Summary
- Harry Markopolos's accusation of fraud at General Electric rattled the stock last week, before it rebounded somewhat on Friday.
- Although Markopolos's report was dismissed as "silly" by hedge fund manager John Hempton, Hempton acknowledged that it was possible General Electric could go to zero.
- For General Electric shareholders looking to stay long while strictly limiting their risk, I present ways of doing so.
- Looking for more? I update all of my investing ideas and strategies to members of Bulletproof Investing. Get started today »
GE logo image via the Financial Tribune.
In Case Harry Markopolos Is Right About GE
Harry Markopolos gained fame for being one of the first analysts to argue that Bernie Madoff's hedge fund was a Ponzi scheme. He rattled General Electric (GE) shareholders last week when he alleged massive fraud at the company.
GE shares rebounded strongly on Friday, but Saturday's Financial Times focused on Markopolos's allegations in both its Lex column (paywalled here) and its Due Diligence column (paywalled here). A key takeaway for me from the second column was that hedge fund manager John Hempton called Markopolos's GE report "silly". You can read Hempton's explication of that on his blog here, but I think it's important to note Hempton's disclosure on that post:
For disclosure: we are long a little bit of GE with the emphasis on "small". GE is a problematic company and a zero is a possibility. However the Markopolis report is not an accurate guide to GE's problems.
Given that Hempton, who is long GE, sees the possibility of the stock going to zero, some GE longs may want to consider hedging it. For them, I show ways of doing so below.'
