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Strategies & Market Trends : SHorting Stocks: Education/strategies/techniques
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To: Early Bird who wrote (8)2/22/1997 10:04:00 PM
From: Roger A. Babb   of 99
 
Mike, my strategy for trading stocks, both short and long, is to first value the company as if I were going to do a buyout of the entire company. Considering its hard assets, intellectual property, earnings, revenues, liabilities, risks, and management quality. I then compare that value to its market cap and decide if it is under or over valued and invest accordingly. After investing I continuously re-evaluate as I get more news, I have been known to go from long to short (or vice versa) in a single day, a fact which sometimes angers other investors. Always keep an open mind and be prepared to reverse your position. Don't get emotionally attached!!!

Shorting is more risky than buying. Thus I tend to short companies only in the tech or biomed fields where I can understand their products and their markets.

I will share one secret. I use the SI threads as a contrary indicator. If I post on a thread that I am short and immediately get strong attacks from the longs that is a good sign that it is an over hyped stock. The more hype the better the short. If their attacks are illogical or just plain insulting it usually means that they are nervous about their long position and will bail out on the first bad news.

You need deep pockets to be a short. Deep enough to not only survive a squeeze but also to take advantage of the wonderful shorting opportunity thus presented. The best thing that can happen is for a stock you already know is over priced to go up more, provided you have the funds to increase your position.

I do not short companies who have a lot of cash reserves and good talent. Who knows what wonderful new product may spring forth from their secret research!
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