How shorting can lead to ugly results
Shorts take much more homework than longs. They must be discovered early, and they require ingenuity.
Hey, short sellers, how about some originality?
How could more than 20 percent of Joy Global (JOY) be sold short? Do you think we haven't all read the coal articles? Do you think that would be a big secret, a huge surprise that would be overlooked by the longs? Do you think that after natural gas goes almost to $5 there wouldn't be more coal used? Did you forget that you can use electric shovels for tar sands work and that Canada is abuzz with tar sands work? Did you not see that 16 out of 23 analysts have holds or sells on it for precisely the reasons you are short so they aren't going to downgrade on a bad number? Didn't you think someone would break ranks, like Bank of America Merrill did, and go hold to buy? Could you really be that devoid of imagination?
I was astounded Thursday to see how short people were in this high-quality machinery company that has secular challenges, for sure, but is in a global industry where the rest of the world can't afford to be as anti-coal as we can. They don't have cheap natural gas. They are decommissioning nuclear plants left and right because of Fukushima. And wind, as much as it is loved, is, even on its best days, not a factor almost anywhere in the world. Especially when it's cloudy or still out.
I point out this mistaken short because it is emblematic of so many shorts I see. Thesis shorts, whether it be telco antenna stories that were all the rage not that long ago or housing-related businesses like Sherwin Williams (SHW) and Whirlpool (WHR) or the Clorox (CLX), Kimberly-Clark (KMB) and Brown-Forman (BF-B) shorts, a troika I always hear overvaluation calls on, are just plain too obvious. Sure, housing has its ups and downs. But the consolidation in the housing-related plays is palpably positive. There simply aren't enough high-dividend plays to go around, so what's the point of betting against two of the best packaged-goods stories around? Liquor plays are too few and far between. They just don't work, other than a few points.
Or how about the shorts in the disk drive companies or semiconductor companies -- think Micron (MU) -- when there's no new capacity on the books. Or the short of Caterpillar (CAT) based on China after United Rentals (URI) tells you the U.S. has returned to earth-moving growth. Just because the media calls you brilliant doesn't make you brilliant. Yet that's how I feel about those who have been blasting those stocks.
And now, shorts, you have to look out for the more established software-as-a-service plays and legitimate biotechs. They all got gang-tackled after they had broken and the head-and-shoulders patterns were everywhere. Now, though, the percentage of stock short, coupled with the end of massive insider selling -- at least for the moment -- has made stocks like FireEye (FEYE) and Zillow (Z) and even Workday (WDAY) and Concur (CNQR) difficult, as well as Biogen (BIIB), Celgene (CELG) and Gilead (GILD). They had been terrific free-fire zones, but now they are just valuation shorts, which are shorts of the worst kind.
What should short sellers be looking for? Simple: secular decline shorts where there are accounting risks. Or competitive nightmare shorts where price cutting is endemic, making the numbers too hard to make. Or stocks that are flying high, not low, even as the businesses aren't all that well rung -- think the bad retailers.
Shorting when people are negative, shorting where everyone else is shorting, can lead to remarkably bad results. Shorts take much more homework than longs. Shorts must be discovered early. Shorts require persistence.
But most importantly, shorts involve originality. Owing to the powerful logic of a bull market, they require ingenuity. Anything short of that and you might as well have a Joy on your hands.
And there will be no joy in shortville today.
Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio to see the stocks Cramer thinks could be winners. The portfolio is long CELG.
More from TheStreet
- Cramer: Draghi is a godsend
- Bubble risk with new highs for Dow
- Netflix debuts 'Orange Is the New Black' season 2
We're looking at a DOW in an "Over Valued" dollar.
Once the dollar and the inflationary value it holds reaches
the boiling point that the Fed can't control,
Wall Street will see a "True Market Value" arise
in its aftermath...
The companies with their buy back plans have increased their
stock prices artificially and as doing so have an artificial bank role
at their disposal or the DOW would have tapered off years ago..
Oops. Another GM vehicle recall just announced. Didn't see that coming.
Jimmy, most Shorts have been Targeted by Central Bankers for Well over a Decade. Unless you are part of the Corrupt Cartel which is Big Banks and the Global Feds, you don't even attempt to short a Market continually pumped up by Crack-Dollars.
Yet we always see folks trying to short. It's literally insane to Fight against 3 Central Banks that have printed Fake Money to the Tune of $10Trillion and Counting, just to Prop up Stock Markets and enrich the already Wealthy. So why even bother trying to short anything, up to this point in the Game, it's been a Fool's errand.
XOM closes at $101.60.
COP closes at $80.84.
CVX closes at $124.19
Invest in gas. You can't go wrong.
Think I'll get a gold bracelet and have it engraved: "I Love Gasoline"
DOW at 17,000 Monday? Who woulda thunk it.
I'm Ice Cold Sangria and I approve this message.
aren't they just gambling that we'll have a crash or correction in general?
they may loose.. they may win..
What they require most, and implosion in what has become the Biggest Debt Bubble in World History.
Hook'em Horns.....Looks like us Bulls are In Charge today, and it's even Friday...woooohoooo
Any positive over 50 is a good day today, PROBABLY new records on DOW or S&P...??
NOTHING really to report after the close....NOW, you have all seen it...
I know a couple of Guys on here, really Happy about COP holding through $80...
Some real nice moves in GOLD and SILVER today, maybe inflation scares, or something..??
And a few others, doing very well going into the weekend....Enjoy it, I may have to go to a Casino.
Or just drink some good stuff on the deck...??
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Putin, not Yellen, will determine what the market does next.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.