Whatever you think of Gotham (if you are a Quindell shareholder, most likely deep loathing) it is hard not to admire this success. Although most companies abide by the letter of the law some, like Gowex or Sino Forest, the Chinese business rumbled by Muddy Waters, do not - or, at best, take full advantage of accounting trickery to disguise a multitude of sins. It is very rare that the research teams of City banks and brokers pay much attention to such companies, who have been able to fleece investors for many millions of pounds over the years. So, it is good that someone out there is prepared to shine a light on these dark recesses of the market.
That said, Gotham's business model leaves it open to criticism. Hiding behind a cowl may work for the Dark Knight (aka Batman, the group's inspiration), but in financial markets anonymity suggests skullduggery - and the open admission that it may profit from short selling the shares in target companies opens it up to accusations of market manipulation. Disclosure could certainly be improved, and may improve its credibility.
I don't, though, have a problem if Gotham is profiting from its research - many man hours are required to conduct the kind of research it specialises in, and without personal resources on the scale of Bruce Wayne (Batman's billionaire alter ego), that has to be funded somehow. Yet fund managers generally won't pay for independent research, as I discovered when I was briefly involved in setting up an independent research house back in 2002 - I quickly bailed for a life in financial journalism when I realised the inertia we faced.
Another quirk of human nature also means that we often don't want to hear bad news (think Cassandra), and financial quirks mean analysts don't like to give it; City analysts don't win many friends - or, taking a more cynical view, corporate mandates - by digging up dirty secrets. Telling company management you don't believe them is really very hard - especially in today's litigious society, with the implicit defence that it is impossible for an analyst to know more about the business than its bosses do.
I am glad, then, that someone out there is brave enough to have the courage of their convictions, even if their methods are a little unsavoury. Asking questions can only be a good thing - this week's cover feature should hopefully give you a template for being your own market vigilante and weeding out the Jokers from your own portfolio.
