Forced Out of SZYM

Investment Analysis Clubs Saul’s Investing Discussions
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Based on their financials, I went short SZYM at 2.57 on 12/08/15, intending an investment. http://finance.yahoo.com/q/bs?s=SZYM

For sure, per the chart, I was very late. http://stockcharts.com/h-sc/ui?s=SZYM&p=D&yr=1&m…

However, I was selling trashing, and knew I was selling trash. So the investment had a high probability of turning a decent profit, something in the range of Saul’s usual 30% to 40% (whose work I sooooo much admire). However, due to “buy-ins”, I was forced out the position this morning (01/2116) at 1.62, thus, dashing my hopes. Net gain: just 58.6% (or the very meaningless 4,498% annualized.)

Oh, well. Better luck next time, right? especially since this market has further to go down.

Arindam

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Arindam,

As your well aware, charts don’t lie, people do.

A person with common sense would have taken the money off of the table just after Christmas and simply would have taken a break and then explain it to the significant other in black and white why we are losing money. I believe Male Ego’s get in the way.

“Common sense is a basic ability to perceive, understand, and judge things, which is shared by (“common to”) nearly all people and can reasonably be expected of nearly all people without any need for debate.”

http://tinyurl.com/zg2ql5t

SLP up 78.7365 percent since 8/27
LINC up 413.3333 percent since 10/1
AAPL - shorted 2,500 shares since 12/9 showing a 17.1672 percent profit. Cashing in at 98.00.

Just a thought,

Quillnpenn -

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OK. Now comes the post-mortum that has to be done whenever an investment --long or short-- is closed out. Was the investment handled properly? Specifically, by how much did I have to allow prices to move against me for the investment to work as intended?

If you hate seeing charts, then you hate seeing charts. But a price chart is the proper tool to assess investment-risk, and the following chart is good enough for that purpose. http://stockcharts.com/h-sc/ui?s=SZYM&p=D&st=2015-12…

As I said, I put the position on Dec 8 at 2.57 and got kicked out this morning (Jan 21) at 1.62 due to my broker having to scramble for shares. From the chart, you can see that once I opened, prices moved against me by as much as 16.7%, or a whole lot more than I’d ever tolerate if the position were intended as a trade instead. But I had intended an investment, and I was confident in my fundamentalist work. So I ignored adverse price moves and was vindicated for not panicking out of the position. Right now, prices are 1.73 x 1.72, or higher than where I covered. So I avoided at squeeze (and reduced profits) on exit out of sheer dumb luck, which is a real No-no.

How would I score my performance? A ‘D’ (or ‘Dumb’) for execution. (1) I was late. (2) My exit was involuntary. So, yeah, I made money --this time-- because the market gods forgave me a bunch of mistakes. Hopefully, when I close out my other shorts, both profits and executions will be better.

Arindam.

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Quill,

Congrats on the Apple short, which is a pretty easy stock to trade. I’ve been in and out of it before on either side and turned profits, because its fan base is so rabidly predictable.

Last night, I went through the 256 Morningstar industry groups, looking to see what’s holding up, what’s crashing. “Sin stocks” are doing surprisingly well. So it’s time to put on my green eye shades and do some more fundie work.

Arindam

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Arindam,

Ditto, ran the scanning tool a few minutes ago and found 46 stocks that I have to do fundie research on them as well.

There is a lot of Pharma and Biotech. I would say look into the Health sector group. And one airline stock SAVE (spirit airlines) because of the low low fuel prices. TZA is collapsing on me. In on 1/4/16. Trailing stop loss order at 60.95.

Scan 28 - 8% moves and or 5 dollar plus moves in 5 days

Quillnpenn -

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SAVE was a good investment for me twice. But I got unsettled by the abrupt and unexplained departure of the previous (successful) CEO, suggesting some sort of boardroom disagreement. It’s model, Ryanair, has been a fine investment, based on a successful formula of slash costs to the bone and treat the passengers like transportation units. I was not sure that would work in America but it has. Risk lies in the big boys squeezing it out of business when it is a significant threat.

