To the shorters out there:
I have seen some posts out there indicating that some of you are still holding short positions at $43, 60, 77, 80, 85 .... I admire your conviction as yhoo is obviously over valued. However, wouldn't you be able to make a much larger profit by covering your short position and re-shorting at a higher price?
Ironically, I found myself in the same position. I shorted an internet stock and the price kept going up. After a while, I started thinking that since I was already losing a large amount of money, I might as well hold onto my position and go for broke. I thought that the stock was ridiculously over valued and that it had to come back down. After a while, the stock came back down and I was able to cover my position for a small profit. While the stock was falling, I kept asking myself why didn't I just cover my position earlier for a smaller loss and ride the current fall for a much larger profit.
I guess my biggest problem was not being a disciplined investor. I should have covered my short at a predetermined price no matter what happened (using a stop limit order). By letting things get out of hand, I became more subjective (vs objective) with my decisions and I couldn't bring myself to cover my short.
The main downfall about covering early and re-shorting is that you lose out on the taxes. If you re-short the stock within one month, the loss from the first short won't be tax deductable. In addition, you will have to make a larger profit from the re-short because the first loss is post-tax dollars. |
