Biz journalism funded by shorting no worse than other types

Felix Salmon of Reuters blogs about the recent American Journalism Review article questioning the ethics of business journalism funded by shortselling.

Salmon writes, “The fact is that shorts, much more than longs, have every incentive to be absolutely certain of their thesis before putting on their trade — especially if it’s based on fraud at a company. Even companies convicted of fraud can see their share price rise, especially when that company’s shorts get squeezed. With a long position, you can hang about and wait as long as you like for the stock to rise, or just watch it follow the action of the stock market as a whole. Shorts have no such luxury, and as a result tend to be especially diligent when doing their investigations.

“Meanwhile, the journalism world is full of publications which profit from extolling companies’ virtues and watching their share prices rise — the dot-com boom spawned dozens of them, with names like Red Herring and Business 2.0. Most of them have disappeared by now, but Fast Company, for one, still exists. When it comes to business reporting, the puff jobs regularly planted in glossy magazines by well-paid and highly professional corporate PR executives are much more dangerous than a couple of marginal websites concentrating on the short side.

“The main problem with short-funded investigative journalism is that there’s no evidence that the business model actually works in practice. And other journalists who have tried to set up on their own with the aim of selling their work to short sellers have also given up on that idea and moved on to more time-tested ways of making money: Michelle Leder, for instance, sold Footnoted to Morningstar, while Herb Greenberg left his research shop GreenbergMeritz to join CNBC.”

Read more here.