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Shorting Stocks
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Lampwick Offline
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Post: #1
Shorting Stocks
Today, something incredible happened. Stamps.com (STMP) announced that their longtime partnership with the USPS is ending. Shares immediately plummeted 50% in after hours trading.

This occurrence was exactly Marc Cohodes' short thesis that he described in early 2017. He stated that Stamps.com was essentially a glorified arbitrage scheme, where they were abusing a program to buy postage in bulk from USPS, and then simply reselling it retail. According to him, they were adding no value, and USPS was going to tighten their belts and cut them off. This came to pass. He was pretty early on this one, but that's the risk with short selling.

He also made a good call on MiMedx (MDXG), which was delisted from NASDAQ.

He opened a short position on Tesla (TSLA) around September 2018. So far, his position is break even, but bad news keeps popping up for them.

His strategy is interesting. He doesn't try scalping 10% here and there, and he doesn't try to short manias. He looks for really shitty companies: accounting fraud, questionable and fragile business practices, mounting debts, delusional CEOs, etc. And he shorts them to zero.

Just a word of warning. I wouldn't take everything he says to heart. He is mysteriously long on Overstock (OSTK), after being short for a long time, saying it's going to go from $50.00 to $150.00-400.00. It's currently at $20.00. There is a blog with a lot of background on that. I'm not sure exactly what is going on with the whole situation, but I find the long case for OSTK less than convincing. In fact, it would've been a killer short last year as crypto was plummeting. Now it's pretty low and volatile. It swings +/- 10% with the market.

Other shorts that were pretty obvious in hindsight:

Blue Apron (APRN) - low margins, difficult logistics, high customer acquisition costs, high churn rate. From customer testimonials, it seemed like lots of people tried it once or twice and then cancelled their subscription.

Snap (SNAP) - huge task of building out a self-serve advertising platform, highly entrenched competition, sub-optimal advertising demographics, Facebook completely knocked off their product and did it better. From talking to people that used both Snapchat and Instagram Stories, it was clear that Instagram's app performed better technically, and it was largely the same product. Plus, people won't install multiple apps if they can avoid it.

Lending Club (LC) - huge tech valuation for what is really a basic financial services company, lots of issues originating enough loans to meet investor demand. I was an investor on the Lending Club platform for several years and witnessed the shortage of loans on the platform. I got some IPO shares and sold them on opening day, but I didn't go short.

GameStop (GME) - retail apocalypse, gaming moving online with exclusive marketplaces as well as mobile gaming, lots of online competition for reselling used goods, a client base that thoroughly hates them as much as people hated Blockbuster.

Short selling is incredibly risky. While long investing has a limited downside of going to zero, and unlimited upside, short selling is the exact opposite. In addition, short sellers incur costs on the shares they must borrow, often for years. But, short selling can be very profitable in the right market environments. I don't have much experience with it, but I'm becoming more interested seeing these past cases. There is also going to be a crowded marketplace of IPOs coming out in 2019 and 2020 competing for investor dollars that could present some interesting opportunities. There is still a lot of dumb money funding questionable startups that will try to exit at some point.

Do you see any potential short selling opportunities? Please share them with us, along with some details on your thesis.
(This post was last modified: 02-22-2019 01:47 AM by Lampwick.)
02-22-2019 01:43 AM
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croquet Offline
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Posts: 63
Joined: Feb 2019
Post: #2
RE: Shorting Stocks
Everything is obvious in hindsight.

Back on topic, it's not that shorting isn't inherently unprofitable, but that over time the market goes up not down. That alone is a huge handicap to beat.
02-22-2019 02:13 AM
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CaptainChardonnay Away
Ostrich
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Post: #3
RE: Shorting Stocks
Jim Chanos is another big name in shorting.
02-22-2019 09:11 AM
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Chrome Offline
Sparrow

Posts: 110
Joined: Jan 2016
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Post: #4
RE: Shorting Stocks
Forget shorting. Use put options.
02-22-2019 09:28 AM
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[-] The following 2 users Like Chrome's post:
kurtybro, Lampwick
Azlan Offline
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Posts: 28
Joined: Dec 2018
Post: #5
RE: Shorting Stocks
I think shorting TSLA is a no brainer. I also think now is a good time for long puts on SPY. I'm looking for more weakness in PMs over the next few months then will go long calls.
02-24-2019 12:42 AM
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Road_Less_Taken Offline
Woodpecker
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Posts: 425
Joined: Apr 2012
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Post: #6
RE: Shorting Stocks
I think if you are the average investor and bearish just buy at etf like SDS for when you think the market is going to go down or as a hedge.

Unless you are already experienced in options, margin & short selling, it adds a whole new dimension.
02-24-2019 12:21 PM
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