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John Dorfman

Pittsburgh accountant goes back-to-back in shorting contest

John Dorfman
| Monday, Sept. 25, 2017, 11:00 p.m.

Peter DeFilippo, an accountant with Bayer Corp. in Pittsburgh won my “Short Sellers Don't Have Horns” contest for the second consecutive year.

Short sellers aim to profit on a decline in a stock or other financial asset.

They borrow stock, sell it and hold onto the proceeds (but cannot immediately withdraw them).

At some point, they must buy shares to replace the borrowed ones.

If the stock has fallen in the meantime, they profit. They have bought low and sold high — but in reverse order. I engage in short selling for a few of my clients. It's a high-risk technique but can be lucrative at times.

Since I find that some short sellers do excellent in-depth research, I run a short-selling contest each September.

DeFilippo's win

DeFilippo won the 2016-2017 contest with a 37.1 percent gain in Sears Holdings Corp. (SHLD) — which means that the stock fell 37.1 percent after taking dividends into account.

A year ago, DeFilippo noted that Sears had lots of debt, that its cash hoard was low and that its sales were declining. Sales have continued to decline in the four quarters since he made his pick.

The Pittsburgh accountant had won the 2015-2016 contest by shorting C&J Energy Services (CJES), producing a 91 percent gain (on paper, since the contest doesn't require participants to actually sell short in the real world).

For the 2017-2018 contest, DeFilippo says he will probably sell short Simon Property Group Inc. (SPG). “Every week, you read about some big department store chain closing stores,” he says. As a landlord to many major chains, Simon is vulnerable, he believes.

For his victory, DeFilippo will receive a CD of an album by pianist Bobby Short.

Rideout's repeat

John Rideout, a professional trader and short seller from St John's, Newfoundland, Canada, came in second for the second consecutive year — and with the very same stock.

For the second year in a row he (theoretically) shorted Mannkind Corp. (MNKD), a small drug company based in Valencia, Calif. He said that Mannkind was burning cash rapidly. The stock fell 36.1 percent from Sept. 30, 2016 through Sept. 20, 2017. In 2015-2016 he had predicted that Sanofi, a major drug company, would probably drop out of a joint venue to sell Mannkind's drug Afrezza, an inhalable form of insulin.

Sanofi did drop out, and Mannkind's revenue is running at the rate of about $10 million a year. It has had only two profitable quarters out of the past 18.

For the 2017-2018 contest, Rideout will short Mannkind a third time. He said he was “surprised at how well they got through the past year.” He notes that in the latest quarter (ended in June), Mannkind lost $35.3 million on revenue of $2.2 million.

Contest history

No recognition for third place will be awarded this year. There were only five entries, and only two people were successful in picking a stock that declined.

Over the years, the number of contestants has varied from five to 47 (in 2006), with an average of 20 contestants. There have been 14 contests to date.

Entrants have sold short 258 stocks, for an average gain of 1.96 percent (meaning the stocks declined that much, on average). Almost precisely half of the stocks chosen have declined.

That is a pretty good showing, considering that the Standard & Poor's 500 Index was up 9.68 percent on average during the 14 contest periods.

Of course, it is a little easier to short a stock on paper than in real life. In actuality, one must borrow the shares from a broker, and sometimes pay fees or interest on the borrow.

How to play

In real life, short selling is a high-risk form of investing. The maximum gain is 100 percent, but potential losses are unlimited (because there is no definite limit on how far a stock may rise).

If you want to try your hand, join my “Short Sellers Don't Have Horns” contest. Entries must be mailed or emailed by Sept. 30.

Send entries to or to John Dorfman, Dorfman Value Investments, 379 Elliot St., Suite 100 H, Newton Upper Falls, MA 02464.

To be valid, an entry must include your name, city, email address, phone number, occupation, the stock you are selling short and a brief statement of the reason you are shorting it.

You don't have to have real money at stake. It doesn't matter whether you can actually borrow the stock to sell it short, but stocks of companies that are already in bankruptcy are excluded.

Disclosure: My firm holds a short position in Simon Properties Group for some clients.

John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Mass., and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at

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