How retail investors can avoid short-sellers' targets

OVER the past few months, many Singapore companies have come under the spotlight of short-sellers and have been sold aggressively. Even companies such as Noble and Olam which were thought of as high-quality growth companies with wide institutional ownership have not been spared. Retail investors must have been dismayed by the level of complexity and detail in the back-and-forth exchanges between the target company and the short-seller. Let alone small investors, even equity analysts who are supposed to know the ins and outs of the company they cover were mostly silent except to make empty statements such as "there is nothing new in the report" or "we are waiting for more information from the management".

Short-seller accusations mostly revolve around common themes. A diligent investor can save himself a lot of grief by avoiding companies that show signs of making a short-seller's shortlist. What are those signs? While these are not exhaustive, I believe answering the five questions below is a good start to picking companies that will stay out of a short-seller's crosshairs.

1. How does the company really make money?