Scooby Doo Stocks

In early 2003, one of the Firebird analysts noticed something strange: Uralkaly, an illiquid Russian fertilizer stock, had reported a quarterly profit instead of the losses it had been showing for years. The company, located in Perm, near the Ural Mountains, was since voucher privatization the object of a struggle between a legitimate faction led by a stockbroker and former doctor named Dmitry Rybolovlev and a mafiya that enjoyed looting Uralkaly through a trading house it controlled.

The battle became vicious in the mid-90s, with one of Rybolovlev’s directors killed, Rybolovlev himself falsely accused of the murder and spending 11 months in detention, and the gangster who’d ordered the hit finally being convicted and sent to prison. By 2000, Rybolovlev had consolidated a majority stake in Uralkaly and replaced its whole management, and within a couple of years the changes began that caught our attention.

We took a small psychological position in the shares at the ruble equivalent of $.05, and our analyst went to Perm to visit the management and find out if the apparent turnaround was for real. At the meeting, bemused by our ownership of the stock, which they’d assumed no one cared about, they said — not in a threatening tone but more of an advisory one — that while the good results should continue, it was a “bad idea” for Firebird to own Uralkaly. Though it was not a good investment for us, they felt sorry that we were stuck with it and offered to buy our shares at the market price.

A key fact about the analyst is that her father may have been a KGB officer and she’d inherited the ability to read Russian people. Back in New York, she shared her view that the management was serious about going straight: we reasoned together that it’s a lot easier to show true profits and get valued at 6x earnings than it is to steal all the earnings for six years. And Uralkaly management’s comment about it being a bad investment maybe was meant just to scare us off while they personally accumulated stock, at low prices that still reflected the prior stealing regime.

In a flash of recognition, my partner Ian and I turned to each other and said, “Like Scooby Doo.” We were referring of course to the 1970s cartoon we’d grown up on, where four teenagers and their talking dog solved mysteries. These usually involved a “haunted” mine that was coveted by a villain, who when unmasked would say, “I’d have gotten away with it too, if it wasn’t for you kids!”

We checked around with the brokers, and sure enough Uralkaly management were bidding for shares. After more research, we understood that it wasn’t only their own improved governance they were positive on, but potash fertilizer in general. Potash, like other resources connected to Chinese growth, began a terrific rise that took it up 5x from 2002-2009, and Uralkaly was one of the world’s largest and lowest-cost producers. With these insights, instead of selling shares, we went into the market to buy whatever we could, paying all the way up to the ruble equivalent of $1.17.

Uralkaly’s profits did continue to grow and by 2007 the company, now perceived to have among the best governance of EM resource companies, listed a GDR on London Stock Exchange. It peaked in 2008 at the local share equivalent of $14.50, a bit of an uptick from $.05 when the Scooby Doo started. (We failed to sell at the top and had to wait a bit to get out.) In 2010, Rybolovlev was forced to sell control to three Kremlin-connected oligarchs, after which the company endured a shotgun merger with a lossmaking chemical plant and finally got delisted.

Do not fear though, all ended well for Господин Rybolovlev. He moved to Cyprus, then Monaco, and is now worth about $6.5 billion. His hobbies include championship sailing, soccer club owning, and superyacht-having. His other exploits, including as a defrauded art collector and buyer of a mansion from Donald Trump, are fascinating reading but beyond the scope of this post.

The Uralkaly experience gave Firebird not just a large profit but the code words “Scooby Doo” for when a management is scaring off investors while they buy shares. To be a valid Scooby Doo, the company must be fundamentally good, and the bad investor relations should be against a background of improving results.

While accumulating stock, managements can sometimes obscure the underlying earnings growth with governance violations like related party loans, which are guaranteed to turn investors off. We always consider whether such actions are destroying real value or just look bad — if the latter, it may be okay to buy anyway.

Sometimes the hostile attitude to outsiders is for real. In the late 90s, we met with the management of a Latvian oil terminal and suggested that their shares were a good investment for us. They laughed uproariously right in our faces, and this time they were correct: a while later we took a 50% loss and crawled off licking our wounds.

Despite the Uralkaly triumph, I must note that not all our trades work out so well, and losers like the Latvian terminal have been disappointingly frequent over the years.

