Sorry, it may be clear to you, but it's not to me. There are many ways to argue it out, but in reality there is no out of pocket expense to a short sale in the same manner as that of a long. But I've long since given up trying to figure out the percentage return on an individual short position, and prefer to think in terms of my overall portfolio performance.
It is simple enough to say that $57,000 (forgetting margin) invested in ADSP long from 5 1/8 to 57 yielded far superior returns than $57,000 invested in ADSP short from 57 to 10 3/4. But this is with the benefit of hindsight. When ADSP started printing in the 50's, the risk reward skewed to the extreme in the favor of shorting. To say that it was easy to predict a run from 5 to 57 when the stock was 5 would be pure fiction. To predict the retracement when the stock was in the 50s, or even the 40s and 30s was a no brainer. When faced with the choice of a risky long trade that may produce a 10 bagger in an extreme environment and a no brainer short that will produce 50%, my preference is to go with the no brainer every time. I am able to put a larger percentage of my portfolio into the trade more comfortably than into the long. This is where the argument that percentage variances alone are misleading. In today's market environment, we talk of quick returns in excess of 100% as if they were normal. This is of course nonsense. In the same manner that ADSP was several standard deviations outside the norm for a stock movement, the current market environment is also seriously outside the norm. I congratulate anyone who is able to take advantage of the current mania on the long side. It is not within my ability to do so. I will stick to my knitting, and continue to clean up the mess after the 'hot money' has run POS stocks up to unsustainable levels. But a lesson I learned with ADSP is that quick wealth can vanish just as quickly, as some of my friends who had exceeded my gains previous to last Friday found them in dire straights with their portfolio. The reason they had outperformed me was a simple function of taking more risk, and therefore gathering more rewards. Unfortunately, it is possible that such a strategy can backfire leaving the person using the strategy penniless. This is applicable to longs as well as shorts. God bless those who make more money with higher beta trades than mine, they deserve every penny. But one day the gravy train will reach it's final stop, and I hope they manage to keep it all. Most will not, I fear.
Regards,
Barb |
