Q: How Do I Sleep at Night?
A: Like a Baby. Like a Rich Baby
“But you can’t short stocks… that’s immoral!”
Trying to explain the concept of shorting stocks to friends of mine with no knowledge of economics or finance…it’s always good food for thought, if not a laugh.
Why? Because they miss the point…
If you’re investing to do something like protect the environment, good for you. That’s a great goal, and your morality might take you a long way. But my goal in investing is to make money. And most people feel the same.
You see, investing is an activity that works best when it’s morally neutral. And that’s the great thing about shorting stocks.
First, it’s the best contrarian place to invest right now, as stocks rally without any sense of reality to anchor things down. Secondly, shorting stocks is good capitalism…
Most people only look at one side of the market – the long side. And if you invest in great companies at a fair price, you’ll do fine. But the market is riddled with bad companies; firms that only destroy the capital folks throw in.
By shorting those companies, you’ll profit as markets realize the horrible mistake they’ve made in giving a bad firm too much capital. Just like a good capitalist. Heck, if anything, getting bad companies out of the way so better ones can thrive is more moral than throwing money on the long side in the next tech stock that can’t deliver and goes bust.
But for some reason when it comes to shorting stocks, people just don’t seem to get it.
Ready or Not…
I’ve been working on a system for shorting stocks, and just last week, it issued its first concrete “sell trigger” since the beginning of the stock market rally.
I’m not going to lie – if I was going long on stocks, I wouldn’t have needed to build out a multi-part system that analyzes stocks based on a variety of balance sheet criteria and technical indicators. Most people these days could be talked into buying through optimism alone.
Don’t think it’s possible? Make someone watch nothing but CNBC for a week and just see how bullish they get.
So by building a system that’s pretty restrictive – it came up with about 3,000 short candidates out of a universe of over 60,000 – I’ve got it to the point where it pretty accurately tells you when; and more importantly what and how to short.
In the coming months, I expect a lot more triggers to hit. That’s why I’m working fast and furiously to vet the remaining thousands of short candidates by hand (there’s no faster way).
After all, already this week we’ve seen the opening salvo with a trade war with China, the abandonment of Eastern Europe to Russia’s geopolitical sphere of influence, and the failure of gold to come back down below $1,000 per ounce. In this kind of environment, having a short interest is one of the few ways to get a good night’s sleep.
And there are plenty more reasons why I want to take a walk on the short side of the markets right about now. I mean, once you account for all the bald-faced lies and chicanery that Wall Street and Washington are using to sustain the market rally, calling their bluff isn’t just about being a good capitalist…
It’s also moral – but again, that’s just an added bonus.
Stay Sovereign (and Short),
Andrew Packer,
Editor of Credit Crunch Short Report