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

To: Paul Senior who wrote (9163)	12/6/1999 8:46:00 PM
From: Michael Burry	Respond to of 78615

You will notice that Mike Burry argues for short selling as a very good opportunity in today's or tomorrow's market, and his actual short position is very small compared to his overall portfolio and is used as a hedge, according to his site notes. To me, this seems the only logical way. The traditional argument is that only those with enough capital to short for the long term can consistently make money. Ok, but if so, then what is the actual return on the at-risk TOTAL capital. If one must have "enough capital" to tolerate a 300% loss on a short position without hurting too much - and being able to maintain the position- then the 100% maximum profit on that position won't amount to much more than an incremental percentage return on actual available capital even if it does occur. Where is that excess capital (the capital that allows you to maintain a long-term short position) best deployed to maximize the total return on capital? IMO, assuming that none of us can time markets well (an assumption that I feel is very valid), the best place for that capital is in long positions. At least then you're hedged with the odds of your own good fundamental analysis with you on both sides. Interestingly, I've found that even a small short hedge (I've been up to 10%) position against a long portfolio can be amazingly effective during a general downturn - along with an obligatory gold position and a solid oil position. Good investing, Mike

To: Paul Senior who wrote (9163)	12/6/1999 10:00:00 PM
From: Daniel Chisholm	Read Replies (1) \| Respond to of 78615

Hi Paul, If you will look real, real closely you will find, imo, that most people do not make consistent profits or a lot of profits from shorting stocks. ... Until recently, I did :-(. Until recently, I was a lot smarter then than I am now ;-) ...or having large short positions .... is best left to professionals. Until recently, I was smart enough to do this ;-) Do this math: Year 1: Up 40% (gosh I'm smart... Soros only compounded 35%) Year 2: Up 40% (Guess I really am smart!...) Year 3: Down 40% (Niederhoffer!) Net: Up 17% over three years. That's half a percent better than T-Bills! Now I am a real smart (until recently! ;-) guy who understands the risks, who is grown up and can "handle it", who only "invests" (speculates with) what he can afford to lose, who knows the downsides, who appreciates that you really can lose in this game, and that it is real money. And let me tell you, -40% hurts the ego and confidence more than I could have imagined, even though I thought I understood the psychology and the numbers behind this. Now before you start feeling badly for me, can you imagine how much a 40% hit will hurt the pocketbook, ego and animal spirits of today's investors? It strikes me that this could be very depressing (pun intended). It hurts me to think about how most people I know will be moderately to seriously hurt by such an "event", and that I don't see anything that I can do to help them avoid getting hurt. - Daniel

To: Paul Senior who wrote (9163)	12/6/1999 10:08:00 PM
From: jeffbas	Read Replies (2) \| Respond to of 78615

Paul, I agree with you that shorting is not for most people. Aside from the reasons that I have previously posted that most people are shorting entirely the wrong stocks at the wrong times and are only lucky to make money - since most stocks shorted are merely overvalued stocks, not busted stocks with busted fundamentals - there are two other important reasons. There is plenty of opportunity to make a fortune by being long the right stocks. Finding the right ones is difficult and more than a full time job, for people who by and large have day jobs. Shorting is a distraction from finding stocks that can double and triple. I own 4 tech stocks that have doubled in the last 3 months, that I watch like a hawk. Why should I spent one minute looking for something that has far less than 100% potential over even a medium time frame? I don't. In my opinion, shorting is not a solution for underperforming value investors. Tinkering with your stock selection process is, to include additional value criteria. Every one of the 4 stocks I alluded to above was bought for value considerations, including new mgmt, low PSR, and participation in a dynamic new industry that was given away for nothing in the price. All four had new mgmt over the last year or two plus low PSR, one had the new technology participation being given away for nothing. (All had visible blemishes which are shrinking under the new mgmt). By the way, I do not limit myself to tech stocks at all. As you folks know I was a strong proponent of NH and COO at low prices earlier in the year.