Posts Tagged ‘short stocks’

Tips for Shorting Stocks (Continued)

By: ispeculatornew | Date posted: 06.21.2008 (9:43 am)

In my last post I wrote that the most important thing to consider before you decide to short stocks is evaluate how the overall market is behaving. Once you determine the market is conducive to shorting stocks how do you determine what stocks to short?

In general you should look for stocks that are trading at high valuations but that don’t have the financial numbers to justify the lofty valuations. A good example of this is the run Jones Soda (JSDA) had in 2006 and 2007. The stock price of Jones Soda went from around ten dollars to over thirty dollars in about five months but the financial numbers of Jones Soda did not show any significant improvement. It was inevitable that that stock price was going to crash. To make matters worse for Jones Soda the company’s financial numbers started to deteriorate and the company is now trading at under three dollars.

My example of Jones Soda provides another thing to look for: rapidly deteriorating financials. Stocks that have rapidly declining earnings and revenues are good places to look for short opportunities regardless of valuation. At the beginning of 2007 most banks, bond insurers, home builders, etc. were trading at reasonable valuations. However, if you foresaw the havoc that the housing bubble collapse was going to cause you could have made a ton of money shorting these companies. (more…)

Tips for Shorting Stocks

By: ispeculatornew | Date posted: 06.18.2008 (9:20 pm)

A couple of months ago I wrote a couple of posts about what shorting is and how to place a short order. Now I will give you some general tips on how to make profitable short investments/trades.

In my opinion the most important thing to consider before you decide to short stocks is to evaluate how the overall market is behaving. In a very bullish market it would probably be wise to avoid shorting all together. The reason for this is that stocks prices can continue to go up in spite of very high valuations. For example you might have been justified shorting most stocks half way through the bull market of the 1990s. However, you would have lost a lot of money if you did because investors continued to bid up stocks regardless of valuations. In an irrational bull market like the late 90s the safest thing to do is avoid shorting until the market has clearly turned.

On the same token the best time to short stocks is when the market is clearly bearish. In fact shorting stocks may be the only way to make money in a severe bear market (short term at least). Also, speculative stocks that do manage to jump up in price in a bear market tend to correct quicker.

A market that is neither bearish nor bullish, such as the current one, also provides ample opportunities to short stocks.

I will describe what stocks provide good short opportunities in my next post.

How To Enter A Short Order

By: ispeculatornew | Date posted: 04.15.2008 (10:03 pm)

I received a comment on my previous post about how to short a stock through a broker so I will describe it here in case other people are confused.

When you go to enter an order you probably have a few options to choose from. I use Scottrade and I have the following options to choose from: Buy, Sell, Sell Short, and Buy to Cover. When you short a stock you would choose “Sell Short”. You would then enter the rest of the order: number of shares, stock symbol, order type (market or limit), and duration.

When you short a stock you are actually selling the stock. Therefore, if you want to place a limit order you would set your limit price higher than what the current price is. If you place a market order your order would get filled at whatever the bid price is (Unless your market order was for more shares than the bid offered. In that case you would take out more bids until your order got filled.) If you are confused about market and limit orders leave me a comment and I will write a post about them. (more…)

Should You Short Stocks?

By: ispeculatornew | Date posted: 04.13.2008 (8:05 pm)

If you are an experienced investor shorting stocks should be part of your investment strategy. Shorting allows you to profit when a stock goes down in price. In a declining market, such as the current one, it is a lot easier to make money shorting stocks than buying stocks.

When you short a stock you are actually borrowing shares of a stock from your broker and selling the shares. You owe the shares you sold (shorted) to your broker so you have to buy them back and repay them (cover) at some point. If you are able to repay them (cover) at a lower price than you sold them (shorted) you make money. If you buy (cover) the shares at a higher price than you sold (shorted) the shares you lose money.

I tried to explain that as clearly as I could but I will also use a rough analogy that I have read elsewhere to help explain what shorting is. Let’s say your friend has a bike that is worth one hundred dollars. You know that the same bike is going to be on sale the next week for eighty dollars. Therefore, you decide to borrow the bike from your friend and sell the bike for one hundred dollars (you just shorted the bike). The next week, when the bike goes on sale, you buy the bike for eighty dollars and give it back to your friend (you just covered the bike). You make twenty dollars. That is roughly how shorting works. (more…)

PAL and SWC are Good Short Plays

By: ispeculatornew | Date posted: 03.07.2008 (12:27 am)

SWC – Stillwater Mining Co. (NYSE) – (Closing Price – $18.37)

The prices of palladium and platinum recently spiked to all time highs due to power disturbances that resulted in rolling blackouts in South Africa. Speculators seized on this news to bid up palladium and platinum prices to ridiculous levels.

The stock prices of North American Palladium (PAL) and Stillwater Mining Co. (SWC) spiked in tandem with palladium and platinum prices and both companies present good shorting opportunities.

The stock price of PAL more than doubled earlier this year and SWC tripled. Obviously, speculators sent these stocks up to unsustainable prices and I think they will quickly drop back down.

The price of palladium has been dropping quickly and I expect platinum to drop quite a bit from its record levels. The concern over supply due to power distruptions in South Africa has eased and the momentum has dried up. I expect the stock prices of both of these companies to see significant declines.

You can pick either stock to short but I am going to give a recommendation to short SWC at today’s closing price.

Disclaimer: I have no position in PAL or SWC.

MAMA – Accumulate Short Position

By: ispeculatornew | Date posted: 01.11.2007 (12:00 am)

MAMA – Inc. (Nasdaq) (Closing Price – $5.90)

I would continue holding your short position in MAMA and if you are a patient investor I would recommend shorting more. MAMA may not drop immediately but eventually its share price is going to correct and reflect its fundamentals.

If you are looking for a short term gain I would not recommend shorting MAMA. There are a lot of daytraders and greater fools buying MAMA right now and they may continue to send MAMA up in spite of its ridiculous valuation. However, the momentum will die out and MAMA will assuredly drop. (more…)

MAMA – Accumulate Short Position

By: ispeculatornew | Date posted: 01.05.2007 (12:00 am)

MAMA – Inc. (Nasdaq) (Closing Price – $5.60)

If you followed my advice and shorted MAMA at $4.89 you might be a little worried that it has now risen to $5.60. However, shorting a stock requires the same amount of patience as buying a stock.

There is still a major disconnect between the fundamentals of MAMA, which are terrible, and the recent runup in its share price. The runup has been based on hype and nothing else. It may take a while for the share price to reflect this, but eventually it will. (more…)

MAMA – Initiation of Short Recommendation

By: ispeculatornew | Date posted: 12.30.2006 (12:00 am)

MAMA – Inc. (Nasdaq) (Closing Price on Friday 12/29/06 – $4.89)

It is never wise to chase gains. Some people will keep buying a stock even after it has had a significant runup. They will hope the run will continue and that a greater fool will buy the stock at a higher price than them. This is the case with MAMA and now is a great time to short the stock.

MAMA is a search engine that recently announced that it is adding video search to its website. The hype surrounding this sent the stock from two dollars to over eight dollars in less than a month. Well the party is over and the stock price is crashing back down. (more…)