Hindenburg’s Block Report

Those Heavily Concentrated in Block Would Be Wise to Diversify

By Michael Foster

Last week provided yet another example of why diversification is your friend. Hindenburg Research recently put out a report saying Block (formerly Square) inflated user data and engaged in fraud. Hindenburg is a short seller most famous for their report on Nikola and founder Trevor Milton. This is how they came on my radar and led me to opt-in to notifications on Twitter every time they release a new report. I recommend listening to the WSJ Bad Bets podcast to learn more about that story. It should also be noted that Hindenburg stands to profit from the decline and Block has refuted the allegations.

Hindenburg goes on to say that the $44B company behind the popular Cash App has taken advantage of customers, is riddled with fake accounts, is a highway for illicit activity, and more. The claims range in severity from lack of compliance controls, to use in sex and drug trafficking, and even murder. As part of explaining how relaxed the compliance was, Hindenburg created obviously fake accounts named “Donald Trump” and “Elon Musk” that allowed them to move money and get a physical Cash Card.  

The market quickly responded when this report was released, dropping Block’s share price 15% the following day. It has since recovered some, but not to the pre-report level.  

I’m always fascinated when stories like this come out. I’m generally interested in market news (especially when it’s messy), and examples like this further enforce my belief in diversification. Block was a pandemic darling that has since come back down to Earth, even more-so after the report. In contrast, our clients hold a broad basket of public companies and don’t rely on one or a few names to generate returns. Instead, our portfolios are powered by a belief in markets and a trust that global capitalism will reward investors over time. More stories and reports like this will come out over time, but I rest easy knowing our approach isn’t greatly affected by one company.

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Ben Dolan and Michael Foster are investment advisor representatives of Dolan Capital Advisors a North Carolina state-registered investment adviser. Investment advice offered through Dolan Capital Advisors, Inc.

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