I considered this kind of activist / guerilla shorting but I think the effort:payoff ratio is not good (in my case). One thing here is that you can have solid evidence of shenanigans but the price remains intact or rises. Eg, yesterday I read the report of an activist who’d been shorting Brookfield Corp for a few years. Brookfield is a company with bad financials that is quite obviously up to some chicanery, and this report was followed up by the FT who did a small investigation, showing among other things that the company buys and sells from itself and books it as revenue. Anyway, after all the evidence was presented, the price has doubled (over the last 18 months), and presumably the activist short quietly closed his position.
So I’d look for a different kind of short, and follow some combination of these rules (which I took from Scott Fearon and Kathryn Staley):
NEVER short valuation (over-valued companies)
ONLY short companies that can go to zero
NEVER short a meme stock
WAIT till it’s fallen off its peak by at least 20%
NEVER short high short interest (my own, maybe with my hedging call options I don’t need this…)
FIND revenue that’s peaked or contracting, combined with a deteriorating balance sheet
I’m quite interested in small and mid caps that fit into this scheme. Also Brookfield, which I don’t see going to zero but is a POS.
I think one of the few shorts that worked well for me was shorting Intel, but that did take a long time to play out and I wasn’t getting interest on the capital tied up during that time. I also had bearish options which were more efficient but you either have cost/timing issues or hassle of rolling them.
I also had shorts as a general hedge, but obviously in this market, they were only losing money.
Sounds like the kind of stuff Michael Burry does against Palantir and Nvidia. Sound like he owns a long-term position and as has quite some leverage. Maybe analyze his moves?
The method for shorting is not that important. Out-of-money options give you the biggest leverage of course.
The point is to find an edge. Inverse factors just don’t work, probably reverse momentum could give good results. But do yourself a favor and test, test, test. If the tests don’t work (as they did in my case) there is no need to throw real money after it… what I unfortunately did im my youth.
Without a strong edge it is just a game of luck. More like a casino game, because statistics are against you.
The only thing worse than losing money is losing money fighting stupid meme stocks. It is like in poker: if I lose to AA or AK. Fair enough. If I lose to 72o that’s another matter…
It’s a somewhat unusual one for me (to have bought) as I typically want to buy with a margin of safety (price below the fair multiple that FASTgraphs suggests), but Pepsico seems to also play in the Coca Cola league where fair value pricing is a time of the ancient past when Warren Buffett started buying them (late 80s).
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