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Sunday, July 5, 2009

Short Sellers (Part of the Axis of Evil)

The Demons of the Street intent on destroying shareholder value, causing panic and starting unfounded rumors to drive down prices. They are portrayed as Un-American, but is it unwise to bet that the roller will shoot a 2, 3 or 12 or bet on the do not pass line. Why is it unwise to not profit when you see a faulty strategy or execution in a business plan? I am fully aware that short selling is in asymmetrical and loses can be infinite but it has and can be extremely profitable. I have 5 stocks, courtesy of Barron's Short Alerts:

JCOM
MIDD
CMP
LRN
PTV

I am not short and do not own any of the positions above. However, the only position I am considering is Pactiv. The company has $1.35B in debt and $152M in cash. In what I believe will continue to be a credit retraction, PTV will have problems rolling over debt and issuing new debt. However, there are many companies with similar balance sheets that have seen rising equity prices. My recommendation is a starting point not a definite trade. Also, if the market ramps up and begins to rise, I would cover whether I am right or wrong. Short selling is profitable and you should keep an eye out for failing companies.

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