How a Terrible Column Went Wrong

Price of Allied Capital (ALD) stock when Wall Street Journal op-ed board member Holman W. Jenkins Jr.'s "How a Short Sale Went Wrong" was published:$18.73

Price of Allied Capital (ALD) stock at today's close: $12.29.

Some highlights:

"Mr. Einhorn's short position since then apparently has failed to pay off, despite his persistently promoted case that the company was engaged in fraudulent overvaluation of its loans and other assets. One likely reason is that the market simply was never naive about Allied's accounting in the first place. If anything, Allied's share price benefited from Mr. Einhorn's badgering of management to improve an opacity that caused Allied's value to be discounted in the market." [The discounting clearly had not yet begun in earnest]

"He perhaps should have been a buyer rather than a seller, then launched his critique of management. Them's the breaks. And yet his intermittently enjoyable book is valuable for several reasons – not least for prompting one to wonder why a slush bucket like the Small Business Administration (a villain in his tale) even exists." [Or the WSJ op-ed page, for that matter]

"Mr. Einhorn laments that the SEC didn't rip Allied to pieces, driving its share price to $3. How would that have been justice for investors?" [Maybe because that's the price that reflects the true value of the shares, and it would save them from throwing more money into the company's gaping maw through their regularly scheduled secondary offerings?]

If you look at the chart, you'll see the short hadn't even gone that wrong at the time he wrote it. It's not like the stock ran up in Einhorn's face. It had just failed to decline very much. So Holman W. Jenkins Jr. wasn't even right about the historical performance of the stock, let alone his theory that the market had already "discounted" the problems Einhorn has been pointing out. Corporate America needs better bootlickers.

Disclosure: I work at a firm with a short position in Allied Capital