Sunday, November 15, 2009
By Jeff Macke
Shortin' ain't that easy and you are going to pay and pay big if you think it is.
Let's talk about the three main things you have to know if you are going to go out there short 'cause if you don't know these things frankly you are driving naked with the lights turned off in your car and going 110 miles an hour. Johnny Law is going to take you down and so is Mr. Market.
Rule #1: Eternal Vigilance is the Price of Shorting
If you think you are going to short as part of a long term idea you are going to lose. Its' just that simple. Mainline some coffee friends because you are going to be watching everything, the sharpest rallies come in bear markets. Bear markets are not just the opposite of being long. Bear markets are nasty, snarling, grizzly beasts.
Rule #2: Trade the Trend
You've gotta live in the now. Don't make short bets on 'what should be' or 'what makes sense to you' or 'what's wrong with the government' or 'why we are all falling into the abyss and no one seems to know it except you so you're short'. Not going to work friends you are going to lose all your money and no one is going to have sympathy for you because you were kind of a grouchy cynic all along and drove people frankly just a little bit nuts. You have got to wait for the breakdown to begin to happen. The first headline stock pick I ever made was shorting GM and I was right ... six years later. You're not going to want to hang out there forever and explain that you are still a patriot and yet you want to bet against GM because the company simply should not exist.
I was right, I was early, that makes me wrong.
Shorting is cruel, vicious, mean and ugly and you better know it.
Rule #3 : Speed, speed, speed ... take your gains
Quickness is required to be short successfully. Pretty much the mantra of shorting is take your gains. Get out of there, get up, move along friends. You have to take your profits when you get them.