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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Mike 2.0 who wrote (7907)	7/30/1999 6:36:00 PM
From: James Clarke	Read Replies (6) \| Respond to of 78783

Call this off-topic. Its about shorting. If you are going to flame me for it, just don't read it. <<James, SOC is still a short? >> Obviously SOC was a much better short at 50. Or was it? I had a business school professor, a portfolio manager (not an academic) tell me something big. She said your best short is not the high flyer at 75 times earnings. It is the broken company at 10 down from 75, but clearly on its way to zero. I think she was right. Peter Lynch said that if you a stock goes to zero you lose 100% whether you bought it for 100 or 3. I'll assume you know Sunbeam's history. Sunbeam has 2.2 billion of debt, four businesses that are mediocre at best and are currently losing a fortune every quarter, and still bleeding cash profusely a year after everybody forgot about them. If you read their 10-K the covenants from the banks read like something out of a bankruptcy document. Management is not allowed to buy a soda without getting permission from the lenders. The lenders cut them a lot of slack, but the agreements end next April. That's when they file for bankruptcy unless some miracle happens. This is a consumer products company bleeding cash in the biggest consumer binge in recent history. Sayonara. The problem is I couldn't get shares to short. I am clearly not the first one to think of this. The only reason I post this is to challenge the notion that your best shorts are something at its high. I would also point you to Harnischfeger, an obvious short in my thinking. Unlike Sunbeam, these guys have already filed for bankruptcy. But the shares are still trading for $2. This will go to zero. The problem with shorting Harnischfeger is that the slightest whiff of anything good, even if it is just manipulation, will take the shares to 8 in two days. I am not willing to take that kind of risk. I am short Citigroup, Amazon and TheGlobe.com. If you don't know why I shorted Amazon, you've been living in a cave for the last year. Citigroup I was looking for a leveraged way of shorting the market - something that will go down 40% if the market goes down 20%, still trades near its highs, and will not be saved by a take-over. Citigroup and Goldman were the two I picked. Haven't done Goldman yet. I did Citigroup first because I also think the merger of Citibank and Travellers was ridiculous. Which brings me to TheGlobe.com. Go to the website theglobe.com and explore around while thinking about how this could possibly make any money. I was looking for an absolutely ridiculous internet company - here it is. The co-CEOs are both 24 years old. They started this website when they were undergraduates at Cornell. $3 million in revenues last quarter but somehow they lost $6 million on the bottom line. They have $20 million in cash left over from the IPO and they burn it at the rate of $5 million a quarter. Start the stopwatch. The stock is well off its highs, but this is a "company" that is overvalued if it trades for $1. I was surprised I could borrow shares so easily. JJC