To All, the following sums up part of my shorting strategy:
from tice.com
To detect hype stocks, look for the red flags:
Management and brokerage firms that are overly promotional - It
is a bad sign for managements to send out reams of brokerage firm
reports with their financial information or to issue a continuous
stream of press releases to generate investor excitement.
Stocks selling at much higher P/E multiples than their recent
sales growth rates - and avoid a company whose total stock market
capitalization exceeds the size of the total market its products
will serve.
Companies selling at valuations of more than 3x total revenues -
They may temporarily have very high profit margins and high
returns on equity, but when competition starts to make an impact,
the profit margins will likely decline, along with revenue
growth.
Theme stocks, when everyone is aware of the theme - Such
simplistic themes are usually too well-known to generate high
investment returns, as these are the easiest stocks for brokers
to sell. Also avoid companies benefiting from fads or other
short-term trends that are unlikely to continue.
Companies that generate no revenue and have only a concept - They
may not have the management talent or resources to execute a
business plan successfully. Also be cautious about companies with
good technical ideas but no proprietary technology.
Do not assign too much weight to agreements that the subject
company might have with larger, well-established firms -
Sometimes these create no real commitment to the hyped company,
but if the technology succeeds, the established company may have
locked in a very favorable price.
Finally, access if these is a significant short-interest position
in the stock - look in Barrons or The Wall Street Journal. As a
group, short-sellers are smart investors who have historically
been successful, and it is not a good sign if they have invested
significant dollars that the stock will decline. |
