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

To: Paul Senior who wrote (3279)	2/21/1998 2:23:00 PM
From: kolo55	Read Replies (1) \| Respond to of 78505

Very interesting posts- I pretty much agree. I think it is possible to find shorts and make money shorting, but it takes a whole different mind set and even more hard work and energy. Since most investors, including some of the best SI investors, don't put enough time and effort into researching and understanding longs, i doubt many could do the job on shorts. Another way to say it, we have a lot of role models for value investing, growth investing, etc. ...people who have consistently beat the market over a long period of time. They demonstrate the efficient market theory is not applicable to all investment strategies and/or investors (otherwise, we should all be buying index funds). It is much harder to find and emulate people who have beaten the market by using short positions. One of the most famous shorts of the nineties was McDonnell Douglas- look what happened there. The shorts got eaten badly. Having said that; 1. If there was someone very experienced, 2. Who had taken the time and effort to research various short selling strategies, 3. And examined historical evidence on the success of those strategies, 4. And who had the time and made the effort to research potential short candidates, 5. And who had access to the information on the company and industry sector to properly evaluate the extent that the stock was overvalued, then, this person might be able to find and identify some shorts that could generate 20-30% annual rates of return. Of course to really do well, the short seller needs to have access to the funds generated by the short sale, or at least receive the interest earned on those funds (instead of their broker-- remember brokers love short sellers). Also the short seller has to be constantly aware of short term news or events, ownership changes, short positions, etc that could trigger a "short squeeze". In short (pun intended), the individual short seller has the odds stacked against him, whereas the institutional and hedge fund managers have these factors giving them a decided edge. The playing field is not level. Our best advantages as small investors, is our ability to get in and out of stocks without influencing the price much, and the fact that we answer only to ourselves (and our spouses). These advantages can be used effectively to gain advantage over the fund managers for the dedicated small investor. Short sellers are at a disadvantage to the professional short sellers and hedge managers. If one was going to short sell, I recommend taking a sector, and thoroughly investigating all the stocks you can in that sector. You may find some where the valuation is particularly out of line. As you know, I did this with the ECM sector last year, and found two possible shorts, Centennial Technologies and Sigmatron. For your amusement, I'll post several relevant links: Message 796172 Message 799043 Message 931734 Message 959418 I never did short these stocks though. Short selling takes a lot of time and effort. On the two stocks I just mentioned I spent over 400 hours researching, and still wasn't willing to short. BTW- Have you read Barron's very unfavorable article on Exide this week? Its in the Follow-Up section. Paul