Hi everyone,
Sooo,we’re all reading that the market is going into a recession early next year. I think it may be sooner.
This being said. How does one define the probability of a stock price declining?
Regards,
Paul
I don’t know that we’re all reading that, but here are a couple of Fool Ascent articles that may answer your question:
https://www.fool.com/investing/how-to-invest/stocks/shorting…
https://www.fool.com/investing/how-to-invest/stocks/how-to-s…
https://www.fool.com/investing/how-to-invest/stocks/short-sq…
Fuskie
Who has a different approach to the possibility of a recession, which is to say bring it on; he has a cash reserve ready and raring to go if the market wants to again offer him bargain basement prices for the companies in which he wants to invest…
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Paul,
You’re asking a question based on an assumption that can be questioned. Will “the recession” be next year, or are we already in one? (Or, “Is this time different?”) Scratch the latter. We’ve all seen this movie before. Stocks --as a proxy for all financial assets-- become over-bought, and “the market” --in its wisdom-- corrects the disconnect between ‘price’ and ‘value’ by selling down.
Some prefer to wait out the declines. Others attempt to profit from them. Frankel’s article suggests that can be done by selling short or by buying puts. But an easier method he doesn’t mention is buying inverses. Nor does he cover some of the hassles of selling stocks short, such as borrow fees, being responsible for the div, and the often unavailability of shares to borrow.
Selling short --in any form-- is a specialization that few investors attempt, because they suck at doing the fundamental and technical research needed. But if the idea intrigues you, track down the books and writings of people like Jim Chanos, Manual Asensio, or the early George Soros.
As for predicting the probabilities of price rises or declines for specific stocks, check out what the options guys do that regard.
Arindam
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