Cramer weighs in on the foolish short:
thestreet.com
Choking on a Foolish Short
By James J. Cramer
7/31/01 12:16 PM ET
A little more than a month ago the Motley Fool's Tom Jacobs, who had never shorted a stock -- by his own admission -- recommended shorting Affymetrix (AFFX:Nasdaq - news - commentary), a little DNA chip technology company. At the time when the recommendation was proffered, I was sorely tempted to write a mean-spirited piece arguing that, when the Fool goes short, we must be at the bottom. But of course there is no one "Fool," because these folks have diversified and given you a whole bunch of lists and names. Second, in the recommendation, Jacobs said his short was only for sophisticated investors. Whether that was cover-your-butt talk or a plain and simple warning, it had the effect of making critics like me say, "Well, I can't attack him for recommending a dangerous strategy, because he admitted it was dangerous."
So I did nothing. And now I wish I had written the column because Affymetrix is climbing, having jumped 40% last week after non-Fool investment house Credit Suisse First Boston upgraded it to a strong buy. You see, unlike Jacobs, I have shorted thousands of stocks in my life, maybe hundreds of thousands. I have felt the pain of an upgrade when I am short. I have been seared by squeezes. I have written endlessly about how dangerous shorting can be, and I never point-blank recommend a short on this site (even though our readers are a ton more sophisticated than the Fool's).
One of the great things about having been a pro is that I have knowledge, and my knowledge base says that if you are going to short a stock, don't do it as Jacobs did, after the bad news is out (Affymetrix had just announced a shortfall) and before a change of strategy is announced that dooms the short (Jacobs said AFFX made commodity chip sets, but the company is now moving into much higher-margined custom chips). Don't get me wrong. The Fool does an excellent job on many fronts. The site is one of our competitors, so one could argue that anything I say about the Fool is tainted.
But you also know that I don't like people to lose money, whether they are Fools or Brains (as I call our readers). That's why I think that all of the disclosure in the world won't cure this short and the havoc it will cause people who followed the recommendation. Fools, cover, before the losses get too big and the risks too great. The story has changed: Affymetrix is now a better story. And all that has happened is a very small move from the $21 short point. You won't regret it. |