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Quill,

RE: TZA. I’d tighten that stop up by a buck, or roughly just below the mid-point of the channel and under a round number. If it tags that, you’re in trouble, because prices will far further. http://stockcharts.com/h-sc/ui?s=TZA&p=D&yr=0&mn…

Yeah, the amount of fundie work needing doing these days is horrendous. For investors interested in individual stocks, it’s once again become a target-rich environment where fundamentals --not just implicit back-stopping by the Fed-- will make or break a position. The banksters and their loans to energy companies are a good example.

Arindam

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SAVE was a good investment for me twice
strelna, I thought you are following Buffett investments philosophies.
He ones joked that he has a special 800 number he calls each time he feels like he wants to invest in the AIRLINES business.
I think the reason is that these is no moat with AIRLINES and air ticket are commodity.

Shuki

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But I had intended an investment

Aridam, I believe you don’t understand the meaning of “investment”. David G likes to say that “long term investment” is redundant and it should be just called an “investment”. Anything not intended to be long term is speculation. I don’t believe andy short can every really be called an investment.

This board is about finding positive fundamentals that can lead to investments that last multiple years. Shorting stock is certainly a legitimate method of making money, but it is way off topic on this board. There are lots of boards that would be interested in your expertise, but not so much here.

I would love to hear about some investments that you feel match the spirit of this board and that could be held for years as they grow their Revs and EPS at a better than average pace.

Thanks!

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Arindam, I believe you don’t understand the meaning of 'investment."

Puddinghead, Sir.

Believe what you wish. That’s still a protected, First Amendment right. But the supposed distinction between ‘investing’ and ‘trading’ is specious at best. Every “investment” is a ‘trade’ in every sense of the term for both being an exchange of one thing in hopes of gaining another. Yes, very few self-identified ‘investors’ think of themselves as ‘traders’, and very few sell short (just as don’t many traders). But club labels are mostly just silly, indefensible semantics, not meaningful distinctions in terms of how the buying and selling is actually done. Intended holding-periods might vary. The cues and tells used to make the directional price bets might vary. But it’s all just trading, and all of it is just ‘gambling’ wherein each player makes bets that he/she hopes will pay off, on average and over the long haul.

Now for some specifics. I won’t mention the ticker until the position is closed out. But I sold short a metals company (because its fundamentals were trash) --and intended an ‘investment’, not a ‘trade’-- and in 35 market days have a gain of 823.1% on the position (not a typo and not annualized).

Call that financial transaction whatever you want to. But it’s decent enough money, and there will more ‘investments’ like it to be made as this current bear market unfolds.

Arindam.

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Arindam,

But I sold short a metals company (because its fundamentals were trash) --and intended an ‘investment’, not a ‘trade’-- and in 35 market days have a gain of 823.1% on the position (not a typo and not annualized).

I must be missing something. If you short a company, your maximum gain is capped at 100%, and that requires that the shares be delisted or the company go bankrupt… Are you talking about actually shorting the shares, or using options?

Tiptree, Fool One guide, confused

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TMF,

If I sell short at $10 and cover at $2, my gain is 4x, right? On the short I reported, my sale was at 2.44 (all-in). The then-current Ask (or where I could have gotten out) was 0.28. Add a penny for vig and do the math. The gain is 841.37%, right?

The 100% you’re thinking about is ‘capital-at-risk’. On a long, you can’t lose more than your purchase-price. But on a short sale, you could get squeezed and end up having to cover at a multiple, as some idiot did a while back. Not only had he failed to set up defenses, not only had he over-bet his hand, but he was leveraged to boot and went BK. Just as there are stupid ways to buy, there are stupid ways to sell short.

Let’s take a real-time example. I sold short an oil company stock just now at $3.62 as a test to see whether shares were available. Earlier, I had tried to short a different oil company, but shares weren’t available. It made no sense to me at all that these two companies had all but gapped up by 20%-40% on a down morning for the market when their fundamentals sucked so badly. (One had a negative net-worth; neither could pay current expenses from current revs.)

