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Sometimes the Best trade is doing Nothing

May 20, 2011 2:34 PM ETBKS, BAMM
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Seeking Alpha Analyst Since 2010

Brett is an independent trader who specializes in closed-end fund investing, an area he believes is the most inefficient part of the securities markets. He also takes long/short positions in companies he believes to be extremely under/over valued. Brett is fascinated with the way investors consistently seek short-term, incremental profits at the expense of long-term, extreme losses.

Yesterday, When Barnes and Noble was trading at $14, I saw that it had risen from the high-single-digit prices on no apparent good news, so I was thinking very hard about shorting it.  Aside from the nook, the future of bookselling doesn't look so bright, and why would I buy a money losing company like BKS when a profitable bookseller, Books-A-Million (BAMM) is trading at .6x's Book Value and 7x's Earnings.  My trade would have been long BAMM, short BKS.
I saw that the short interest in this name was 70% of the float, so I thought that I could get short this name at higher levels when the final leg of the short-squeeze played itself out. It did not occur to me that any takeover offers were coming because BKS had previously put themselves up for sale, but no bidders came. Luckily for me, I did nothing yesterday, and when I woke up this morning to BKS up $4, it reminded me that being cautious, patient, and objective is a good strategy for all investing, but especially for short selling.

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