Comments on: Why shorting is no good http://www.contrarianvalueinvesting.com/2008/08/10/why-shorting-is-no-good/ Contrarian Value Investing At Its Finest Wed, 03 Feb 2010 03:24:06 -0600 http://wordpress.org/?v=2.8.6 hourly 1 By: Vooch http://www.contrarianvalueinvesting.com/2008/08/10/why-shorting-is-no-good/comment-page-1/#comment-754 Vooch Fri, 15 Aug 2008 02:51:39 +0000 http://www.contrarianvalueinvesting.com/?p=107#comment-754 Shorting is for experts who know what they are doing. Afterall, the majority of people who short stocks, are seasoned professionals. The general public is too afraid to short. Maybe some day, you'll learn how to short stocks. - Vooch Shorting is for experts who know what they are doing. Afterall, the majority of people who short stocks, are seasoned professionals. The general public is too afraid to short. Maybe some day, you’ll learn how to short stocks.

- Vooch

]]> By: Sivaram Velauthapillai http://www.contrarianvalueinvesting.com/2008/08/10/why-shorting-is-no-good/comment-page-1/#comment-744 Sivaram Velauthapillai Wed, 13 Aug 2008 01:48:08 +0000 http://www.contrarianvalueinvesting.com/?p=107#comment-744 As far as I know Buffett only used charts when he was a teen. Buffett said he started out reading charts--he actually said he tried many methods--but gave that up after realizing it didn't work. Basically when he read the Intelligent Investor, that was the beginning of the end of everything else. If he did use charts in the 50's, which would be when was an adult I think, that would be news to me. Having said all that, I think Buffett and others did short sell stocks. At a minimum, they took long-short arbitrage positions so they would have shorted for that. Short selling is fine; it's just that Keyne's words are hard to overcome: market can stay irrational longer than you can stay solvent. As far as I know Buffett only used charts when he was a teen. Buffett said he started out reading charts–he actually said he tried many methods–but gave that up after realizing it didn’t work. Basically when he read the Intelligent Investor, that was the beginning of the end of everything else.

If he did use charts in the 50’s, which would be when was an adult I think, that would be news to me.

Having said all that, I think Buffett and others did short sell stocks. At a minimum, they took long-short arbitrage positions so they would have shorted for that.

Short selling is fine; it’s just that Keyne’s words are hard to overcome: market can stay irrational longer than you can stay solvent.

]]> By: Dividend Growth Investor http://www.contrarianvalueinvesting.com/2008/08/10/why-shorting-is-no-good/comment-page-1/#comment-743 Dividend Growth Investor Wed, 13 Aug 2008 01:15:36 +0000 http://www.contrarianvalueinvesting.com/?p=107#comment-743 Alex, I am sorry for the misunderstanding. I meant that as a value investor its tough to be short stocks because usually its more difficult to short shares because people can get irrational. I read on Geoff Gannons blog that Ben Graham tried shorting stocks which appeared overvalued, but he wasn't as successful as buying undervalued stocks. In my fundamental stock screening I don't recommend shorting, just staying away from a stock. As for chart reading, I swear I read somewhere a quote from Buffett saying that he did use charts some time in the 1950's. Alex,

I am sorry for the misunderstanding. I meant that as a value investor its tough to be short stocks because usually its more difficult to short shares because people can get irrational.
I read on Geoff Gannons blog that Ben Graham tried shorting stocks which appeared overvalued, but he wasn’t as successful as buying undervalued stocks.
In my fundamental stock screening I don’t recommend shorting, just staying away from a stock.

As for chart reading, I swear I read somewhere a quote from Buffett saying that he did use charts some time in the 1950’s.

]]> By: James Cullen http://www.contrarianvalueinvesting.com/2008/08/10/why-shorting-is-no-good/comment-page-1/#comment-742 James Cullen Tue, 12 Aug 2008 23:11:29 +0000 http://www.contrarianvalueinvesting.com/?p=107#comment-742 I think this misses the real point about the valued-added nature of short positions in a portfolio; they can allow you to decouple returns from a broad stock index, and while I'm not a real believer in MPT, this kind of simple hedging can have a lot of value for funds targeting low-vol returns. And FYI... there are pure-fundamental short sellers (i.e. Jim Chanos at Kynikos)... I think this misses the real point about the valued-added nature of short positions in a portfolio; they can allow you to decouple returns from a broad stock index, and while I’m not a real believer in MPT, this kind of simple hedging can have a lot of value for funds targeting low-vol returns.

