Speed Flattens Shorts

It's not easy being short, but Bloomberg gets it right while Reuters trips

Wire reporters sometimes turn out as many as two-dozen 300-word stories a day. This process inevitably requires quick compression of often-complex information. The job is not easy.

Today, we dip into this gushing spigot of news to examine two versions of the same story—one works, one doesn’t. The one that doesn’t distorts the original material and displays certain common prejudices of the business press.

The source for both pieces, one by Bloomberg and the other by Reuters, is a lengthy, extensively reported Barron’s piece on a small audiovisual and wireless company called ParkerVision (ticker: PRKR). The November 30 piece, by Bill Alpert, gives us a fascinating history of how the basically unsuccessful Jacksonville, Florida, company has managed to convince investors for years that it will be able to produce a viable product.

Business reporters, especially wire reporters, must untangle fights all the time between small, publicly traded companies on one side and long investors, short-sellers, analysts, and critics. Like we said, it’s not easy.

ParkerVision’s longstanding claims that successful technology is on the horizon, combined with its failure to create such technology, has attracted ardent critics, including Mike Farmwald and Barb Paldus. They are the husband-and-wife creators of a Web site called PV Notes, which aims to dismantle ParkerVision’s claims.

At the close of the first trading day after the Barron’s piece came out, ParkerVision stock fell 13 percent from its close the previous trading day. ParkerVision responded to Alpert with threats of legal action.

Wire services picked up on the original story as a news event—the news being that a publication with the clout of Barron’s ran a negative story on ParkerVision’s prospects.

The Bloomberg piece starts:

ParkerVision Inc., a maker of audiovisual and wireless products, is probably worthless because its radio technology is likely to fail, Barron’s said, citing Mike Farmwald, a Silicon Valley inventor and investor who is betting the stock will fall.

This is a smart lead that efficiently condenses a complex story. We can see how good this sentence is when we turn to the misleading lead from Reuters:

ParkerVision Inc., a wireless technology company valued at about $250 million, has attracted a short-seller who is “convinced that ParkerVision is worthless,” Barron’s reported on Sunday.

But the news isn’t that Farmwald says the stock is worthless. He’s been saying that for a while. The news is that Barron’s is now backing him up.

Alpert writes of Farmwald: “His conviction appears well-founded.”

Also, Reuters makes a mistake by calling Farmwald a short-seller.
Because Farmwald sometimes sells short does not necessarily make him a “short-seller.” Some investors make a living short-selling. Farmwald is not one of them.

Here’s what Alpert has to say about Farmwald’s credentials:

Farmwald had been a star of Stanford’s computer-science department. After building supercomputers for the Lawrence Livermore National Lab, he’d become one of Silicon Valley’s more successful entrepreneurs. He’d co-founded the memory-chip interface company Rambus [etc.]

And Paldus is:

a Stanford engineer who founded the laser company Picarro and now runs the software company Finesse Solutions. Together, they’ve run Skymoon Ventures and backed a half-dozen startups with Benchmark Capital.

Okay, not shorts. What do they say their problem is with ParkerVision?

…when Farmwald studied ParkerVision, it reminded him of The Panda Project, a firm that had vowed to revolutionize PCs in the 1990s. Instead of backing Panda, Farmwald had shorted it. The head of Panda had gone apoplectic when Farmwald publicly questioned Panda’s technology.

Reuters is also guilty of false balance because it gives roughly equal time to an investor with a long position on ParkerVision.

…the report also cites an investor in the stock, David Cumming, who thinks ParkerVision has interesting technology and believes the company is negotiating with major wireless manufacturers.

This equal weight for pro- and anti-ParkerVision voices sounds fine—unless you have read the original article, which is not an on-the-one-hand, on-the-other-hand piece. It’s tough.

Also, the quote isn’t really in context. Alpert’s subsequent sentence says, “Cumming modestly admits that he’s no engineer.” The following paragraph concludes that Paldus and Farmwald “have the knowhow, industry contacts and financial resources to test claims like ParkerVision’s.”

So, while Farmwald and Cumming both have vested interests in ParkerVision—with Farmwald profiting from its decline and Cumming from its success—they are not equal observers. The crucial point is that Farmwald has expertise in the area he is criticizing and has backed his claims about ParkerVision with evidence; Alpert has given readers every reason to believe his estimate.

It’s worth dwelling on the point, even in a wire story that took only a few minutes to write, because it displays two unfortunate tendencies of the business press: to sell short-sellers short and, sometimes, to short-arm warranted criticism of business leaders.

Shorts have a vested and direct interest in a stock’s decline, this is true. It’s the other side to a long investor’s position.

Shorts play a useful and important role in rooting around for, and sometimes detecting, fraud—or at least over-hyped shares among the 10,000 or so publicly traded firms, especially the smaller ones. That’s why some business reporters, especially those with an investigative bent, use them regularly as sources, often with journalistically profitable results.

To be sure, short-sellers are outside the mainstream, and the field has attracted at least its fair share of quick-buck artists and sleaze bags. But an ethical short-seller is on the same moral plane as an ethical long investor.

Because of their interest, or their convictions, short-sellers and investors holding short positions sometimes use blunt language, like “worthless,” that sounds jarring to some reporters. Hence, an assessment that a stock is “worthless” automatically must be leavened with a view that it is not.

That’s fine, but that’s not what the Barron’s story said, and so the Reuters balance here is false.

Since when are reporters averse to blunt talk, anyway?

By the way, the headlines of both call Farmwald a “short-seller,” which is akin to saying, “Take this with a grain of salt.”

Again, we don’t like this characterization of Farmwald. But for the record, on the issue of short-sellers generally, we don’t disagree with a warning to readers, though we do also wonder if more warnings about longs are in order.

Here is an example of an alternate headline: “ParkerVision Shares Are Worthless According to Some Tech Savvy Investors—Barron’s.” This is from an outlet called MidnightTrader. We like this headline because Alpert has demonstrated that the couple’s expertise is more important than the short-selling. The problem we have with this MidnightTrader piece is that it doesn’t mention at all that Farmwald has shorted ParkerVision. That information doesn’t necessarily belong in the headline, but we should still know it.

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Elinore Longobardi is a Fellow and staff writer of The Audit, the business-press section of Columbia Journalism Review.