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Author: TMFTwitty Big funky green star, 20000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 44593  
Subject: The Art of Shorting Date: 8/11/2004 3:47 PM
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http://www.fool.com/news/commentary/2004/commentary04081104.htm?ref=btp
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Author: donv Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38749 of 44593
Subject: Re: The Art of Shorting Date: 8/11/2004 8:36 PM
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this article is a joke, it's LTBH in reverse, don't buy a short unless you can hold it 20 years gimme a break. Must be another short seller out there TMF could interview, how long did it take TMF to find a short seller that believes in LTSH. On top of it he talks of holding JNPR as it went against him for 150 points, who cares if it worked out in the end, no way to know that at 330 and what about the margin calls as it moves higher. Anyone that holds a losing position that large is a wipe-out waiting to happen long or short. If you want to gamble on 150 point losses buy some put leaps at least your risk is defined and if it's not working after 7-12 months time to admit your wrong and move on.

dangerous, dangerous information in that article, yet another TMF article with no exit plan once you take a position no matter how bad it gets. Very sad after all the pain from fool advice in 99-2000 not to mention the current mini bubble that is murdering followers yet again, KKD comes to mind.

I will give TMFTwitty some credit for having the guts to post that link over here although it is obvious he hasn't read many posts here.


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Author: YellowFinn Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38750 of 44593
Subject: Re: The Art of Shorting Date: 8/11/2004 9:43 PM
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this article is a joke

I agree, don. It would be funny if it weren't so sad and likely to mislead another crop of newbies.

This is classic:

The second thing, again, to manage the risk of the short, is you really want to be able to handle at least a double in the price after you short the stock. You want to run a test, you've really got to stick with it with a short. You don't want to bail. Well, I guess you could bail out and take the short-term loss, but you really don't want to be forced to sell out at a ridiculously high price. You want to stick with it.


This shows a pretty terrible grasp of the concept of "managing risk"!

The only glimmer of reasonableness I could find was this:

When you're short and the stock goes up, it's a bigger part of your portfolio. But I don't think that that argues for not shorting, I think that argues for being careful how you short.


This at least in spirit debunks that myth of shorting that "you could lose an infinite amount of money!" Of course then he goes on to describe what he means by "being careful how you short" and it is totally misguided.

Sad irony that I get a pop-up when I go to the article titled "Wanted: $30 stock for $15! - TMF Hidden Gems..." or some such nonsense. Hard to believe how little they have learned, in fact they appear to me to have gone in the other direction. To me the lesson is their fear of being wrong prevents them from ever seeing things as they really are...

Good to see you keeping things alive here and there on the old boards, don. Happy trading!

Tim

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Author: grier22 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38751 of 44593
Subject: Re: The Art of Shorting Date: 8/11/2004 9:59 PM
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the author's Columbia bio doesn't list any trading or money managment experience, he sounds like an academic.

"So suppose I'm going to short something like -- this is actually a short I did; I really don't invest much myself -- Juniper (Nasdaq: JNPR)..."

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Author: donv Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38752 of 44593
Subject: Re: The Art of Shorting Date: 8/12/2004 4:26 AM
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Good to see you keeping things alive here and there on the old boards, don. Happy trading!

============

Tim you hit it right on the head, I'm not sure they even know they are wrong. They believe that is the way things should work. Tells me they haven't done much shorting with real $money.

Thanks doing well back to trading full time again, lots of weird eclectic postions, from commodities to index spreads and everthing inbetween. BTW first time I've seen you post in awhile, must be slow at the farm, or maybe time to go after those home builders:)

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Author: donv Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38753 of 44593
Subject: Re: The Art of Shorting Date: 8/12/2004 4:34 AM
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the author's Columbia bio doesn't list any trading or money management experience, he sounds like an academic
===========
well at least he has a day job that will keep him in food and shelter. I hate repeating myself but the thought of shorting JNPR at 180 holding it to 330, I just can't imagine anyone doing that under any conditions.

