Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Should You Short Stocks? Here's How, Along With Four Suggestions...

Companies / Company Chart Analysis Jun 18, 2012 - 07:24 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleKeith Fitz-Gerald writes: With Europe on the ropes and the U.S. economy in shambles, it's important to remember that there are two sides to every trade.

Tapping into upward momentum alone is not the only way to profit. Markets can and do head south on a regular basis. Investors who fail to grasp this are leaving a lot of money on the table.


How much?

Nobody knows for sure. But stories about famous traders like George Soros who broke The Bank of England and reportedly scored a cool $1 billion profit abound.

People also speak in awe of John Paulson who made billions off the housing crisis and about Doug Kass of Seabreeze Partners who is about as gutsy as they come when it comes to making hay when the sun doesn't shine.

If you've never heard the term before - and many investors still haven't - shorting stocks involves selling stocks before you buy them and profiting as they drop.

Why would you do that?

Shorting overvalued stocks can lead to profits when others are crying in their beer. It's a way to keep you fully invested or otherwise in the game, especially when the markets are as unsettled as they are right now.

But you have to be careful. Despite the fact that shorting stocks can be a quick path to riches, not all stocks are the same when it comes to betting against them.

In that sense, short selling (at least the way I encourage investors to practice it) is no different than regular upside investing.

You want to diversify your holdings and use very strict risk management to control your exposure by not having more than 2.5% of your assets in any one position or 20% of your holdings in any given sector.

You want to short stocks in conjunction with the rest of your holdings, not in lieu of maintaining a properly concentrated portfolio. Despite what you may think, shorting stocks is not a game for market-timers or an exercise in timing.

As for how you select your target, that's not really different either.

How to Find Short "Targets"
For example, you don't ever want to bet against a stock just because it's expensive or even overvalued. Instead, you want to find a compelling reason for failure or a lower valuation.

I laid out seven of them last March when I suggested that Apple (Nasdaq: AAPL) may be the short of a lifetime rather than the next best thing since sliced bread.

At the time, I reasoned that:

•Apple was a bubble based on technical parallels to the Nasdaq bubble of 2000.
•Its products were faddish and driven by new product launches rather than sustained production.
•A change in leadership may produce slower or greatly varied product development.
•Short interest was an ultra-low 9.8 million shares; it seemed logical to take the other side of the bet if everybody was so bullish.
•Analysts were almost uniformly bullish which is a very bearish sign, according to past corrections.
•Apple's profit margins were disproportionately high in its industry.
•A carrier failure or subsidy change may soften the company's fundamentals.

Apple rose a bit further to a peak of $644, then fell 17.68% over the following few weeks to $530.12. It's still down today at $576. And yes, I think it will fall further in case you're wondering.

Other negative attributes I look for include insider selling and problematic accounting. Both can be hard to spot in a timely fashion but that doesn't mean you shouldn't look.

Armed with a good dose of skepticism, you can find companies that are likely to fall apart in pretty much any market anywhere in the world if you look hard enough.

Take action on strong up days when the believers are pushing the stock for all it's worth - every stock has them. Some brands like Apple (Nasdaq: AAPL), Harley Davidson (NYSE: HOG) and Facebook (Nasdaq: FB) , for example, are particularly well defended by brand loyalists.

That's why you've got to have a thick skin when you are shorting stocks because you're essentially betting against the success so many people hope for.

Your friends will accuse you of being un-American or a vulture - mine certainly have over the years. Worse, any butthead with an Internet connection can take a potshot at you in today's socially driven media age.

Stick to your guns. They'll get over it when they figure out how much money they could have made and how they can get in on the action.

Where to Find Good Short Candidates Right Now
Here are four industries I believe are ripe for the picking at the moment:

•European banks: I know that everybody is looking for profits in the face of unprecedented government meddling but the fundamentals do not bear this out. The biggest banks are under the microscope at the moment and face the most hostile legal environment they've seen in years. The ESM and ESFM don't have enough money and the bailouts are simply propping up a house of cards that will ultimately come crashing down. Most have had the starch beat out of them already so wait until a new stimulus program is announced then consider shorting Italy's number three bank, Monte dei Paschi di Siena (BMPS). It's reportedly 3 billion euros short of capital and has more than 26 billion euros in exposure to Italian government bonds. Deutsche Bank's (DB) Italian and Spanish Units may be 14 billion euros short of what it would need to weather a euro breakup or break down.
•Social Media: Facebook (Nasdaq: FB) is the poster child for everything that's wrong with this industry. Nine hundred million users or not, if you can't monetize their eyeballs you're gonna get Zucked. That stock is worth $7.50 at best. Zynga (Nasdaq: ZNGA) and Groupon (Nasdaq: GRPN) come to mind, too. So does Jive Software (Nasdaq: JIVE).
•Consumer electronics: Sony (NYSE: SNE), once a world- class operation and leader in everything from consumer electronics to games, financial services and films, is getting badly beaten. Very few analysts see anything resembling competent management, let alone an Apple style product set that could turn this company around before Godzilla comes out of the Tokyo Bay again.
•Alternative energy: The first rule of any profitable industry is that it's able to stand alone on its own merits. Therefore, any heavily subsidized industry is suspect, particularly if they're the recipient of mollycoddling Federal initiatives. Right or wrong, green energy subsidies are going to be cut when the government runs out of money or actually investigates the questionable loans that it's made in the name of progress. So while we may not have another Solyndra yet, it's only a matter of time before we do.

Those are mine. Let me know what you're shorting and why.

And remember, there is opportunity in every market. You don't have to be long to earn a profit.

Source :http://moneymorning.com/2012/06/18/how-to-short-stocks-along-with-four-good-candidates/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Jeff Capes
18 Jun 12, 16:01
How to short stocks

"Should You Short Stocks? Here's How,"

So..... HOW? You didn't explain it one bit.

Here's your headings:

"How much?"

"Why would you do that?"

"How to Find Short "Targets" "

"Where to Find Good Short Candidates Right Now"

HOW?

Do I telephone my broker and tell them I want to short a specific stock?

Do I click a "Short" button on the online interface (I've never seen any shorting options outside of the scam 'Short' ETFs)?

When do I have to cover a short and how do I do this?

Who is a short share borrowed from? The market makers?


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules