{"id":14089,"date":"2012-07-26T09:01:26","date_gmt":"2012-07-26T13:01:26","guid":{"rendered":"http:\/\/www.technologyinvestor.com\/?p=14089"},"modified":"2012-07-26T09:47:54","modified_gmt":"2012-07-26T13:47:54","slug":"a-primer-on-shorting","status":"publish","type":"post","link":"https:\/\/www.technologyinvestor.com\/?p=14089","title":{"rendered":"A primer on shorting"},"content":{"rendered":"

The economy is not doing well. Some parts of the economy are doing just plain awful. The economy is also changing structurally. Examples: online shopping is devastating bricks and mortar retailing. Cheap natural gas is fast replacing coal. New government regulations are hurting many industries, e.g. coal and banking. Tastes are changing as new companies introduce products that quickly become popular and devastate the existing leader (e.g. the iPhone v’s the Blackberry).<\/p>\n

These trends mean that in today’s world, it is easier to pick shorts than longs. Hence every diversified portfolio needs shorts. I have pushed shorting in recent months, replete with lists. We’ve done well shorting, including our latest BIG accomplishment – RadioShack (RSH). Yesterday RSH dropped 29% to an all-time low of $2.60 after it reported a second-quarter loss and suspended its dividend. The stock had peaked in 1999 at $78.50.<\/p>\n

There are “issues” with shorting:<\/p>\n

First, you have to accept that it’s not unAmerican to short some stocks. If the stock is going to fall, there’s no reason you shouldn’t benefit.<\/p>\n

Second, you have to figure\u00a0 a “logic” that suits you. You need to figure how to find and pick stocks to short. The lists you’ll find on this column are not the final arbiter of what’s the best — though they’re a good beginning.<\/p>\n

Third, you need to figure the size of your shorts and how much exposure you want. This depends on your “faith.” For example, the size of my short in RadioShack is much larger than my short in Research In Motion (Blackberry). There was always the nagging thought that some fool might buy RIMM the company for its “assets.” But I knew nobody would want RadioShack.<\/p>\n

Fourth, you have to watch your shorts hawklike and be prepared to cover quickly if your shorts suddenly go against you, i.e. the stocks start rising. But you also got to have faith. I recommended shorting Arch Coal (ACI). Pretty quickly after my recommendation ACI started rising. I was losing money and one of my readers ripped into me (on the Comments below) saying how could anyone believe Harry, since ACI was rising. This reader (Fred789) had gone long when Harry said to go short. And wasn’t he, by definition, a genius and Harry an idiot? Subsequently, ACI fell. My ACI short is now in the money. Yet Fred789 says he’s still making money because he bought when the stock was cheaper. Sadly, it has never been cheaper recently. But what do I know?<\/p>\n

So what to short today? You’ll find my old big list here.<\/strong><\/a> But…. this morning Business Insider<\/em> (which is a super site) published “The 16 Biggest Mass Layoffs of the Year.<\/strong>” It seems to me that if you fire a lot of your people you’re probably not doing well. So, drum roll, here’s their list, along with my own charts.<\/p>\n

Archer Daniels Midland. ADM. 3.9% of workforce cut.<\/p>\n

\"\"<\/a><\/p>\n

Citigroup. C. 0.5% of workforce cut.<\/p>\n

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Cisco. CSCO. 1.8% of employees cut.<\/p>\n

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Kraft Foods. 1.3% of employees cut.<\/p>\n

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Yahoo. YHOO. 14.2%<\/p>\n

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First Solar FSLR 28.6%<\/p>\n

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Boeing. BA 1.3%<\/p>\n

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Supervalu SVA 1.9% (This one has been on our list for a while)<\/p>\n

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Best Buy BBY 1.7%<\/p>\n

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Research in Motion RIMM 30.3% (Long on our list.)<\/p>\n

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Pepsi PEP 2.9%<\/p>\n

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IBM 2.1%<\/p>\n

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Lockheed Martin LMT 8.1%<\/p>\n

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American Airlines 17.7% In bankruptcy. Too late for shorting.<\/p>\n

Hewlett-Packard HPQ 7.7%<\/p>\n

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United Continental UAL 1.5%<\/p>\n

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More coming in a minute. These charts take time — Harry.<\/p>\n

Florida bursts with new opportunities. <\/strong><\/span>The idea is foreclosures are happening, prices are cheap and eventually the properties will be come back in price, as they always do. Hence, the world and their uncle are forming funds to buy houses at foreclosures. One fund summed the opportunities:<\/p>\n

Why are there opportunities at foreclosure auctions?<\/p>\n

+ Small pool of buyers due to cash only terms<\/p>\n

+ Auction rules require advance capital in Clerk of Court account which can only be replenished with 24 hours notice<\/p>\n

+ Bank errors and mispricing often result in low acquisition prices<\/p>\n

+ The foreclosure of a priority position lien sometimes creates equity post foreclosure where none existed prior to foreclosure<\/p>\n

\u0007 + Acquisition cost at foreclosure auctions result in cap rates that are significantly above market rates<\/p>\n

14 second video is hysterical.<\/strong><\/span> Two German children demonstrate the table cloth trick.<\/p>\n

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You’ll die laughing. Click here.<\/a><\/strong><\/p>\n

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\n<\/strong><\/div>\n

Harry Newton who figured why dollar stores are booming:<\/p>\n

\"\"<\/a><\/p>\n

The bottle on the right costs $3.50. The one on the left costs $1. and actually has one ounce more gunk (33 versus 32). And you’re still buying Windex?<\/p>\n","protected":false},"excerpt":{"rendered":"

The economy is not doing well. Some parts of the economy are doing just plain awful. The economy is also changing structurally. Examples: online shopping is devastating bricks and mortar retailing. Cheap natural gas is fast replacing coal. New government regulations are hurting many industries, e.g. coal and banking. Tastes are changing as new companies […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-14089","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/14089","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=14089"}],"version-history":[{"count":0,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/14089\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=14089"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=14089"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=14089"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}