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

To: Ron Bower who wrote (3278)	2/21/1998 3:07:00 PM
From: Michael Burry	Respond to of 78512

Shorts are logical ways to use cash, IMO. If most of the portfolio is long, it is just a hedging mechanism. I've had success with it in the past, so maybe I am overconfident. I strictly do not margin greater than the account value, but I am not against covered writes or selling puts. I've played options, futures, you name it. I'm young, but I've tried a lot, and value investing is the way to go no doubt. But it doesn't preclude sensible shorts or options strategies. The idea is not to write off whole investment areas and to keep one's mind open to possibilities. I've tried to do that, and it's put me in a pretty good position investments- wise over the last few years. Re: how to short, I use technical analysis combined with weak fundamentals going forward. I shouldn't admit it, but hey, I use it. I used this on Netscape at 55, but covered too quick. I feel certain technical analysis does lend insight into psychology, which is what drives successful shorts IMO. I am of course wary of getting caught on the wrong end of an overhyped stock, but I use quick stop losses, which got me out of Autodesk for instance before it moved up. It's a tricky game, but no more so than arbitrage. I think the same principle applies in the shorts game - calmer heads prevail. This opinion may change as I get more experience with them. I'm still looking, and I've got lots of overvalued candidates, but no great technical shorts yet. If both criteria aren't there, I won't do it. Maybe I should reveal my resolutions for investing in 1998 and beyond: 1) Write up rules and stick to them - you all saw that in the Out of Sight Value article, although my version is 2500 words, not 1300. I review them with every stock. Insider trading (esp at these market heights) seems a logical marker for me, and I am using it more, as you can see with my recent opinions on BMC, Tricon and Nike. 2)Don't over-concentrate or over-diversify. All the studies I've seen say that you can be properly diversified without diluting stock picking ability with 8-12 stocks across different industries. Now I consider initial full initial positions to be 12% or less. My 6 stock and less portfolios were too wild and got me too emotionally involved in stock movements. 3)Before selling, figure out all the costs of switching stocks, do the math, and think about taxes. This year, I am using my financial calculator in every situation I come across, even buy-sell decisions. It's another way to remove emotion. The net result is that my turnover is way, way down. 5) Continue to keep an open mind and try new things. Discipline, low turnover, and the proper concentration were what I needed, and it's working so far. Now that I see the market is ignoring Asia again, I'm keeping my mind open for ways to profit. Hence the short idea. Good Investing, Mike