Street Capitalist: Event Driven Value Investments

GRETCHEN MORGENSON is pretty well known for her bad financial journalism which is strange considering she’s at the New York Times and has a Pulitzer. Maybe the financial world has become too complex for her. Maybe her editors would rather that she sacrifices her journalistic integrity to print sensationalist hit jobs. I would have thought that some of the criticism she received at Calculated Risk would have resonated, but that is clearly not the case. She recently wrote an article on Fairfax Financial (FFH) and Whitney Tilson has published a rebuttal which can be found here.

Tanta, at Calculated Risk says in her Morgenson Watch:

I don’t know how many posts I’ve written on Gretchen Morgenson’s terrible reporting. I guess I’m going to have to start keeping score. “Can These Mortgages Be Saved?” Can this “reporter” be saved?

Ms. Morgenson, if you want to keep up on your mission to portray Countrywide in the worst possible light, you are going to have to get an education from a reliable source at some point about how the mortgage industry works.

Even before that, Tanta finds more questionable reporting from Morgenson:

I know how disappointed everyone would be if I passed on an opportunity to publically describe Gretchen Morgenson as a tendentious writer with only a marginal grasp of her subject matter and what appears to be an insatiable desire to make uncontroversial facts sound sinister.

Even Felix Salmon, at Portfolio magazine had to take up the job of setting the facts straight on one of Morgenson’s misleading stories. To put things in perspective, at Calculated Risk, 37 entries are devoted to Gretchen Morgenson and her bad reporting.

Ms. Morgenson’s misrepresentative reporting has resurfaced with her piece on Fairfax Financial. Once again, she tries to twist the facts about Fairfax to paint it out as some poorly operated sinister insurance company. Fairfax is a complicated situation, there is no doubt about it, but the reporting in her story was either inaccurate or, negative facts were never put into perspective. She criticized beneficial investments – such as credit default swaps. We should note that her understanding of such products, as exemplified by Mr. Salmon’s piece are basic and often faulty. She also tries to criticize the company’s runoff operations which are actually around historic lows, have slowed, and are quite positive for the company.

Whitney Tilson says it best:

We usually enjoy her work, but this story on Fairfax is certainly an anomaly: it’s a smear and a hatchet job, filled with innuendo, inaccuracies, and misleading statements.

As one of our largest positions, we know Fairfax well and, having once been short the stock, we’re very familiar with the short thesis, which we (obviously) believe is now outdated and wrong. We welcome contrary points of view and, in fact, when we disclosed that we were long the stock last August in a Value Investor Insight article (the stock’s up 22% since then), we heard from some investors who were short the stock and had insightful conversations with them.

Morgenson’s article, however, sheds no insight whatsoever and, in fact, leaves the reader with a picture of Fairfax that is the polar opposite of reality. Let’s go through it carefully:

Fairfax Financial: Anatomy of a Hatchet Job (SeekingAlpha)

I often seek out contrary perspectives on my investments. I think it is important to receive dissenting views. However, there’s a clear line between a contrarian article and a “hatchet job” and I think we can all agree that Ms. Morgenson crossed that line.