Scooby Doo in the U.S. Markets

Scooby Doo’s really are emerging market phenomena, because fast and big turnarounds are more possible at the frontier. I did however think of a few U.S. market situations with Scooby Doo characteristics.

Spinoffs

Companies spun off from conglomerates tend to outperform the market in their first post-spin year, and this is so well known on Wall Street that fund managers like Joel Greenblatt and David Einhorn have specialized in spinoffs.¹ This trade works partly because the spinoff creates forced sellers like index funds that will push the newco stock down temporarily, before its value as an independent is revealed.

But also, academic research shows that in certain kinds of spinoffs, companies consistently understate the newco’s earnings in the pre-spin year, usually using abnormal accruals. The earnings then rebound in the first post-spin year.² This Scooby may be Dooed because 1) the conglomerate wants the newco to start out with an earnings beat and trade well, thus making their spinoff decision look smart, 2) the newco’s management are incentivized with spinoff shares and options, or 3) both.

As a corporate lawyer, I worked on Whitman Corp.’s 1991 spinoff of food company Pet Inc. (Progresso, Old El Paso) and vaguely remember thinking that Pet was holding back good news. I’m fuzzy on that but do have a specific mental picture of Pet’s CEO Miles Marsh looking delighted at the closing — and he should have, because Pet did great on its own, being acquired by Pillsbury in 1995 and making him a bundle.

Stock Options

Another Scooby Doo-esque situation in the U.S. involves management stock options. Research shows that when companies have prescheduled option grants before earnings releases, their stocks tend to underperform in the months leading up to the earnings and outperform in the months after.³ Executives can make this happen by voluntarily disclosing bad news before the earnings and saving better news for later. The same dance happens around unscheduled grants, including repricing of options.

There have been class actions over option grant trickery, but the plaintiff has to prove that the management knowingly withheld material information — a heavy burden, as smart ones will stop short of that and just emit “negative vibes” before the grant. And a savvy CEO or CFO can manipulate analysts much as a senior teacher does a group of kindergarteners.

Sandbagging/Google IPO

It’s not exactly a Scooby Doo when a third party does it, but investment bank analysts have been known to downgrade a stock when their proprietary trading or preferred clients are trying to accumulate it. Again, this is more of an emerging markets thing because of the illiquidity there, but it happens in the “civilized” world too.

One dramatic instance was when Google IPOed in 2004. It rejected a typical underwriting and went directly to investors in a Dutch Auction that it thought was more democratic. Goldman Sachs, which had lost out on an IPO lead manager role, and other big banks, talked the company down ahead of the offering.⁴ Per the Financial Times, “[Google] forced Wall Street into a concerted whispering campaign designed to sabotage the IPO. It is hardly a coincidence that after Google directly challenged Wall Street’s stranglehold on the capital-raising process, it suddenly went from being among the most-loved companies in America to the most criticized.”⁵

The bad-mouthing apparently worked, because retail investors stayed away and the auction price came out lower than expected. The usual hedge fund and institutional clients probably scooped up much of the offering anyway, and at a lower price than a traditional underwriting would’ve yielded, reteaching the perennial lesson: You Can’t Beat Wall Street. There has never been another major Dutch Auction IPO.

My professional experience in developed markets is limited, so if you have any other examples of Scooby Doo’s in the U.S. or Western Europe, please share them in the comments.

1. Cornell, “U.S. Spin-Offs Beat S&P 500,” Forbes, June 3, 2024. BNSPIN, the Bloomberg U.S. Spin-Off Index, is up 54.7% YTD 2025.

2. E.g., Lin and Yung, “Earnings Management and Corporate Spin-offs”, MSUT 2011

3. Aboody and Kasznik, “CEO Option Awards and the Timing of Corporate Voluntary Disclosures,” UCLA/Stanford Business Schools 2000.

4. Sorkin and Thomas Jr., “The Google I.P.O.: Wall Street; An Egalitarian Auction? Bankers Are Not Amused”, The New York Times, April 30. 2004.

5. Surowecki, “Ignore Wall St’s whining – Google’s IPO worked”, August 19, 2004. Google is up 6500% since the IPO.