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

To: valueminded who wrote (3273)	2/21/1998 9:59:00 AM
From: James Clarke	Read Replies (2) \| Respond to of 78510

A good short doesn't necessarily have to be a high-flyer. As I have found (from being long these stocks at the time) is a stock with collapsing fundamentals, down from 20 to 10. Then short it to 5. Not my instinct, but its not a bad way to go as long as the fundamentals are going from bad to worse. Take Reebok for example. Its industry is in bad shape in the short term at least. Though the stock has hardly been a highflyer, there is no reason why it should be. It has lost 50% of its U.S. market share in the last five years, and that trend is accelerating. Visit their outlet stores - they are almost literally giving product away. A lot of potential customers think their shoes fall apart. And they are at a serious competitive disadvantage to Nike and Adidas. On top of that, they have the worst balance sheet in the industry. The stock has run up with Nike this week on rumors that Buffett is buying Nike. It makes no sense to me why Reebok would go up too. That's what a short looks like.

To: valueminded who wrote (3273)	2/21/1998 11:52:00 AM
From: Paul Senior	Respond to of 78510

Do not understand what you are saying. If you say that you understand doing reverse of value investing does not work I'm still confused. Why would you come on a Graham-type value thread --or any value thread- and ask about rules for shorting? No value investors I am familiar with - who have published their works - have written about how to short. They all avoid subject or say don't do it. I recall only one value fund manager who says, nah - he just does essentially what Jim Clarke says (previous post). (Not sure, maybe Sanborn?? of Oakmark fund???) So far, as I read comments back to you, you are getting what you asked for - good ideas and suggestions. (From me you get something different -g-.) I don't see where the posters flat out state that this is a method that they themselves actually use or recommend that someone employ. My sarcasm stands as my advice. It's advice that works (after the point where someone goes broke -g-). My paradigm is that I believe if I want to make money, I have to do the things that successful people who have gone before me have said works. That means - you are correct - no shorts as small component of an overall portfolio -. Not to say I won't take a flyer (short position) every now and then, but no conscious hedging long and short. Let me try a different way. Having a 10-15% portfolio that is short IS to me entirely logical and reasonable. It should offset some risks as the market rises or offset some losing positions, and it give some comfort in these turbulent times. It should work out okay. But it doesn't (at least for me and about 90% of other people (I've read somewhere) who've tried this. Of course, who cares what I say or do? But when proven value players avoid these types of machinations, then there IS something to be gleaned. I don't know why it doesn't work but it does not. Maybe because they are two different mindsets. Maybe because it's too diverting from the process of finding, buying, and sticking with good stocks, or maybe because it's too risky in a reactive sense. 10-15% now, but if situations change it becomes just too easy (for some anyway)to go 10-30 percent - like if the market rises to even further highs or if stocks start dropping (jump on 'em as shorts). Since this conclusion - folly for most people of shorting,using puts as a pursued technique in portfolio management - is counterintuitive, it must be experienced before being understood and absorbed. Therefore IMO, most people HAVE to try it and lose money before they understand this. Then they can cease and move on. My disdain is somewhat less than utter about finding value stocks. Everyone on this thread I'd guess has, or is finding, value stocks. I'm saying there is NO lack of them. Unlike everyone else apparently, I am finding MANY, maybe too many. You should have read that I am quite worried that I am in the minority, and that I might be very wrong in what I am doing . But I have a method or methods of sorts, and I am trying to follow it (them). At this point it's not about buying net-nets. Graham's rules (per Intelligent Investor, 1974) also allow several other methods. These opportunities still seem to be available. IMO.

To: valueminded who wrote (3273)	2/22/1998 11:27:00 PM
From: Scott Mc	Respond to of 78510

Chris, Re shorting, can't say that I've ever done any naked shorts(usually just hedging againsts converts), however if I had the courage of my convictions it seems to make perfect sense to buy a cheap stock in an industry and sell an expensive one. Anyway I see you on Mr Pink's thread who comes up with short idea's from time to time. He seems to do pretty well and lets face it the entertainment value is priceless. Scott IMHO unless you are hedging the short, in the long run you have the natural bias of the market to rise against you as well as the odds. (on a short your maximum gain is 100% vrs the maximum loss as unlimited)(The house odds will get you in the long run)