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How to short
Lawrence Ventour
Posted: 16 May 2018 13:10:42(UTC)
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@King Lodos - WOW. The theory sounds 'elegant'. But perhaps not incontrovertible ...??
Thanks for the direct response, KL. - LLV
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King Lodos on 16/05/2018(UTC)
Tony Peterson
Posted: 16 May 2018 13:25:41(UTC)
#23

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It is possible for individual investors, to profit from short selling without short-selling yourself.

As major short-selling positions have to be declared, keep an eye on them and pile in, hopefully before the mega shorters have covered their positions.

I seem to have done this recently very successfully with Sainsburys. And others.

King Lodos
Posted: 16 May 2018 15:08:27(UTC)
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Lawrence Ventour;62390 wrote:
@King Lodos - WOW. The theory sounds 'elegant'. But perhaps not incontrovertible ...??
Thanks for the direct response, KL. - LLV


There are lots of articles if you search: Market Efficiency Short Selling.

With an important European vote on short selling approaching ... it is worth remembering that it is not only market participants who think shorting is a good thing: financial regulators do too.

“Short selling plays an important role in capital markets for a variety of reasons, including more efficient price discovery, mitigating price bubbles, increasing market liquidity, facilitating hedging and other risk management activities.”

Short selling is really just a way of expressing a view that a particular stock is over-valued ... And it is important there is a powerful incentive for investors to find out what is wrong with individual companies. For example, it was shorters who were the first to work out that something was up with Enron.

Short sellers devote considerable time, effort and resources to establishing the reality behind corporate rhetoric ... Rather than being a source of trouble, the practice actually offers regulators a useful way of anticipating trouble.


http://www.ft.com/content/cb22ac84-3cdb-11e0-bbff-00144feabdc0
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Fell Walker on 16/05/2018(UTC)
Lawrence Ventour
Posted: 16 May 2018 21:59:47(UTC)
#24

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@King Lodos - You continue to impress! Thanks for the reading referrals. (If you were to leave out the 's' in the hyper, I think one may be able to click straight there, without having to copy & paste?).

I certainly am not a doubting Thomas of the reality (positive and/or negative) of Shorting. I just am not so sure of the NET positive to the common weald. i.e. is the absolute opportunity cost greater than the absolute net return? Perhaps it may be better to regard myself as being ambivalent on this one.

That said, I pay attention to what is going on in the world of Shorting. For example, although I think that Greencore (GNC) is a reasonable LT stock - despite the US stumble - I've got the H--l out of there because GNC continues to head the list of the 'shorted'.

Thoughts, anyone? - LLV

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King Lodos on 17/05/2018(UTC)
King Lodos
Posted: 17 May 2018 01:28:16(UTC)
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Well thanks! And I can't get that link to work now – I think it had given me my weekly free FT view.

There's another paper you reminded me of: 'Can Short-sellers Predict Returns? Daily Evidence'
Increasing short-sales predict future negative returns, and the predictive power comes primarily from small trades. A trading strategy based on daily short-selling activity generates significant returns, but incurs costs large enough to wipe out any profits.


Certainly as far as typical traders go, short-selling is rarely long-term net profitable – which you can read about in the Market Wizards series .. Shorts mainly form parts of hedging strategies .. A common quant trade today (which funds like F&C Equity Market Neutral do) might be to go e.g. long Small-Caps, short Large-Caps .. So you're knowingly losing on the shorts, but the long-term tendency for Small-Caps to return more gives you your net positive return, with market neutral characteristics.

But as far as market efficiency goes – as we've got more ways to trade, short, insure against or bet on certain outcomes – markets have become a lot more efficient .. and even trades like that quant trade are flattening out know market inefficiencies (even without doing any company-specific research).

Back in the 80s, you could make money in almost any market just trading short-term momentum – betting on things that had gone up over 5 days .. You wouldn't win every trade, but funds like Renaissance Technologies started out with very simple strategies like that – making very high, market-neutral returns .. As information and ways to trade have multiplied, those inefficiencies have become much rarer
Lawrence Ventour
Posted: 17 May 2018 08:43:48(UTC)
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@King Lodos - Well said. There is much more to this short-selling thing than a cursory glance would indicate.

As far as the 'predictive power/s' of short-selling goes/go, I think that there is a lot of the 'self-fulfilling prophesy' there. Cowards (like I am) look at the short-selling history of a stock and either bail out (a la GNC) or do not go in, in the first place. The result is - more often than not - quite predictable. But every now and again the Short Sellers get those fingers badly burned. Ocado Group (OCDO) comes to mind. - LLV
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