When in 2021 trader David Capablanca climbed a muddy mountain road in Colombia to discover the bogus farm of a Canadian hemp product heavily promoted by cryptocurrency investor Tika Tiwari, he knew his stock would collapse in a few days.
He also knew he would be the guy to bring the price down and take advantage of it. His investigation was to expose fraud in the stock market a favour As one of the best bids of the last few years and David has earned a name in the short selling community.
In the three years since he began his career shorting stocks, David has grown his portfolio from $29,000 to $400,000.
Today activist and host Friendly Bear Podcast He shares the price it paid to climb Olympus the short seller and why shorting a stock is different from shorting cryptocurrency.
From architecture to the world of short selling
“I discovered short selling with pump-and-dump scams. I thought, well, this is going to give me something good to focus on. Because I don’t like gimmicks, I don’t like pumping, I don’t like gouging,” David reveals.
He found it unfair that he spent years studying architecture and working hard to pay student loans while others got rich through market manipulation and deception.
David decides to drastically change the course of his life in his 30s by becoming a trader in the stock market, focusing on short scams. He studied how the stock market and short selling worked and spent the rest of his time teaching architecture, English and mathematics to pay the bills.
He slept for a few hours, had no social life, and cut back on his spending. “I was determined to do it the right way. I didn’t know if I was going to be successful because I had heard that many people fail.”
Trading is very difficult, says David, and only 3-5% of people succeed. Fear of making a wrong decision and losing money prevented him from bold trading. For three years, David has been running a $1,000 or $2,000 account and testing selling one or two shares at most.
The pandemic has changed everything
Then the COVID pandemic hit, and the stock market went crazy. Many biotechnology and pharmaceutical companies have claimed to have cures or will make respirators.
Their stock would go up 1000% in one day and then crash. I saw this happen for about a month. It has been happening non-stop during the pandemic. So I said, ‘Well, I’ll regret it if I don’t do after all this work I’ve done,'” David recalls.
He took out a loan, opened an initial account with the mandatory $25,000 to trade in the US stock market, and started shorting stocks. Despite his fear and quick buying and selling orders, he doubled his money in one month.
Methods for detecting fraud
Short sellers in the stock market are like detectives. They identify and investigate overvalued or unethical companies and look for evidence. Then publish the reports to reveal their findings to the public. David believes that shorting out scams and short fraud helps balance the market by making companies more transparent and accountable for what they do.
But unlike real detectives, short sellers profit from what they find. They aim to lower the share price and make a profit from the price difference.
Once the right target is identified, they borrow his shares from the broker and sell them to buy back at a lower price later.
Where to look for red flags
One of the primary ways David reaches out to potential targets is through emails and text messages that he subscribes to on various stock picking platforms. He firmly believes that when companies report earnings as too good to be true, it usually means that a major shareholder wants to offload their shares.
It also looks at price charts and looks for unusual patterns, such as massive price jumps without reasonable fundamentals. Then the trader checks the fillings that companies must make to ensure they can pay the bills for at least three months.
He also inspects the company’s deals with investment banks. David maintains that people registered in offshore jurisdictions always ring the bell. When red flags combine, they usually lead to an assumption and, later, to action.
One of the investigation’s hypotheses leads David straight to a non-existent cannabis plantation high in the Colombian mountains. He was risking his life, but it eventually brought him international fame.
Investigating a questionable cannabis product
In 2021, some paid emails and text messages catch David’s eye. They touted investments in a young Canadian cannabis producer called Flora Growth. The startup announced the ability to produce cannabis at a growth cost of $0.06 per gram.
This means nearly 100 times lower expenses than the market average. David was suspicious. He scanned the company’s social media to find posts about the established cannabis farm in the mountains of Columbia.
It has been greatly upgraded. Tika Tiwari, A controversial investor And a crypto influencer at the time, he shared photos of himself on the road to Flora Growth’s alleged cannabis farm.
The company’s stock, FLGC, rose more than 500% in one month from about $3.00 in July to $17.00 in August 2021.
However, the addresses of the Colombian company in the SEC filings were confusing and mismatched. Google Earth images didn’t show much activity at the facility, whose location was mentioned in an Instagram post.
Furthermore, the company’s employee relations appeared with pump and dump schemes.
Highway to the Colombian Mountains
David ventures to a small Colombian town and hires a motorcycle tour guide to take him to his cannabis plantation high in the mountains.
None of the locals knew where to find it. The narrow and muddy mountain trails were dangerous, and motorcycles were the only possible way to access the facility. It took 2 hours for them to finally arrive.
David unearthed a 100 by 100 foot Hollywood-style suite of facilities. “It was just for pictures. They didn’t expect anyone to find it.”
Fence and armed security guarding the entrance. According to the short seller, Nasdaq market regulations require that potential investors be granted access to the area for inspection. But none of the company’s employees let David into the area for a tour.
“I had a camera on my shirt and I was filming everything. One of the executives came over and tried to grab my camera, and we got into a fight. But I recorded it, and then I just left.”
We had a guide on roads that were all impossible. You can only ride dirt bikes, not cars, there. We had plenty of evidence of everything. So it was revealed.
Short selling a stock for profit
The FLGC peaked above $20.00 while David struggled with the steep mountain roads. However, the short seller knew this wouldn’t last for long. He identified a lot of red flags flying around the cannabis startup.
After the report was published, Flora Growth’s share price collapsed, losing nearly half of its value and eventually dropping to $0.10. At the time of writing, FLGC is lingering around $0.20.
When a report comes out, many people pay attention to it. The company is exposed. The people who bought the stock, not knowing it was a scam, start selling, then get rid of it. Then more short sellers come in and push it down,” David explains.
Even with evidence, the activist admits, it can be difficult to overcome market inactivity. Sometimes the price of an asset is strong. People have long buy orders, disagree with the trader’s report, and don’t sell.
“Then a short squeeze happens, and you have to take the loss, and re-enter the position at another time. Because the thesis of the report is still the same. Then you have to time it.”
Overdraft encryption is a different matter
David reveals that he is always aware of what is happening in the cryptocurrency market; However, it does not abbreviate digital currencies. For him, the cryptocurrency market has too many squeezes and algorithmic trades and is much more difficult to predict than traditional stocks.
However, he adds that knowledge is the main rule for trading with any asset. Since there are always two different people trading, buyers and sellers, each has to know a lot more of the other side to be successful.
“If you want to be part of the 5% of people who make money on the stock market, you have to know a lot more than anyone else. David Capablanca, a former architect who has taken an unconventional path in short stock market scams, concludes. That it would just be a lot of work, a lot of sacrifice to do everything the way it’s done.
Learn more about trading psychology:
Cryptocurrency Addiction: Is Cryptocurrency Trading Bad For Your Mental Health?
Find out how the Web3 industry can reach greater adoption:
Why does Web3 fail with non-techies? Marketing experts explain