
How a 25-Year-Old Investor Spurred Lumber Liquidators’ Plunge - MaxQuentero
http://www.bloomberg.com/news/articles/2015-03-04/how-a-25-year-old-investor-spurred-lumber-liquidators-plunge
======
bstar77
This is sort of off topic, but I'm right in the middle of ripping up floors
from Lumber Liquidators that I put down a few years ago- parts that are at the
center of this cluster fuck.

My whole family has been struggling with health issues that coincide with when
I put these floors down. I have a Chihuahua that has developed terrible sinus
problems, my 6 year old son is having sinus and cough issues and my wife has
breathing problem in our home.

I'm not 100% sure it's from these floors and/or the glue I bought from them,
but it's a fact our health tanked a few months after the floors went down.
We've been struggling to find a cause that makes sense and this seem to be the
only plausible thing.

I guess in a couple months I'll know for sure assuming our health improves. If
it turns out to be the case, I will be extremely grateful to this blogger. I
don't care if he made money, this information could be helping my family's
health.

~~~
jusben1369
Terrifying/sad/fascinating story. Did you ever take an extended holiday over
that time and notice general improvements to your health?

~~~
bstar77
Yes. My Chihuahua has seen the best improvements after being out of our home
for a week while we went on vacation- we also felt better too.

I assumed we had a mold problem, but those test recently came up negative.

I should note I have the least issues, but I spend the least amount of time at
home.

~~~
giarc
Keep some of the floor. You may want to one day have it tested for
formaldehyde levels.

------
parfe
The idea of private citizens both being able to investigate companies for
wrong doing and earn income for their work appeals to me. No lawsuit, no legal
process. After doing some investigations, just some quick transactions on a
trading account, and a blog post later.

~~~
mc32
Yeah this is pretty great. Good work and good result. My only caveat would be
unscrupulous people spreading unfounded rumors or uninformed opinions passing
as fact which could result in innocent companies suffering from lack or rigor
on the did of citizen investigators. At least it appears sixty minutes did son
of their own investigation --althouh I imagine they went in with guilt in
mind, which worked out in this case, but can result in different outcomes in
other cases.

~~~
hga
From The Fine Article:

" _When Zhou began looking into the Toano, Virginia-based company back in
2013, he says he found online complaints about its Chinese-made flooring. So
he bought products from Lumber Liquidators and paid to have them analyzed. The
results led him to publish a post on investing website Seeking Alpha on June
20, 2013, that advocated shorting the stock because the tests showed levels of
formaldehyde above California requirements._ "

So while others might indeed lie, we seem to have enough confirmation from the
subsequent investigations that Zhou did not. And there was no reason to
believe he lied, this is a target rich environment after all.

And while _60 Minutes_ is entirely untrustworthy (I've watched them lying on
the air for decades, since the '70s), likely would have started with "guilt in
mind", in this case they chose a worthy target.

~~~
shiven
_And while 60 Minutes is entirely untrustworthy ..._

Wait, what? Any proof for that statement? How come they are still on air? Why
wasn't their parent broadcaster sued out of existence, if what you claim is
true?

~~~
fnordfnordfnord
Benghazi coverage, the Bush National Guard story coverage, their NSA/Snowden
fluff piece, etc. It's not hard to find credible criticism of 60 Minutes, even
if you can't tell just by watching it.

[http://www.cjr.org/behind_the_news/60_minutes_bad_run.php](http://www.cjr.org/behind_the_news/60_minutes_bad_run.php)

~~~
res0nat0r
Lara Logan was suspended from the show for months after airing her report, and
the show issued an on air retraction and apology about that story after it
broke that the main person they interviewed for the piece was lying.

