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Strategies & Market Trends : A.I.M Users Group Bulletin Board -- Ignore unavailable to you. Want to Upgrade?

To: LemonHead who wrote (6808)	2/9/1999 8:10:00 AM
From: JZGalt	Read Replies (1) \| Respond to of 18928

Think your COMS on your example page may have some merit… marketplayer.com marketplayer.com The above are two other charts on COMS. Keith, can you tell what I like about the charts? Great folks make great discussion, keep it coming………… Tom told me this was the nicest thread on SI when I first started to post. I'd have to agree with him. Even in the darkest days of last October there were none of the finger pointing about selections that infiltrated the other lists. ---- Dave

To: LemonHead who wrote (6808)	2/9/1999 2:53:00 PM
From: OldAIMGuy	Respond to of 18928

Hi LH Keith, I haven't ever attempted it myself, but I did "coach" a friend on his shorting of AMZN not that long ago. Being an eternal optimist, it makes it hard for me to judge the merits of shorting a stock. However, some stocks do tempt me from time to time. In the past, I'd constructed a "Through the Looking Glass" form of AIM and examined the short side of investing. It was this model that I used as the basis for my thoughts for Carl the Amazon Shorter! (Sounds like a WWF actor, doesn't it?) He pretty much has been following AIM on the short side with AMZN. If his broker were a bit less "full service" he'd have done better than he has so far. However, his broker has talked him out of several potentially rewarding (albeit very risky) trades. When shorting, first you have to understand that you are "borrowing" shares from some other owner to sell. Any time you borrow anything, there's a carrying cost. In Stocks, your borrowing ends up in the MARGIN account of your portfolio. So every month that you carry the short position, you pay the broker for the privilege. Hmmmmmm, already doesn't sound all that good! Now that you've chosen your favorite stock to hate and have borrowed the shares and sold them, what are you going to do? If you use AIM, it's pretty straight forward. Let's say we shorted AMZN at $150. Because of our brilliance in market timing, over the next two weeks, AMZN trades up to $199! Well, we've just managed to lose $49/share on paper! With AIM as our guide, it might be telling us to actually sell more shares short. Yes, if it was a good candidate for shorting at $150, wouldn't it be a GREAT candidate at $199? So lets assume we short an additional 15% of our initial position. Our "average" short cost is now $156+. So, it's now easier for us to break even than before. If the price now falls back to $150, we're in the "black" and hoping that it'll continue to fall. AIM will want us to "buy" shares back to close out part of our Short position at about $113. At that price we'd buy back 5% of our position and on a "FOFI" basis (First Out, First IN!) we've turned $86 per share! Now, we should take the Buy-Back value TIMES TWO and subtract it from Portfolio Control. Remember this is "through the looking glass." So, our next Buy-Back will occur at about $110, and so on. The ultimate end point of this sort of program would be when AIM had bought back ALL of the shares that have been shorted. Depending on how many steps it took, you'd be done with it by between $50/share and $60/share. It would be quite profitable, too. AIM's guided our hand for a "rational" approach to shorting a stock. Yes, it will work if you short a stock that eventually goes down. But please remember the extra carrying cost of the margin expense. It can erode the potential gains and might lessen your ability to get a good night's sleep! Best regards, Tom