Shorting A Stock Done Right

By: ispeculatornew
Date posted: 12.24.2012 (3:00 am) | Write a Comment  (0 Comments)

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I know that many of you prefer safer investments and I certainly have my fair share of ETF indexed and dividend stocks. Another portion of my portfolio though is dedicated to more risky trading, mostly through my long & short tech stocks as well as my speculative longer term picks. For that reason, I’m always interested in how some of the bigger investors in the world take positions. Last year, I had mentioned how impressive Carson Block of Muddy Waters had been. He did not hit on every hit but there were a few where after extensive research, he found what he considered to be almost fraudulent companies. He would then write up a report, short the stock and sell that report to a few managers. Once that was done, he would release the research to the public, sending the stock tanking. Sino-Forest (TRE) in Canada was one of his best shots as the stock started off over $20 and is now worth nothing, and was delisted from the Toronto stock exchange.

You can take a look at some of the research produced by Sino-Forest here.

While Muddy Waters focuses on shorting stocks, other very successful investors do both buying and shorting. One of those is Bill Ackman, CEO of Pershing Square Capital management (seen on the right). Last week, he decided to explain exactly why he is going short on Herbalife Nutrition Club (HLF), what he described as an MLM scheme.

You can read his presentation here

He even got the domain and made a very compelling case about why the company wasn’t worth anywhere near its current valuation. The market seems to agree:

-I love the guts of Ackman, putting himself out there, with a bold call. It’ll be interesting to see how it turns out but clearly, putting all of this in the public eye will accelerate the conclusion.

Any thoughts on short sellers like Block and Ackman? I personally do think they make the market more efficient but I’d love to hear your thoughts….



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