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

To: Zach E. who wrote (5636)	1/3/1999 2:04:00 PM
From: Paul Senior	Respond to of 78740

Zach Eitzen: My opinion is that you never want to short a stock just because it is overvalued. Too many examples of the stock just doubling from an already grossly overvalued price. Classic example, IMO, would be Resort Int'l in the '70's - the first Atlantic City Casino I believe- and was thought to be run by the mob and thought to be a joke or scam company. A very large short position discussed a couple or more times in Barron's by Robert Wilson (his logical argument was impeccable!)- a very well known "value" investor at the time - eventually creamed him ($20 million worth I think) and all who followed him into it after reading Barron's. (aside: He claimed later that professionals read the article and bought the stock to run him out. That resulted in the common practice today of professional investors refusing to divulge publicly the shorts they have on.) More recently IOM burned plenty, I'd guess. Probably DELL too. With overvalued stocks, we think these stocks will eventually regress. (Although as mentioned here by Wayne Crimi -- that's a dangerous assumption because sometimes earnings can indeed rise to support the 'overvalued' price). What's needed, IMO, is some methodology that can be shown to have some high likelihood of success. I don't know of any such - possibly it would link factors such as insider sales, recent stock splits, rate of change in stock price over stock's beta, % drop from high. This would be for only a small amount of an investor's money -- fun money maybe. As I've posted here many times- IMO shorting is a strange and dangerous and insidious game. It really should be left to either very sophisticated investors or very inexperienced beginners. (It's really the only way for a beginner to understand how insidious- once he/she's tried shorting a few times.) Paul Senior