I guess it's "the market is wrong I'm right" shorting strategy and what makes it nice we need no stops at least not now because we are holding this puppy 19 more years at a minimum

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Author: TMFTwitty Big funky green star, 20000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38754 of 44593
Subject: Re: The Art of Shorting Date: 8/12/2004 9:36 AM
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I will give TMFTwitty some credit for having the guts to post that link over here although it is obvious he hasn't read many posts here.

Just consider me as a Fox News guy (I report, you decide.) Sometimes I have to put the firesuit on, but it's always good to see contrary opinions on any subject.

Richard

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Author: ValueSnark Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38758 of 44593
Subject: Re: The Art of Shorting Date: 8/12/2004 3:05 PM
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My all-time favorite short selling story is about Robert Wilson, the former hedge fund manager who shorted Resorts International in 1978 at I forget what fairly low price (under $20) and covered at well over $100 for a loss of something like $20 M. Resorts collapsed shortly afterward and I think went bankrupt.
There's an account of this episode in John Train's book _The Money Masters_, and there were articles in the financial press at the time
and also in _Eqauire_, I think.

I can't imagine holding a short from 100+ to 330. No way, no how.

Surely the first rule on investing is to manage risk and preserve capital.

"First do no harm" applies to investors as well as doctors and other practicioners.
It's disquieting that Mr. Greenwald doesn't fathom this.

VS

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Author: YellowFinn Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38759 of 44593
Subject: Re: The Art of Shorting Date: 8/12/2004 3:18 PM
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Surely the first rule on investing is to manage risk and preserve capital.


Do you apply this same principle to your long positions?
Typical value approach is to average down at "bargain prices".
Just curious.

Tim

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Author: ValueSnark Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38760 of 44593
Subject: Re: The Art of Shorting Date: 8/12/2004 3:36 PM
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Surely the first rule on investing is to manage risk and preserve capital.


Do you apply this same principle to your long positions?
Typical value approach is to average down at "bargain prices".
Just curious.


A fair question. I try to manage it by hedging as best I can (I shorted NOK in spring 2000 as a hedge) then dumped the whole position in the summer with a small loss on the short.
My only longs now are PVN (at 3 and I've sat through the downs thinking that management will right this ship and steer it higher), COCO (at 10 last week--hey at 11 x what's not to love?), ESI (at 30 in March way down from its high and scared s*hitless, as per usual), and MCO from its spinoff (with the Sage holding 16.5, what's not to love?).

I dumped CECO at 60 with a big gain--hey better lucky than smart!
I generally like the career education stocks and -- go figure -- am getting a trading platform next week with the whole real time streaming stuff to enter the --shhhh!-- devel's den.
I just don't trust this market at allllll. Lots of cash.
Only short is NVEC. Covered the donut monster but too soon, we'll before the big blowup.

Occasionally I get a macro view into my mind that makes some sense based on Austrian Bus. cycle theory (see mises.org). In summer 2001 after reading something about 14-year stock cycles, I lightened up and shorted a few stocks thinking there might be a mini rehash of Oct. '87. Then 9/11 came.
VS


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Author: YellowFinn Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38764 of 44593
Subject: Re: The Art of Shorting Date: 8/13/2004 11:14 PM
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Surely the first rule on investing is to manage risk and preserve capital.

I shorted NOK in spring 2000 as a hedge) then dumped the whole position in the summer with a small loss on the short.

I've sat through the downs thinking that management will right this ship and steer it higher

way down from its high and scared s*hitless, as per usual

better lucky than smart!

I just don't trust this market

Occasionally I get a macro view into my mind that makes some sense

I don't understand how any of this helps you to accomplish your first rule of managing risk and preserving of capital. You mention hedging, which is one tool that can be used, but your example is one position four years ago that didn't really work out?

I'm not one to tell anyone else how to trade/invest, but you might consider trying to increase clarity, discipline, objectivity and decrease hope, luck, fear, trust/mistrust. A good way to do this is specific risk mgmt rules.

Tim

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Author: Vol Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38765 of 44593
Subject: Re: The Art of Shorting Date: 8/14/2004 9:42 AM
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I wonder why the author didn't interview some on this board? Would be nice to balance the "academic" view with some real life shorters in the trenches.

