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Strategies & Market Trends : Value Investing
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To: Mr.Gogo who wrote (40379)12/11/2010 8:32:35 AM
From: Madharry1 Recommendation  Read Replies (1) of 78745
 
i will join others in cautioning you that shorting can be particularly treacherous especially if you do not have deep pocket. to recount my experience which many here have heard in the past. in 2000 i bought an ipo called icge at 15 or so. with a couple of months it reached 80 and i was convinced it was massively overvalued and sold my entire position and thought about possibly buying puts on it down the road. six months later it hit a high of $320 or so. when it dropped back to $240 i thought about buying puts but for the amount of money i wanted to risk it would have had to drop 50% more for me to make money so i didnt do it. eventually the stock dropped well below $1!

another problem are facing shorts is the greater fool theory. the classic example of that being time warner's foolish purchase of aol, which probably destroyed many smart shorts.


The moral is shorts can be great but you have to have staying power and be willing to suffer a better than 100% losing position before you may be proved right.
I agree that nflx is way over priced but i also believe it could be acquired by a greater fool as well.

Most of us cant stomach that. Last year i was short both gm and aig both of which i covered profitably, gm way too soon.
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