------
stygiansonic
The original article that Zhou published on Seeking Alpha outlining reasons
for going short against LL is available here:

[http://seekingalpha.com/article/1513142-illegal-products-
cou...](http://seekingalpha.com/article/1513142-illegal-products-could-spell-
big-trouble-at-lumber-liquidators)

The lab report of the analysis carried out:

[https://app.box.com/s/mhzih9apu2q2gdeuty8i](https://app.box.com/s/mhzih9apu2q2gdeuty8i)

~~~
gvb
Some background on the CA law:
[http://greensource.construction.com/news/080107CARB.asp](http://greensource.construction.com/news/080107CARB.asp)

"The new CARB rule sets thresholds for emissions of formaldehyde from various
panel products that take effect in two phases between 2009 and 2012 (see
chart). It is difficult to compare these limits with their counterparts in
Europe and Japan due to the differences in testing protocols. The phase-one
targets are designed to establish a reasonable baseline based on today’s
common practice, while curtailing low-cost, high-emitting, imported products.
Phase two, on the other hand, is intended to force manufacturers to shift to
advanced and emerging technologies. CARB officials tout the fact that, once
fully implemented, its formaldehyde emission limits will be the tightest in
the world. Products sold for use in manufactured homes are exempted from these
new requirements because state law cannot supersede federal rules in this
area."

------
eitally
This is basically describing a much smaller scale version, with much lower
stakes, of what Bill Ackman has been trying to do to Herbalife for the past
couple years. He even placed a bet against Carl Icahn
([https://www.youtube.com/watch?v=hCZRk1lL90Q](https://www.youtube.com/watch?v=hCZRk1lL90Q)),
and they've traded "winnings" and "losings" in the hundreds of millions over
the past two years.

~~~
imjk
This is what a lot of activist hedge funds do in general.

------
mtanski
The amount of products that use formaldehyde somewhere in the process is
staggering. From glues used for wood (floors) to fabric softening (carpets,
baby clothes), inks, building materials.

This is a much bigger deal if you live in a "energy efficient" home that has
very little heat/cold leakage. Modern insulation, fancy windows, HVACs that
recycle indoor air contribute to this problem. Some of these products like
floors will be off gassing for years while you live in the hermetic bubble of
your home.

Source: my wife worked for a niche material company that was a big importer of
bamboo wood. They sold everything from bamboo floors to plywood.

They generally tried to not use formaldehyde glues and bonding agents but it's
hard to to police it. Their suppliers from China would cut corners or try to
boost their profits. When caught they would stop for a while and then resume
later on.

~~~
mtanski
I had neighbors who wanted to make sure when the hallway was being painted
they only used low VOC paint. They were somewhat offended when I told them the
carpet they put uses a bonding agent that will off gas for years or they their
children clothes were softened with formaldehyde.

------
lectrick
Is it legal and ethical to deeply research a firm until you find very serious
problems, then short their stock, then announce your findings?

It feels... OK to me. For some reason this strikes me as a surprising way to
make money. Never heard of this before now.

~~~
jldugger
It's not only ethical, it's about the only reason short selling hasn't been
outlawed.

~~~
lectrick
Doesn't shorting also help stabilize the value of a security?

------
ck2
Now look around you at the 1000 products that construct and are in your home
that are made in China.

We even import some food from China.

Your car tires are probably made in China.

Think all those things meet US regulations? Who is going to inspect them, the
handful of people that are responsible for tens of thousands of freight
containers per day?

~~~
tsomctl
Yes, most of those things do meet US regulations. The company inspecting them
is the large US company that puts its brand on it. The same company that would
be on the receiving end of a huge lawsuit if the products are dangerous.

------
alexwestin
Engines like this one can help uncover these hidden relationships:
[http://cymetica.com](http://cymetica.com)

~~~
ceejayoz
> AAPL - hidden connections to AAPL: mac, ipod, digital, store, ios, apple,
> itune, music, ipad, iphone, video, icloud, acquired, touch, third-party,
> portable, photo, os, download, app, mobile, file, pro, consumer-oriented,
> peripheral, windows-based, player, iwork, online, compatible, display

Yeah, really hidden relationships.

