Money, Trading and Investment Questions

[KC Scott]

I guess the best way to start this fourm is to see what everyone:

Knows
Think they know
Don't Know
Don't know what they don't Know


Right off the bat - I sure as fuck don't know everything.

What I do know - There is a difference between trading and investing.
I'll explain later.

I'll also talk about diversification.
I'll try and answer what I can and go look for the answers I don't have.

As some of you may know, I actively trade stocks.
I also am familiar with Mutual funds and portfolio diversification objectives.

Right now, I'm of the opinion the market is going to have a serious correction - soon.
Sorry I can't give you an exact date - beacuse there is never one.
There may be a "Black Friday" where there is a dramatic fall......
But most likely it is a gradual decline marked by spiked attempts to regain what is lost.

More about all that later.

for now let's just start with any basic questions anyone has:

[A.C. Crut]

JCFag wants to know....boxers or briefs?


He's afraid to ask.

[Mister Bushice]

explain how you make money shorting stocks.

[KC Scott]

explain how you make money shorting stocks.

If you believe the price of a company is going to fall you can sell the stock short.

First you must have a margin brokerage account.

You then "borrow" the shares to sell them.

Lets say you believe XYZ company which sells at $50 now is going to fall

You would Sell Short 100 Shares of XYZ at $50.

If the stock fell to $40 you would "Buy to cover" 100 Shares of XYZ and pocket the profit of $1,000

If XYZ went up, though - you would still have to cover - That is the risk.

Hope it helped

[JCT]

Crut wants to know if he should be bullish on bear cock or bearish on bull cock.

[KC Scott]

Crut wants to know if he should be bullish on bear cock or bearish on bull cock.

Both will provide a liquid return

[Mister Bushice]

So is that a total gamble, are you going by charts and trends, or is there some method to determine what the safe bets are?

also - how are you doing overall this year shorting? positive, negative? what percent either way?

[KC Scott]

So is that a total gamble, are you going by charts and trends, or is there some method to determine what the safe bets are?

Good question - and the best answer is there are no safe bets either long or short.

The reason you short, obviously, is beacuse you believe a stock is going to drop.
The better question is why do you think the price will decline?

In some cases it has to do with over speculation - A good example of this was earlier this year with PEIX Paciffic Ethanol.
The company hadn't made any money and ethanol sure wasn't "the Answer" to our energy issues.
I shorted that at 35 in May and covered at 23 in June.

In some cases it has to do with problems with the company - I shorted several of the tech companies that had options problems as I knew they would impact earnings.

In some cases it is just the trend. And in one case - it was a total change in philospohy.
There is a Biometric company called Cogent technologies. I had been long and got my ass kicked in 2005.
I totally reversed course and went short this year from 21.60 to 16 (I should have stayed short as it is all the way to 10 now)
Great company - terrible stock

I'll break out some charts later and show you the ABC's of trends, at least what I look at

also - how are you doing overall this year shorting? positive, negative? what percent either way?

I'm up around 13K on my shorts this year - and that's with getting squeezed bad on a couple of plays.
One was a company called Rediff which is an Indian internet company with Zero earnings.
I had played short from 18 down to 15 in January and then Jim Cramer started pumping that shit one night on Mad Money. It gapped up like $5 next day and I kept trying to average it back down. I finally bailed out at $23. That shit went all the way to $33 before colapsing all the way to $12.50. Lost over $10K on that one

Over the long haul - you do far better being long than short. But you have to adjust tactics to market conditions.

Right now I see a market that has gone up in a straight line for quite a while.
Market climbs have to be tempered with periods of selling.
What you see marking the end of major bull markets are parabolic ascents.
They are rare and they are met with a major sell off, correction, crash or whatever you want to call it.

I'll recommend a good book, not on technical trading but just on the stock market and the trading mindet; It's called Reminiscences of a Stock Operator written by Edwin Lefebre. It's a biography, so to speak of Jesse Livemore from the early 1900's. Funny bu a lot of what he saw during that period still holds true today - The manipulations, pump and dumps, etc.

One of the lines from that book is absoulutely the last word on trading or investments:

It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation.”.

[Mister Bushice]

Ok I'm gonna cherry pick from your post a little.

I kept trying to average it back down

How do you average something down? an example would be helpful.

I shorted that at 35 in May and covered at 23 in June.

Is there an amount you have to specify when you short X number of shares, or do you just tell your broker to cover at a specific dollar value, and can you hold off if you think it will keep going down?

That shit went all the way to $33 before colapsing all the way to $12.50. Lost over $10K on that one

What caused the collapse? was cramer the reason for the rise? When he pimped it, was he advising to get in for a short ride, or a long one?

[KC Scott]

How do you average something down? an example would be helpful.

Dollar cost averaging means adding additional shares either long or short.

In the case of a short, Let's say your convinced a stock is going down.
You short 100 shares at $30 - so your basis is $3,000
Now the next day the stock moves up to $32 - but your still convinced it will drop,
So you short another 100 shares - Now your basis is $31
Since stocks retrace recent prices almost 80% of the time, it gives you a chance to recoup if you didn't pick the right top / time

Same principal for buying long and the stock drops.

Is there an amount you have to specify when you short X number of shares, or do you just tell your broker to cover at a specific dollar value, and can you hold off if you think it will keep going down?

OK first of all, I don't use a broker - at least not one for adivce. My online brokerage is Scottrade.

When I go short or long, I'll have a strategy in mind from the onset.
Let's say I was shorting XYZ company and it's current price is $50 per share
I'm sure it's headed to $40 so I'll short at $50
I'll watch price action and when as starts heading down and see how it behaves as far as volume and at different support and resistance levels.
If there is a big spike up at $45 on volume - I may cover there.
When I hit my target, I'll cover 50% and then let it run with a trailing stop.
A stop is an order to cover (or sell if your long) if the price reaches a specific point.

What caused the collapse? was cramer the reason for the rise? When he pimped it, was he advising to get in for a short ride, or a long one?

Rediff was a wildly speculative stock that another trader turned me onto.
It had gone from $6 in Feb 2005 to $22 in Dec on Zero earnings and scant revenues.
It was when India and all stocks India were red hot
About the time people noticed the market cap was $700m and revenues were less than $2m I think they figured out this wasn't gonna be the next Google and it started dropping.

Then one night Cramer starts ranting about India and their great emerging economy. He pumped REDF as the Google of India and it started going up. I had no idea the volume he could generate (at that time) and should have got out. He pumped it 2 more times on his show that week. I was so convinced it would fall back down I shorted more. finally the pain got me and I covered at a bigger loss than I should.

One thing about trading is you have to set rules for yourself. You have to have a set amount your willing to risk and get out at a small loss if the position turns against you. It's the toughest lesson to learn and far and away the most expensive.

I'll post another story from the 2001 market crash - even more horrible - when i get some more time.
It's what got me started in actively managing my portfolio.