5 Rules for Making Big Profits Shorting Stocks
Michael Shulman, July 29, 2009
Free Trading Guides
-
How do you go about picking the biggest losers to short? If you wouldn't be caught dead owning the shares, that's a pretty good indicator that it belongs in your short-side portfolio. If a company, stock or sector is ugly on the inside, it's only a matter of time before the ugliness—in the form of broken business models, less-than-spectacular corporate leadership, companies that are no longer true competitors in their fields, and other conditions that signal their crumbling fundamentals—shows on the outside. And then the stock goes down.
However, a word of caution: The underlying stock must not have any predictable, potential upside catalysts on the horizon, such as an influx of private-investment capital. Even if you know the stock is a fundamental disaster, when cash flows into it, the smartest thing a short-side investor can do is to run, not walk, in the other direction.
More By This Expert
What are the five rules for constructing great short-side positions? Read on to find out.
10 Reasons to Use ETFs When Trading Options
How do investors and traders cope with a market that has fallen more than 40% in just one year and survive until greener pastures return?
The Bad News Victims of 2008 are the
New Victors of 2009
There were a lot of losing trades last year, but there were also winners for those willing to bet against conventional wisdom -- and this will be the case in 2009, too.
The 10 Dumbest Analyst Calls of 2008
This collection of calls has been easier to write than See Spot Run. My only difficulty has been restraining myself in order to not be sued, punched out or have my tires slashed.
Don't Stop 'Banking' on a Bailout
The Titanic is only just approaching the iceberg. And there aren't enough lifeboats handy for everyone who's going to need one.
