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Strategies & Market Trends : SHorting Stocks: Education/strategies/techniques
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To: Early Bird who wrote ()2/22/1997 7:10:00 PM
From: Early Bird   of 99
 
From the Motley Fool again:

At The Motley Fool, we look for shorts among small-cap highflyers that have, in our
Foolish esteem, risen out of control. Way out of control. "Momentum investors" -- people
who buy certain stocks primarily because they're hot -- drive up some prices to
stratospheric levels, which is easier to do to small-cap companies. The slightest failure to
fulfill such grand expectations can send their shares crashing lower.

So the first reason we like to short these companies is that they have to perform perfectly to
justify their share price. And as any Fool will tell you, "Everything that grows/Holds in
perfection but a little moment." (Shakespeare, Sonnet 15).

The second reason we like to short big winners is that in most instances, their Big Move is
behind them. Even if the Market does well, a drastically overpriced stock will at best rise
maybe another 10-20%. If the Market is flat, we'd expect the stock to decline about 20%.
And if the Market turns down, look out.
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