Sell and Short Recommendations for a Bearish Market 6 comments
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Investors are getting bearish these days, which comes as a surprise to me, since I'm used to being in the minority. I was a bear when I first took the leap from mutual funds and started trading stocks in 1999, and am a bear still. I wish I'd turned bullish for a couple of years at what I consider to be the large bear market recovery of 2003-2006, but I didn't. However, since I was (and still am) bullish on commodities since around the same time frame, I can't complain about my returns over the period.
This spring, I was more bearish than usual, which is why I brought you my ideas for stocks to buy when you think we've hit bottom, and some very un-green stocks to consider shorting. With it becoming clearer and clearer that GM (GM), Ford (F), and Chrysler are in serious trouble from high oil prices, while the Airlines are going from bad to worse, I only wish I had been less cautious about advocating shorting these industries than I was, and also that I'd been willing to take bigger risks myself.
I've already covered by proposed short of First Solar (FLSR) in a previous performance update, but I'll also throw in the various stocks I've warned people to stay away from here.
Stocks We Love To Hate
My April 20 article on un-green stocks had the following suggestions for shorting, which I will benchmark against the 7.5% decline of the S&P 500 since then (as of the close on July 1.)
| Short idea | What I said | Performance |
| Tyson (TSN) | "the vegan investor might consider shorting" | 24.6% decline |
| China Fund (CHN) | "shorting China scares me" | 11.2% decline |
| Trucking Industry (I chose JB Hunt (JBHT), because I see their trucks all the time-- I'm no trucking expert) | "take a look at shorting long haul truckers" | up 5.1% |
| Airlines - (NWA), (DAL), and (LUV) | "we may have missed the plane on this one" - I changed my mind about airlines a week later and shorted the three stocks listed | 32% decline; 36% decline; up 4% |
| Housing Developers - (KBH) (I'm also no housing expert, but KB Home sticks in my mind as a builder who slaps them up fast and cheap. | "strike a blow against urban sprawl" | 29% decline |
| Coal (ACI) | "Don't do it." | up 24% |
| Oil (XOM) | "Don't do it." | 6% decline |
| SUVs Ford (F), General Motors (GM) | "I feel strongly enough to actually dabble in this" | 33% decline, 29% decline |
As you see from the chart above, the sector I said I was shorting myself was down about 30%, and the sectors I said people should consider shorting were down and average of 13.3%, slightly more than the 7.5% decline of the S&P, although there was a wide variation between the different companies chosen. The three I suggested were bad ideas to short (China, Coal, and Oil) included the biggest gainer I talked about (Coal) and the other two roughly matched the index, so I'm pleased with the performance of these ideas as a whole, and not to mention my auto and airline shorts.
Pink Sheet Stocks to Avoid
I've also come out against a few pink sheet stocks which caught my attention (usually because a PR person sent me one-too-many press releases.) I'll benchmark these against the iShares Russell Microcap Index ETF (IWC) from the dates of the original stories. IWC is not a great benchmark, because even microcaps are considerably larger than these tiddlers, and there is no energy emphasis, but I know of no existing index of tiny, non-listed energy companies for comparison. Click on the company names for the original articles.
| Company | Date | Stock Performance | Benchmark |
| US Sustainable Energy (USSE) | 7/2/2007 | -72% | -27% |
| Global Resource Corp (GRBC); October 2007 Follow-up | 7/20/2007 | -56% | -28% |
| PetroSun Drilling (PSUD) | 3/15/08 | -22% | -4.2% |
All in all, it's been a good time to be short, and I'm certainly happy with my performance (although I've lost plenty of money by shorting in the past, most of it during the 2003-2006 recovery.) As I learned in studying for the level III CFA exam, it is often easier to find good ideas for shorting than it is to find good long ideas. There are fewer analysts looking for overvalued stocks than for undervalued ones, so there are more overvalued stocks to go around. If only my broker would let me short those pink sheet companies!
The End, For Now
With this article, I have covered most of the stocks I've written about in 2008, and some from 2007. (See also 10 Speculations for 2008 and 10 Stocks to Buy on the Cheap.) I plan to revisit these in 6 months or so, but if you have suggestions for other "performance update" themes, please leave a comment.
DISCLOSURE: Tom Konrad has short positions in NWA, DAL, LUV, F, and GM.
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This article has 6 comments:
Thanks for the update.
The difference between sharksm and me is that I made more money than I can spend over the last 4 months and it took him 40 years --- and that he only goes long and I only short and buy puts.
Bigpete --- GM can go to zero so there's $10 left to go.... I imagine that it will actually go to $5 and some arrogant hero private equity firm will sign up to get their teeth kicked in for the next 10 years till they learn that unions, healthcare, and future pension liabilities are not profitable for any business model.... including ones that make products that no one wants and are completely useless in an environment of $80+ barrells of oil. The airlines are similar.
In fact, I don't think these guys actually read the article, they simply became indignant that you said you shorted things. Watch out, Dick Fuld and Jamie Dimon may be next posting that your on the watch list!
Keep it up.
EX
You got in when the market was in it's heyday. I have been in about 15 years and I can wholeheartedly say I have made much more money shorting than going long. It is quite easy. i have shorted almost eevery company even goog, and appl, although these will test your nerves, but it has made me a better trader. There is nothing buy and hold anymore as I have plently of intl, csco, ge and others long that have done nothing. As a matter fo fact every long position is down, but my shorts, I have a 67% correct ratio and am up 24% for 2007 and so far up another 30% this year. It is much easier to pick the dogs than to pick the winners. It may take a year for a stock to double but only one earnings miss for it to lose 20% in a day. JBHT will be the next one to fall on Monday evening after they release their earnings. So Why should I rack my brains to figure out who has been able to lie and hide when you can see that the JBHT with a rich P/E, rising costs and an ecomomic slowdown has to report a bad quarter or at least guide down. They missed last quarter but reaffirmed guidance, but they didn't take into account 145 oil. These guys will have to guide lower, unless they out and out lie. So why can't I make some money shorting? If the economy was booming and oil was falling, hell I would be the first one going long.