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JimVanMeerten (62.41)

How to protect youself from short sellers

Recs

3

March 11, 2010 – Comments (6)

On my blog, Financial Tides, I try to teach you that you need to take a disciplined and rational approach to managing your portfolio. My approach is very simple, I don't charge for using my system and updates are free and can be read on multiple sites. I want you to take charge of your own future. Use Internet tools and your own rational thoughts, you take charge!

The system can be summarized as follows:
1 - Find stocks that are consistently hitting new highs

2 -  Look for analysts reports that estimate increasing revenues and earnings

3 -  Use other free Internet sites to poll investor sentiment

4 - Always protect yourself from the unknown by using stop losses, either actual or mental

Last Fall I wrote reviews of 2 stocks, their names are not important. I pointed out that although the stocks were having consistent price appreciation, I could not find positive analysts reports or a large investor following. I cautioned that investing in these stock was highly speculative and any purchase should be protected by the use of stop losses.

Sure enough in just a few days the stocks collapsed and I became the target of cyber attacks by some short sellers. Let me explain why.

There are several groups of short sellers who identify stocks that are having upward momentum for no reason at all. They then short those stocks, alerts their paid subscribers to short the stocks and post negative reports across the Internet investing bulletin boards until the stock collapses. They close their short positions and then brag about how smart they are.

The last step is to cyber attack anyone as a stock manipulator, who pointed out that the upward price momentum was unwarranted before they where able to put their short sell scheme into place.

I will not be silenced by the Howard Sterns and Jerry Springers of the financial world. I will continue to point out stocks enjoying price increases for unknown reasons. You should continue to protect yourself from short sellers raiding your portfolio's value by the intelligent use of stop losses.

Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email JimVanMeerten@gmail.com

 

6 Comments – Post Your Own

#1) On March 11, 2010 at 12:07 PM, Vet67to82 (< 20) wrote:

These attacks should be reported, and investigated ... and tracked back to the perpetrators.   Short selling needs to be looked at closer ,,, especially if being used as a stock or market manipulator ...   and if short sellers are "bragging" at how "smart" they are ... then they're not  ... are they ..."cuz they''re pointing a huge sign right back to themselves ... so that'd be a good place to start investigating ... with the braggards.  

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#2) On March 11, 2010 at 2:03 PM, jdlech (< 20) wrote:

The surest way to protect your investments is to ask me to short it.  There's no better indicator that a tanking stock will rebound than the moment I short it.

 Sad, but true.

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#3) On March 11, 2010 at 2:44 PM, JaysRage (89.53) wrote:

The only part of that system that remotely protects you from short-selling is #4, and if you're consistently using #1, #2, #3 without understanding the fundamentals of the business to know why the stock is rising or what the company might be vulnerable to, then you are setting yourself up to buy into over-valued stocks that are vulnerable to depreciation, regardless of the cause. 

Short-sellers are just the opposite of long-buyers.   They look for over-valued stocks and look to profit from it.   If you're consistently buying under-valued stocks, you are much less at risk for depreciation due to short-selling or any other mechanism.  

Yes, stop-losses are good tools to protect you from being blind-sided, but if you use them to protect against frequently buying over-valued stocks, you will consistently be triggering your stocks to sell at a loss, which is a horrible strategy.   

Short-sellers are not the problem.  Owning over-valued stocks is the problem.   There are instances where a high short percentage can actually be a bullish indicator for a stock.   Stop trying to use poor technical analysis strategies to pick stocks.   Start with the fundamentals, do legitimate research on the company that you are buying.   Find companies that have not yet been identified by leading analysts and are therefore running under the radar.  

Seriously, it's investing 101.   Stop blathering about shorts.  The problem is with your system, not with anyone else who might be short-selling your consistently over-valued picks.   

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#4) On March 11, 2010 at 2:53 PM, Superdrol (97.11) wrote:

If you own a solid company then short-selling should not be a problem....like Apple.

 

People who cry about short-sellers are just making excuses on why they did not buy fundamentally sound companies to begin with.  Even if someone did 'spread' rumors, if the company is stable and you are a long-term investor this is only a minor issue.

 

 

Why don't you share your names that you warned about ? I think the names are very important.

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#5) On March 11, 2010 at 2:58 PM, TMFUltraLong (99.95) wrote:

Keep your eye out for Sith Lord's as well... they have been known to destroy investor wealth, just as the Overstock CEO....

UltraLong

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#6) On March 11, 2010 at 3:08 PM, truthisntstupid (91.81) wrote:

Love it when/if  someone shorts mine and drives it down.  Go ahead.  Please!  If you picked good solid companies a share price plummetting for no other reason than the stupidity of the herd should be a reason to buy.

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