Shorting K12

One of the comments on my article is:

 

RyanJoe555

Perhaps rather than make money on this stock by shorting, you should work directly with them as you have a dialogue with them? I can not stand these investors who claim they are shedding light on a subject for the greater good meanwhile looking to profit off such a drop in a company that looks to improve the quality of life for others (ie Bill Ackman). Take off your short, work directly with the company, solve the problems.

 

Here is what I posted in reply:

 

RyanJoe555: I have indeed engaged in a long dialogue with the company -- mostly CEO Ron Packard -- about how it can better serve students. My views are reflected in this open letter.

 

I think K12 is serving tens of thousands of students who aren't engaging, learning, or succeeding in any way, and therefore the company needs to shrink its enrollment by at least 30% to get back on track (based on the example I cited of the Colorado Virtual Academy; for more details, see page 105 of my presentation, posted at: http://www.tilsonfunds.com/K12-Tilson-9-17-13.pdf). 

 

An enrollment decline would likely cause the stock to fall further, so it's a win-win as far as I'm concerned.

 

The fact that I'm still short the stock does indeed present an obvious conflict, which is why I disclose my position up front in anything I write or say about K12. But I'd argue that my conflict is less than Packard and Davis's conflict in growing at any cost -- they have FAR more at stake financially and reputationally in K12's stock going up than I have in it going down (it's a mere 1.8% position for me currently). I discuss my views on my conflict of interest further here: http://edreform.blogspot.com/2013/09/my-conflict-of-interest-on-k12.html

 

Rest assured that my advice to the company would be exactly the same even if I had covered my short.