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Strategies & Market Trends : Value Investing
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To: Freedom Fighter who wrote (4277)6/21/1998 7:25:00 PM
From: Allen Furlan   of 78745
 
Wayne and thread. Much concern has been expressed on thread about potential for very serious correction. In this weeks Barrons a "value investor", Peter Siris is interviewed and one quote is highlighted on page 40. " It's important that an individual understands that shorting is not the same as selling a stock. It is the opposite of buying"
O.K., so when we buy we first identify a prospect through reading or screening, then perform due diligence by reviewing available EDGAR information, by comparing company to sector competitors and then by intuitively assessing that the market is wrong and we are right about the company"s value.
So isnt the exact opposite doing the same except that the assessment is that the market is wrong by placing a high value on our candidate. But Siris goes on to say that "individuals can find short ideas as often as they find long ideas." and he makes an important point that "They have to be very sure they know why they are shorting a stock-and that reason shouldn"t be merely that it is overpriced."
Now I am not advocating short selling because I do not personally have the risk tolerance for it. However when confident that an issue is seriously mis-priced for a good reason, then a low cost bear option spread seems to me to be a contrary value play. My assessment was that DELL was an appropriate candidate and several weeks ago I placed a 10 by 10 January 90 over January 85 put spread. The reason that DELL is overpriced is because of the inevitable squeeze on all box sellers which will result as lower priced boxes come on the market. Similarly I am now assessing ITWO and the rationale for a bear spread is because of the punishment meted out to MANU shareholders for their poor assessment of the competitive nature of the supply chain software market
I would be interested in others viewpoints on the concept of low cost bear spreads as an equivilancy to a low price value play.
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