What would posters on this board have said if interviewed about the art of shorting? Seems like this guy in the article just uses valuation in his short decisions. I suspect most here use techical factors. What helps you pick a short? What criteria do you look for in a stock? How does the overall trend in the market affect your decision? What is your exit strategy? Money management techniques?

That would have made for much more interesting article.

vol

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Author: ValueSnark Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38766 of 44593
Subject: Re: The Art of Shorting Date: 8/14/2004 10:12 AM
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I don't understand how any of this helps you to accomplish your first rule of managing risk and preserving of capital. You mention hedging, which is one tool that can be used, but your example is one position four years ago that didn't really work out?

I'm not one to tell anyone else how to trade/invest, but you might consider trying to increase clarity, discipline, objectivity and decrease hope, luck, fear, trust/mistrust. A good way to do this is specific risk mgmt rules.

Tim,

But the NOK hedge did work out, as I was able to sleep at night while it was on; it was like having insurance. A person never complains about paying insurance premia even if his house doesn't burn down.

I had e-mail discussion with a friend in Sept. '98 (he's also a student of Aust. bus. cycle theory) in which we agreed that the market was stupidly overvalued and due for a massive correction at some point, but we had no clue when it would happen.

I had never shorted anything at that point, just sold stuff when I got scared enough. In '99 the market got completely whacko to the upside but I sold only a little. Don't know why, maybe I was like the proverbial deer in the headlights, even though intellectually I knew it was a dangerous game to be in stocks. (I was probably underperforming because my value stuff was going nowhere fast and NOK was the only thing I had remotely related to tech/telco, which is why I shorted NOK.)

In 2000, I sold some stuff and decided to dip my toe into the short selling waters by hedging the NOK postion. (Btw, for a shorting newbie, I think shorting as a hedge only is a great way to test the waters just to get comfortable with the short side.)

In the summer of 2000 I grew increasingly uncomfortable and then dumped the whole NOK thing.

I've had a number of short positions since then and have had a lot less than a 100% net long exposure, especially lately.
Am I perfectly hedged or a role model for how to hedge? I hope not!
I'm not sure what you mean by specific risk management rules. Do you mean something like what appears at the mechanical investing board (that stuff makes my eyes glaze over)?

For example, if the S&P 500 is at a certain level relative to whatever it's fair value is, being x% in stocks and y% short or in cash, etc.?
I've never been comfortable with that kind of approach, and I have to admit that I wing a lot of things, which has worked reasonable well.

I think the bottom line is this: I can usually (not necessarily always) tell (or have a reasonable view of) when the market is grossly overvalued or undervalued, but at times in between, I'm a lot less sure and have little ability or interest in coming up with an algorithm/mechanical system that tells me how to steer my financial ship.
My understanding of an over-, fairly-, under-valued market is a little like the Supreme's view of pornography: I can't define it but I "know" it when I see it. I'm sort of like this with individual stocks too, although I do look at financial statements and cash flow models, such as www.valuepro.net and the one-click stock evaluator at quicken.com.

The education stocks at 40-50 x earnings were clearly overvalued and due for a fall; now they're on the bargain bin, IMO. Rumor had it the other day that the Sage was looking at Career Education, which is a cash flow generating machine, as most of these issues are.
He knows the business very well, as Kaplan has been a grand slam homer at The Washington Post.
I hope he looks at Corinthian, which is at 12 x. Hey, there's the hope again!
I can dream, can't I?

On another issue, Greenwald's view of shorting, if he saw a potential short at 100 and shorted it with a stop at 120, and it blew through that bound for 200 (stop at 220) and later 300+ (330), why wouldn't he use the stops, which presumably preserve much of his capital?
At some point, like 330, the stock would eventually fall back to earth.
I use mental stops btw, especially for shorts. You can always come back another day as long as you have some capital to stay in the game.
VS






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Author: ValueSnark Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38767 of 44593
Subject: Re: The Art of Shorting Date: 8/14/2004 10:21 AM
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vol,