My vig was $0.005/share, $1 min/ticket. So I needed to cover at least 4 cents lower to BE (break even). Roughly 12 minutes later, I got kicked out at 3.55 on a too-aggressively placed stop. But also, I didn’t care. I was running a test, not positioning myself for a long-term play. (What you B&H types call “an investment”.) Net on the trade was a nickel/share. On a round lot, that’s just lunch money. On size, it could be a day’s wages. It all depends.

Let’s assume ‘size’ was a round lot. Time in trade was 12 minutes. Net would be $5, or $60/hour, which is plumber’s wages, right? which is a reasonable benchmark, because if you can’t make at least plumber’s wages from your investing/trading, you’re in the wrong union.

It’s not my preferred or habitual mode to slam stocks around. Nor do I need the money that can be obtained. My retirement is fully funded out to age 111 provided I don’t lose more than an average of 4%/year. But since my long-term CAGR (over 31.3 years) is 14.6%, I’ve got a reasonable margin of safety and can choose what I do in markets, which is mostly just exploratory stuff. I buy and sell because I can, not because I have to. Why keep investing/trading skills honed? Because we are entering the mother of all bear markets, which will be far worse than the 2008 correction, far worse than the '30s correction, and them that can’t cope will get killed. What I know about markets and can teach to my daughter is what will give her a survival edge in a world far different financially from ours in which --among other things- the US$ will no longer be the world’s reserve currency. Hence, if not an end to the US’s endless deficit-spending, at least a slowing down of it and --hopefully-- fewer of the US’s endless wars of choice.

Thanks for your question, by the way.

Arindam

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This is not the correct way to calculate returns on a short sale, at least not the way an investment professional that reports to clients would do it.

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bob,

The advantage of not being an “investment professional” is that I can make use of basic, common-sense, grammar-school math --rather than more sophisticated methods – to calculate P/L.

If I buy a stock at $2, and sell it later for $10, my gain is 4x.
If I sell short at $10, and later cover at $2, my gain is 4x.

P/L is money pulled out of markets --obtained through investing, trading, gambling, or speculating (chef’s choice of terms)-- divided by money left in them.

If ‘markets’ seems to vague, then think in terms of ‘accounts’. “Is my account bigger or smaller after a position is closed?” But ‘thank you’ anyway for your comment.

Arindam

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Still not correct. Here is the correct way to think about this (doesn’t matter if you are talking about professional or retail investor such as yourself):

When you sell a stock short, you are creating a liability for yourself in the amount of shares shorted. That liability cannot drop to less than zero. This means your profit is limited to the total amount of the initial money received for shorting – which is a 100% gain. In your example, if you short a stock at $10 and cover at $2, you are earning a profit of $8 for every $10 at risk, which would be an 80% profit.
I’m going to drop this at this point as you seem to have a very dismissive attitude of other people. If you don’t like that concept, then do what you like - I’m just trying to show you the correct way to visualize the profit percentages.

I would leave you with the following – in my career in this industry I have had the pleasure of studying and being mentored by a wide variety of pros that take a wide variety of approaches. Some of them are strictly chartists, and do very well by focusing on price action. Some of them are ‘high octane’ growth investors, and do very well by focusing on momentum and expanding top-line sales. Some of them are ‘deep value’ investors that buy distressed companies (whose charts would probably make you queasy), and they also do very well by focusing on undervalued firms. Point being, there are a lot of people that are very successful in this field, and many of them use different approaches. The fact that you are so dismissive of a strategy that you don’t use does not mean it doesn’t work, just that it doesn’t work for you. Perhaps instead of picking fights, you could see if you could learn from a different viewpoint and find a piece of information to add to your own approach to make you a better investor. I used to be a fundamental-only guy, then I found by adding certain pieces of TA my results improved. But that is just what worked for me, and I would never talk down to someone who was having success with a process that was different from my own.

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