Jolly_Rancher

What to Short When the Rally Dies

You can pretend to say you have no interest in what happens to companies after you short their stock, but you're only kidding yourself.

What would your reaction be if you found out that Obama had shorted millions of shares of SPY last January and covered in March making a huge profit? You might say that's different because he's in a position to materially affect the outcome and therefore it would be considered insider trading. Or you might say that as America's leader, it's inappropriate for him take a position that benefits from the weakening of America's economy. Both would be correct. But what if he responded that he had no hopes or real interest in the underlying companies or the economy; it was a cool calculated trade; left his hopes and troubles in the old kit bag and smiled. I think you know what the American people would say; and the Congress, and the press. The fact is you're wrong. When you go short, you express your interest. You are your actions, not your beliefs.

As for bond manipulation, you are correct. But rarely is it a meaningful issue in BBB+ or better, munis, US treasuries. I collect the coupons, then face value. The real manipulators like the to take money from the hyper traders who infest the stock market. And it's so easy because A) the game is rigged; and B) hyper traders are nothing more than compulsive gamblers who are losers almost by definition.

Really, I have no problem with hoping that people fail in some circumstances. For instance, let's say you have a new technology for the production of shoes and you get the capital to start a shoe factory. By doing so, you are hoping to take over the shoe business which would invariably cause great economic hardship for other shoe manufacturers. Who cares? I don't. The difference is that you are providing a better shoe at a lower price for consumers. As your business grows you might even hire your competitors' employees. This is the nature of capitalism. But leveraging long positions 40:1 or shorting stock creates no economic value, esp. in the case of collusion. It's purely destructive.

On Apr 18 01:36 PM mikesa69 wrote:

> Jolly,
> Hoping that America's economy recovers and being realistic with your
> money can and should be mutually exclusive. Saddling your investment
> strategy with your hopes is just plain stupid.
>
> I indeed hope that America recovers. But over the past year I've
> been net short in a majority of my trades. That's the reality, and
> it doesn't make me hate America. In fact I'm a true patriot.
>
> When the bafoons in CONgress and the usurper obama stop f&&king
> with everything, then maybe our mutual hope for America's greatness
> will actually have some corellation to proper investing theses.
> Until then, have fun with those "safe" bonds of yours. Yeah, like
> there's never any manipulation in those securities. Ha!

What to Short When the Rally Dies

You may sell anytime you like and I have no problem with that. But don't look to the tax code for support. And don't expect company policy to treat you the same as long term holders. There's no law that states all investors have the same rights. Corporate payout policy can change by fiat. Germany has a law similar to the one I propose: short term traders get no tax break on losses.

On Apr 18 01:34 PM Baboon wrote:

> These are the changes I would make in the markets to

What to Short When the Rally Dies

If my bonds are risky, your stocks are twice as risky. But look at long term returns: 5-9% bonds, 6-10% stocks. Not really worth taking more risk.

A stable secondary market is important to the company because it fosters shareholders with a long term vision. Investors that play the "auction" by intentionally destabilizing it don't have a long term vision. These are the changes I would make in the markets to improve the "auction" by fostering long term vision: 1) No margin allowed. 2) No short sale allowed. 3) Set long term capital gains tax to ZERO. 4) Dividends (incl. extraordinary) payable only to long term holders. 5) Net short term capital loss not deductible from taxable income, only long term capital loss.

I don't like the games (both long and short) that are played with stocks. Take the hyper traders out of the equation. Investment houses that allow naked short selling or unlimited sales day trade or 80:1 leverage on long positions are ruining the secondary market. How would you like to participate in an auction that is rigged with groups of cooperating players? Welcome to the stock market.

BTW, in 2008 my long stock positions were up 10%. The very same longs are up 20% for 2009. I bought and held, but I had to hold through some pretty wicked declines and I had to average down. The way I see it is, I bought the company when I bought the stock. I didn't buy a piece of paper to resell. Would I have done that with 95% of the stocks out there. Never. One criteria must be satisfied before I buy a stock; management must own at least 40%. The next criteria is low debt. The next is a real product and vision for that product. Finally, there must be almost no interest in the stock from investment houses. That leaves me a very short list.

What to Short When the Rally Dies

I read an article recently that the Dow is worse off because it dropped its losers since inception. Would have been better off not changing components. There is no upward bias. The same people who pick those stock are just as flawed as anyone else.


On Apr 17 05:54 PM Moon Kil Woong wrote:

> Just look for companies with no revenue growth and negative cash
> flow. Up or down these are usually dogs. Since indexes are pretty
> much developed to have a long term upside bias (they purge bad stocks)
> and mitigate volatility and protect against loosing all your money
> shorting them is not a good long term strategy.
>
> If you want to bet down I suggest people do a lot of good fundamental
> research, not punt the general market volatility. Yopu only do that
> to hedge.

What to Short When the Rally Dies

I'd short AAPL. Cult following; torpedoed consumer; mostly crummy products, a few good ones; Steve Jobs retires. Bang! Nothing left of it. But I agree with a previous poster: where do you short it? 140? 150? Then again, I don't short stocks. When you're short, you're hoping America goes down. It speaks to the kind of person you are.