I'm a long term investor, but I sometimes go short, usually by buying put options. Some rules that I have developed over an investing career of some 45 years, which apply particularly to short selling are as follows:
NEVER short a well managed company (like SNDK). Management quality works in favor of long term price appreciation. Other companies in the no-short category, with exceptional management quality, include QUALCOMM and WALMART.
Consider short sales or put options when company fundamentals are far worse than those for the sector in which the company operates. But consider shorting ONLY when there is a pattern of insider selling (not just one or two isolated sales, but several reports, resulting in the remaining shares held by insiders going close to zero).
My most recent short (i.e., purchase of put options) was for Amazon.com earlier this year. There is an example of a company with moderately good management, but which is so overpriced and lacking in any proprietary products (books, CDs, and videos aren't exactly unique) that any long term appreciation with the present cash flow problems is improbable.
As for SanDisk, the combination of proprietary products, extremely fast growing market, and excellent management make short selling an ideal way to go broke.
Art Bechhoefer |
