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View Full Version : Why I Don't Like Shorting Individual Stocks...


badcompany
01-28-2015, 02:06 PM
The WWE is a company with issues. Their recent network launch has been a flop. The Pay Per View model is dying. People aren't attending live shows, as in the past. Perhaps, most importantly, the CEO, Vince MacMahon, is pushing 70, and his heir apparents don't appear to be up to the task.

By all rights, this a great short candidate. That's the problem. There's too much company on the short side. So, the extra passengers need to get thrown off the train by moves like this, 20%, which can wreck havoc on your ability to maintain proper risk management.

http://i95.photobucket.com/albums/l142/thinlizzy21/e29ae7d8086bfab1f1e4e24af3ae75dd_zpsf0af74d9.jpg

_______
01-28-2015, 06:27 PM
FXCM is a stock I shorted after reading through details of the Leucadia bailout. There is all kinds of Twitter going on about how they were rescued and there is no reason now they can't return to prior levels. It's nonsense.

If you do the math dividing the 80,000,000 share float with what might be left after Leucadia get paid back, it's a sub $1.00 stock. That was before they wrote off perusing 40% of their losses.

They have to sell themselves by April to avoid draconian increases in what they owe Leucadia. They will be delisted shortly after any sale once it's clear that Leucadia absorbs almost all of any proceeds.

reckless
01-28-2015, 06:44 PM
One other reason why I no longer short individual stocks is the Baker Hughes story. A very poorly managed company BHI also is a very shareholder unfriendly company. Expenses are near out of control while being in the commodity business, but management always does well for themselves. Too well actually.

The stock at the time was about $45 when I bought some put options (I know, it isn't a true, classic short trade) in late 2013. My method of fundamental analysis, sales growth and earnings prospects, free cash flow (nominal), ROIC, etc., plus my beginning negative outlook on the world economy put my intrinsic value of BHI at about $15.

While I understand fully that I don't have to be totally correct in my intrinsic value stock price opinion of just $15, BHI was still way overpriced at $45 as I saw things.

Then came a dumb move last year by Haliburton offering BHI about $65 a share buyout bid. Then last summer oil started dropping and so did BHI's price some but the HAL bid kept it from sinking fast. The stock would have cratered like RIG, DO and NE, companies in the same oil sector but who run their businesses much better than BHI.

IMO, if there was no bid by HAL, I'll bet 'everything' that BHI would be a $20 stock today. I could be wrong there too but that is my opinion.

reckless
01-28-2015, 06:58 PM
FXCM is a stock I shorted after reading through details of the Leucadia bailout. There is all kinds of Twitter going on about how they were rescued and there is no reason now they can't return to prior levels. It's nonsense.

If you do the math dividing the 80,000,000 share float with what might be left after Leucadia get paid back, it's a sub $1.00 stock. That was before they wrote off perusing 40% of their losses.

They have to sell themselves by April to avoid draconian increases in what they owe Leucadia. They will be delisted shortly after any sale once it's clear that Leucadia absorbs almost all of any proceeds.

You may be on to something Don.

Leucadia owns the brokerage firm Jeffries. Ian Cumming and Joseph Steinberg ran the company for over 20 years. I think they left in 2012. Those guys are 'geniuses' so with them gone I could see Leucadia losing its' way even though they remain major shareholders.

The company is also a big investor of Bill Ackman's Pershing Square hedge fund (and many other business, of course).

If you can read some of the annual shareholder letters written by Cumming do so, it's like taking a finance or investing class at Harvard Business School. Brilliant stuff.

I wish you luck with your FXCM trade.