
This is also the main question answered by the Q3 financial report. The break-even level at the single store level has been achieved, and the market has a high degree of recognition for this. A Fund judges that in the next month or so, Ruixing’s stock price will be strongly stimulated by the positive, and began to carry out long-term valuation of Ruixing.
In mid-December, A Fund and several funds organized a survey of Ruixing. They went to Ruixing and met the management of Ruixing. “But when we walked out, we looked at each other,” said one investor.
It is understood that one of the funds suffered heavy losses in shorting Ruixing. “We probably lost tens of millions of dollars because of shorting Ruixing.” He said.
Before that, A Fund ’s attitude towards Ruixing has been swinging, from the negative evaluation at the time of the initial IPO, to the optimistic Q2 financial report for 2019, and to the beginning of October, after investigating Xiaolu tea, a conclusion was given to Ruixing Positive short-term evaluation.
In less than a month, A Fund ’s attitude was once again swayed. At this time, the market’s view of Ruixing entered two extremes: optimistic investors began to further evaluate the 10,000 stores of Ruixing, and unfavorable investors have begun to fall into concerns about the delisting of financial fraud companies.
A Fund expects Ruixing ’s stock price to enter a stage of large volatility, and they have adopted relatively high-frequency trading to seize the opportunity of volatility. “The company has entered the stage of non-fundamental drive, we must always be vigilant.” Zhou Yan said.
But Rui Xing began to release a positive signal again. A month ago, A Fund also believed that the market has digested the stimulus brought by Q3 financial report and Xiaolu tea. When Ruixing ’s valuation entered a bottleneck period, the next 12 years in 2019, Ruixing issued additionalThe smooth progress of the unmanned retail strategy was announced. The outbreak of fundamentals and the outbreak of investment sentiment triggered resonance. The stock price soared from $ 35 to a new high of $ 51.
A fund seized the opportunity of the stock price rising all the way, but did not feel more relieved about Ruixing. They believe that the traces of capital operations reveal that more potential future risks that cannot be falsified in the short term are beginning to emerge.
“As a company that relies on continuous catalyst (catalyst) to promote new valuations, we are at a very advanced level in understanding the company No one can have positive expectations for the company ’s next catalyst. “He said.
On January 20, 2020, after the outbreak, Fund A saw that some of its previous judgments on Ruixing were gradually being falsified. For example, there is a big problem with expanding a store before it has run through. The story of expanding by opening the number of stores, increasing prices, and adding different product structures is a big problem. At the same time, the data of new stores has deteriorated, so long-term The logic of relying on store expansion to achieve revenue growth is falsified.
A fund has a priori judgment on bearish Ruixing. After the muddy water report is released, they are short on Ruixing. But they eventually missed the opportunity to structurally short.
“Luxing ’s long-term logic is based on the unbroken stories, and each story has not been fully falsified before the fraud was exposed. We did not finally seize the opportunity of structural short selling because of the epidemic Let’s not make a clear judgment on some things, making our fundamental logic unable to verify whether it is a business model problem or because of the epidemic. “This may be one of the biggest lessons that Zhou Yan and the team learned.
There is no such thing as a Chinese stock crisis, only good companies and bad companies
An investor is willing to mention a phenomenon in the animal world: when a lion is hunting, a lion will take the lead. Its job is to break up the flock and let them flee to the surrounding lions. Rui Xing, inadvertently became the black sheep, which opened the gap of the sheep and exposed it to the short seller of the hunt.
Behind the listing of Ruixing, there are investors such as Joy Capital and Dazheng Capital, underwriters such as CICC, Credit Suisse, Morgan Stanley, CICC International and Haitong International, as well as Ernst & Young as an audit institution. It is difficult to imagine that these roles are oversight in the process of listing and additional issuance. So is there a system of intentional and unintentional, rough fraud?