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To: Libbyt who wrote (4981)	1/22/2001 12:26:14 AM
From: Glenn D. Rudolph	Read Replies (2) \| Respond to of 57684

Glenn, from some of your previous posts here and on the AMZN board you have mentioned your past AMZN short position....that turned out to be a position taken at the wrong time. Since you have discussed this in the past, would you please "pass on" the lessons you've learned from that experience? Do you feel you took your short position without an understanding of market sentiment? Do you feel you took too large a short position in one security at one time? Do you look at the current short interest in a stock before you become a buyer of that security? .....And....do you currently short various stocks...or is this something you've decided isn't worth "the stress"? Libbyt, There is so much I learned from that short position it would take days to explain it all. I had no idea how little I really knew about market dynamics due to the Fed, supply and demand of stock, low float, huge short interest and sentiment as you mentioned. My method of investing prior to the Amazon fiasco was to take long positions in firms with which I had a lot of confidence in the fundamentals. I would write naked puts for securities I would not mind owning at the strike price and used some margin as leverage in an up market. I would do short term shorts for a few day or even hour trades. In particular, the market seemed to weaken most Fridays pior to 1998 and I may have shorted a short in the AM and covered in the PM. Some were wins and some were not. I was not a trader nor am I really a trader now. Rather than cutting losses on Amazon, I took the clearly wrong and opposite tract of adding to my position until I was short 6000 shares and I can't recall how many puts in the money and out of the money I owned that expired worthless. The books that stated losses from a short were unlimited were accurate when it comes to a typical investor. It does not matter how deep one's pockets are when a short position goes against one 700%. The stress was terrible too. There is a saying that if one is long and concerned, sell down to the sleeping point. That would be true too in a short position. I had many nights I could not sleep over the stock market. The stock market to me means a place to invest to make money over a period of years. I clearly did not approach it that way when I was short Amazon and that experience has caused me to be far more cautious now and unfortunately more nervous about current positions. I no longer short a stock. I never will again. My opinion is the risk/reward just does not justify it. A stock one is short can be bought out the next day at a huge premium, etc. In a long position, if one has done decent research on the FA, the stock can get really slammed in the event something goes wrong but that may only be for a quarter or so. This is a situation where one cannot cut losses in the event the company warns and then gaps down at the open. That is going to happen at times. I do not care how good one is at their research one is going to get hit but maybe the stock looses 30% on the gap or even 50%. It is not 700%. I see nothing wrong with some leverage using margin when one is well diversified, the trend is up and the Fed is working in ones favor. I now look at the float when I buy a stock. If it is a new issue, I look to see when lock-up expires. I look at insider selling. I look at short interest. I am not good at TA but I look at the trend. This way I can have some margin leverage, go to work and know nothing major can go wrong if I do not pay attention to the market for days. Well diversified to me does not just mean stock securities in different sectors. It means some money in some form of bonds such as municipal bonds, or other government bonds. I had read so many sources that indicated that losses shorting a stock could be infinite. I always believed that was an inaccurate statement and that if one had deep enough pockets and one had correctly done their FA research, the stock would eventually trade to a value that resprented its fundaments. I was convinced that I was correct regarding Amazon's fundamentals so I took the short position with the assumption I could not be forced out of the position prior to fundamentals kicking it. Lesson one which I do use in long positions is cut ones losses which I did not do in the Amazon short case. I was convince I was correct I was convinced to wait it out. Lesson two. If the shares of a firm are difficult to locate to borrow to short the stock, the chances of a short squeeze eventually occurring is 100%. Never short a stock or even buy puts on a stock that has virtually no shares to borrow or basically has a huge short interest. My initial short position was 1000 shares in the mid 80s in 1998 but that is split adjusted to be around a current price of $12 I believe. as the stock moved higher, I would short more shares when shares to short became available. At times, the stock would gap up with huge runs after the gap and I could not locate additional shares to average up. I then would buy puts which had a huge premium. I was blind to the fact that there apparently was enough liquidity in the market to cause any stock to go to very high levels regardless of fundamentals. I missed the large picture of liquidity and continued Fed rate decreases. Some examples of stocks that ran really high with no apparent reason was The Globe, Ktel when they announced they were selling on the net, etc. Also, this was an era of new issues coming out but with very small floats. Amazon had a small float at the time so supply was low while demand was high. I missed all these factors and was only focused on Amazon's valuation and I just could not be wrong:-( The lessons I've learned over this last year in the market would be to pay more attention to the Fed, and rate hikes (or cuts)....as well as to use stop/loss/limit sell orders (even if these are "mental" orders and not orders actually placed)....and to not be fully invested. (Always have cash available for those unexpected large bills!) I've also learned that I seem to have a better perception of "market sentiment" if I sometimes take a break from the market. Sometime following the market too closely IMO can make you lose sight "of the big picture"....and the daily fluctuations of a stock price are not an important issue if you believe in the FA of the stock, and you are not trying to trade this stock. We have both learned the same lessons. I am not pushing or suggesting margin but I will say that used in moderate amounts it can increase return when all factors are working for the long side and I do not find I increase stress over it. You mentioned always have cash available for large bills that are unexpected. If one is on a small amount of margin, one can borrow against ones account for an unexpected large bill. However, that defeats the issue of a small amount of margin in my mind. I believe that one's portfolio is money one does not ever expect to need short term. One should only invest money they know they will not need for quite some time. Therefore, there should be some form of a bank account with cash that is separate of the portfolio even though the portfolio may be on margin. Glenn