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To: S. maltophilia who wrote (12245)	8/20/2000 1:01:02 AM
From: Perspective	Read Replies (4) \| Respond to of 436258

My take on successful shorting is that it requires a few things to happen: 1. Excessive valuation 2. Removal of positive fundamental backdrop 3. Removal of positive technical backdrop Consider QCOM. Everybody that had a brain knew it was going to have an accident; the only question was when. Unfortunately, with shorting, you have to be right on the timing. Short and hold generally doesn't work. So then one had to wait for the fundamental backdrop to deteriorate, as it did with the China and South Korea news. However, that alone is not enough. The Market must confirm that the time is right by showing deterioration in the supply/demand picture for the pieces of paper we call "stock". Many stocks in PC-land are now in the no-man's land where they have met criteria #1 and #2, but the stock price activity is still not convincing enough. I think the bulk of the money to be made in shorting comes from realizing that a stock that was trading at a ridiculous valuation based on rampant fundamental-based optimism is even more overvalued after a large decline when the positive backdrop is removed. CSCO at PE=150 with surging earnings is not attractive as a short, but if the growth starts to slow and the stock drops 33%, CSCO at PE=100 with no growth is a far more attractive short. Oddly enough, INTC fits this quite well. Growth STOPPED a few years ago, but it still trades for 50X earnings. How do you justify an earnings yield of 2% when treasuries yield near 6% and the company has saturated its markets? Its earnings are more likely to decrease than increase. The idiots at Fido and other fund houses figure they can't go wrong following the herd. Wait til the herd reverses course and they're all trampled... That said, the overriding rule on short-selling seems to be: get the market direction right. If you're wrong about the market direction, you'll be wrong about nearly everything you do. That's why it's so critical for us to discern if this mania really is unwinding. The arrival of a long-awaited secular bear would have huge implications for investing strategies over the next 2-5 years. I encourage comment/criticism from others on this thread regarding appropriate shorting strategies. I have yet to find a good mentor, so I'm kinda making this up as I go along... BC