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

To: Paul Senior who wrote (15148)	8/12/2002 10:07:47 PM
From: Paul Senior	Read Replies (1) \| Respond to of 78750

OT: Shorting. I'm starting to see tax questions raised on other threads (e.g. Zeev Head's) regarding short selling. Namely, when, if ever, is a short sale a long-term gain for US tax purposes. (And I'm even seeing the wrong answer being supplied.) The fact that the question is being asked indicates there are many, many people shorting, or about to, who've little or no experience doing this. Possibly they've succumbed to the belief that one can make money in any kind of market - it's just how you play it - or, that because there's a tool that's available (shorting), it'd be foolish not to make use of it. I believe the vast majority of shorters will find successful shorting - the process of living with and closing out a short - to be quite a bit different from the skill set used in holding long positions. In any case, it is discouraging for me to see people making a bet without even understanding the simple tax consequence of that bet. I'm trying to weigh if my observation about what I consider rank amateur involvement in shorting is a positive for me or not. On the one hand, maybe a positive might be that people - "the crowd?" are jumping on the shorting train way too late after the journey has begun. But maybe it's not too late at all. It just seems to me that fewer and fewer people are venturing out now to make even intermediate term investments (1-3 years). And maybe with all the apparent shorting going on, looking even that far out is really fighting the tape. Certainly I see this with all my housing stocks. Fears that housing stocks are expensive, that housing itself is overpriced, defaults are increasing, etc. etc., have driven the stocks lower, and I'll guess the lower price has attracted new shorts or maybe encouraged current short sellers to increase their short positions if not their enthusiasm. They may be right. Still, those stocks look very inexpensive based on price/sale, price/book, price/earnings. DHI, one example, boasts a very good record for delivering bottom line results: "The company's continued sales momentum combined with our record backlog ensure that fiscal 2002 will be our 25th consecutive year of growth and profitability, and position us for another record year in fiscal year 2003," Chairman Donald R. Horton has said (7/22/02). Now it's very possible that the shorts will be proven right (that DHI stock and others similar will drop further); and it's even also possible that the longs will be proven right too (the stocks will eventually go back to their previous highs, or higher). I use the home builders as an example to state that it will be my opinion that if the shorts make money here that's good (for them) but not all well-and-good. The employing of shorting techniques by the average investor, and the particular shorting of stocks in this sector or others like it that show good fundamentals and decent future prospects, which, if they were to provide profits to the short, I see as lucky or fortuitous situations. And dangerous, if somebody assumes he or she can replicate this success at other times and with other stocks or sectors. jmo, Paul Senior