And FYI… there are pure-fundamental short sellers (i.e. Jim Chanos at Kynikos)…

]]> By: alexg http://www.contrarianvalueinvesting.com/2008/08/10/why-shorting-is-no-good/comment-page-1/#comment-740 alexg Tue, 12 Aug 2008 20:33:53 +0000 http://www.contrarianvalueinvesting.com/?p=107#comment-740 DGI: "fitable short seller one has to use technical charts, stop loss orders and have a traders mentality." Most value investors including myself have no idea how to use or read a technical chart and are very unfamiliar with most terms. Also, most value investors are trying to get away from a traders mentality. Siv, Spot on, I could not agree with you more DGI:
“fitable short seller one has to use technical charts, stop loss orders and have a traders mentality.”

Most value investors including myself have no idea how to use or read a technical chart and are very unfamiliar with most terms. Also, most value investors are trying to get away from a traders mentality.

Siv,
Spot on, I could not agree with you more

]]> By: Sivaram Velauthapillai http://www.contrarianvalueinvesting.com/2008/08/10/why-shorting-is-no-good/comment-page-1/#comment-739 Sivaram Velauthapillai Tue, 12 Aug 2008 19:43:46 +0000 http://www.contrarianvalueinvesting.com/?p=107#comment-739 Shorting is definitely tough as you point out. Anyone who started shorting the financials a bit too late (like 2 weeks ago) got slaughtered, with some of hte distressed ones like the monoline insuers up 300% to 500% in one month. It's even more difficult for value investors who generally don't rely on technicals, use stop losses, and so forth. Even if you are right with your call, you may not survive long enough. Marc Faber said one of his worst mistakes was shorting the NASDAQ back in 1999. His call was right but he had to sell out with huge loss because bubbles can keep going up long than you can remain solvent. I'm quite skeptical of value investors who sell short. Many such as Walter Schloss (tech), Prem Watsa (credit), and William Ackman (credit) have been successful over the years. But I always feel like they are crossing the line and going more towards speculation with their bets. I also find it bizarre whenever someone like David Dreman raises the possibility of short selling. Shorting is definitely tough as you point out. Anyone who started shorting the financials a bit too late (like 2 weeks ago) got slaughtered, with some of hte distressed ones like the monoline insuers up 300% to 500% in one month. It’s even more difficult for value investors who generally don’t rely on technicals, use stop losses, and so forth.

Even if you are right with your call, you may not survive long enough. Marc Faber said one of his worst mistakes was shorting the NASDAQ back in 1999. His call was right but he had to sell out with huge loss because bubbles can keep going up long than you can remain solvent.

I’m quite skeptical of value investors who sell short. Many such as Walter Schloss (tech), Prem Watsa (credit), and William Ackman (credit) have been successful over the years. But I always feel like they are crossing the line and going more towards speculation with their bets. I also find it bizarre whenever someone like David Dreman raises the possibility of short selling.

]]> By: Dividend Growth Investor http://www.contrarianvalueinvesting.com/2008/08/10/why-shorting-is-no-good/comment-page-1/#comment-737 Dividend Growth Investor Tue, 12 Aug 2008 14:51:45 +0000 http://www.contrarianvalueinvesting.com/?p=107#comment-737 Alex, In order to be a profitable short seller one has to use technical charts, stop loss orders and have a traders mentality. In addition to that you have to check the sentiment on the stock. If everyone is bullish then you can short more safely than when everyone is bearish yet the stock keeps on climbing.. Alex,

In order to be a profitable short seller one has to use technical charts, stop loss orders and have a traders mentality.
In addition to that you have to check the sentiment on the stock. If everyone is bullish then you can short more safely than when everyone is bearish yet the stock keeps on climbing..

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