I agree with your comments. Hopefully, the Fool will interview some more short sellers, maybe Chanos and others.
I'd love to see an interview with Robert Wilson about his experience with Resorts and how he dealt with it emotionally, etc.
Some other people from the 60s and 70s (Steinhardt et al.) must have lots of interesting experiences to talk about too, from which Fools could learn a lot.
VS

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Author: YellowFinn Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38768 of 44593
Subject: Re: The Art of Shorting Date: 8/14/2004 11:37 AM
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I have to admit that I wing a lot of things

This statement is in direct contradiction to your prior statement that "managing risk and preserving capital" are your first priority. I doubt we are going to have much useful to say to each other if you don't see this basic contradiction.

have little ability or interest in coming up with an algorithm/mechanical system that tells me how to steer my financial ship.

It doesn't have to be mechanical, but it does have to be definable. The reason most people don't do it IMHO is that then they would have to take responsibility rather than seeking refuge in hope and fear.

I hope he looks at Corinthian, which is at 12 x. Hey, there's the hope again! I can dream, can't I?

Of course, but you should realize that it will cloud your decisions about when to buy and when to sell. And therefore it will cost you money. And no one knows how much because you haven't defined your risk. Every dollar COCO goes lower erodes your capital, but at the same time feeds your hope that at this "bargain price" some big fish will rescue you. Basic contradiction.

I use mental stops btw, especially for shorts.

Why "mental" and why "especially"? You either use stops or you don't. From the way you phrase this I'm going to guess you wish you used stops but you can never/rarely get yourself to actually execute when the time comes.

why wouldn't he use the stops, which presumably preserve much of his capital?

The same reason you probably don't, because you fear missing out on the eventual move in your direction. It boils down to hope/greed and fear.

Tim

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Author: ValueSnark Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38769 of 44593
Subject: Re: The Art of Shorting Date: 8/14/2004 12:19 PM
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I have to admit that I wing a lot of things

This statement is in direct contradiction to your prior statement that "managing risk and preserving capital" are your first priority. I doubt we are going to have much useful to say to each other if you don't see this basic contradiction.

You overlook the context in which I made the quoted statement. It was a (hypothetical) situation that involved the catastrophic loss of capital, namely a short that went from 100 to over 300.
There is no way I would have countenanced that in my own portfolio, even without a pre-defined stop with the broker.
There may be a contradiction between my statement (but there may not be), as I see no *necessary* contradiction between the two. After all, Mr. Magoo was adroit at avoiding accidents.

It doesn't have to be mechanical, but it does have to be definable. The reason most people don't do it IMHO is that then they would have to take responsibility rather than seeking refuge in hope and fear.

I usually use a mental stop of about 15%. Is this good enough?
Your second statement, which to me is neither meaningful nor helpul to any sort of rational discussion, reminds me of a lot of stuff a flamer named dbphoenix says on the CANSLIM board.

I hope he looks at Corinthian, which is at 12 x. Hey, there's the hope again! I can dream, can't I?

Of course, but you should realize that it will cloud your decisions about when to buy and when to sell. And therefore it will cost you money. And no one knows how much because you haven't defined your risk. Every dollar COCO goes lower erodes your capital, but at the same time feeds your hope that at this "bargain price" some big fish will rescue you. Basic contradiction.

1. My statement was meant to be humorous and you are taking it far too seriously.
2. Why will it cost me money? I bought COCO at a bit over 10 and it's a bit over 11. I never owned it before. How'd the market do the last two weeks, Tim? Was it up 10%?
With a 15% mental stop, I'd be taken out at 8.50. How have I not defined my risk? Every dollar COCO goes lower erodes my capital?
I've got a gain so far, in contrast to the the market of the last two weeks. Why do I need to be rescued by "some big fish"?
I'm a big boy, Tim, and I can take care of myself.

Your last two statements are incredibly presumptuous. You may be right in saying we are not going to have much useful to say to each other.
VS










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Author: YellowFinn Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38770 of 44593
Subject: Re: The Art of Shorting Date: 8/14/2004 3:12 PM
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You may be right in saying we are not going to have much useful to say to each other.

yep.

Tim

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