Posted: 1/5/2012 7:47:46 PM
Originally Posted by sparty444
As for shorting.... not sure why you'd close your short stating the data you posted.... based on your data the company will go broke... meaning you could pocket alot of money leaving it open. The company isn't worth 10 based on fundamentals...so why close?
For my portfolio and investing strategy, being short a stock is not a long term position. I went short at $15.43, I was able to close out today at $10.24. That is about a 33% return in less than a month. On a short position, there is also the law of diminishing returns. From this point, the stock would need to decrease by about 50% to double my return (the opposite of being long).
Every investing decision needs to be made with probability and statistics, and how that plays into valuation, in mind. Just because a company's fundamentals are attrocious, doesn't mean it definitely goes bankrupt. The risk is just significantly higher. Do I think there is a realistic shot it does go bankrupt down the line? Sure. Do I think it happens anytime soon? No.
In terms of this specific decision, while I don't like BKS as a long position, I actually believed that the market overreacted a bit to the news, and I think BKS will drift back up in the short-term. Why stay short a stock that I think will go up and I can short at a higher price down the road? If I am wrong, I still have my initial gains to fall back on. If I am right, I get a better entry point to re-establish a full position, as opposed to the position that had been accreted by 33%.
Every investor has their own style. Some like to ride a short all the way down to zero. To me, that just leaves you open to a lot of excess risk. I prefer to take my gain, back off for awhile, and re-examine at a higher price down the road if the opportunity arises.
And I don't actually open a ton of short position, (I just have a couple to hedge a primarily long portfolio), but when I see a Company with an unexplainable valuation (it makes no money so you can't even develop a P/E), attrocious fundamentals, competing in an industry with a lot of current risks, I give it a look.
If you decide to go long, I wish you the best of luck. I just wanted to pass along some information I happened to have on this particular stock as I've spent a good amount of time researching it. The timing on this particular down day was more a coincidence than anything