I've been looking to learn more about a long/short equity strategy. My current investment style is growth long only and would like to learn more on shorting to hedge. My main goal is to just learn so I'm looking to get advice on what resources online, books, articles I can read. I'm currently reading Einhorn's Fooling Some of the People All of the Time.
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Learn to trade options. You should be buying puts rather than shorting IMO, unless you have significant capital to put up as margin.
Any advice on where to start reading about it?
and Alex G.
Natenberg's Option Volatility and Pricing is good to explain the concept of delta hedging. You won't get as clear of an explanation, although it can be a bit dry at times. That material starts in Chapter 5 and fleshes out in Chapter 6. I'm sure you can find a torrent pretty easily.
When my portfolio takes on a short position, we look for deteriorating fundamentals and unjustified overvaluation. Some other characteristics of a good short position include: constantly changing CFOs, management blaming depressed price on short sellers, constantly switching auditors, and high account receivables. As far as online content, I recommend analyzing presentations for short ideas by well-known hedge fund managers to get a good grasp of the fundamentals behind a solid short position. The best ones I can think of are Ackman's Herbalife and Einhorn's Green Mountain.
Awesome presentation to follow seeing how nailed he got with Herbalife and JCPenney.
Um...both Ackman and Einhorn have in aggregate lost money on those bets (at least so far. Obviously, the future is unknown, but still...those would not be my top 2 examples for 'here are short pitches that have worked out')
Setting aside the important fact that neither of those shorts have actually, you know, made money up to this point, even if they had HLF and GMCR probably wouldn't even be the best shorts of either Ackman or Einhorn's careers up to this point... let alone the best shorts you can think of. What about MBIA and Allied Captial? Ever hear of Confidence Game and Fooling Some of the People All of the Time?
Second this (though I see you're already reading Einhorn's book). Once you finish that book, I think you'll start to realize the pain and suffering that goes into hitting a home run on a short. What these guys (and other well-known HF's) like to do, is exposure the flaws, try to force the crap down, hope people believe it, all before some old douche tries to squeeze you. They mostly have good intentions, but it's not very easy.
Not to say that you need a platform to set the market straight, but the way these guys sometimes go about it is very risky. Einhorn and Ackman believe they have moral obligations to expose these companies and are willing to fight them to the death. GMCR isn't the first stock Einhorn shorted heavily b/c of fraud/bad #'s and got killed, I can't remember the name of the internet stock from the early 2000's.
As per Amash3 any advice of good reading?
The Art of Short Selling is pretty good in that it mentions the sorts of things to look out for in a potential short and explains primarily through a lot of examples.
Shorts are hard. Ability to get the borrow needed to accumulate a meaningful position, high repo costs, and negative carry (if you're shorting credit) makes it tough to short unless you 1) have a material short-term catalyst and 2) high conviction in the long-term thesis.
Looking for some more resources to increase my knowledge about shorting, can anyone help? I am currently invested long only in growth stocks to give you guys some background. I look at fundamentals and potential catalysts for my long positions. Would like to find what shorts look for in terms of fundamentals what MLCM said was great but looking for more in depth/examples.
Financial Shenanigans by Howard Schilit, The Art of Short Selling by Kathryn Staley, Quality of Earnings by Thorton L. O'Glove, anf Fooling some of the People by Einhorn are all great. Read John Hempton's (Bronte Capital) blog. The above short presentations may not (currently) be working out, but they give you an impression of things you can look at. They are also good cases for seeing what can go wrong with shorts (squeezes, buybacks, short attacking, high earnings continuing in the short term). I would also recommend reading them.
Any time there is a public presentation, investor conference (ie Robin Hood, Sohn, Delivering Alpha), or anything similar, follow the notes (MarketFolly and ValueWalk are good for this).
Not an exhaustive list, but should help.
I would also recommend Creative Cash Flow Reporting by Mulford and Comiskey. I haven't read it myself yet but have heard great things about it.
that GMCR short just gets worse and worse
I see a lot of parallel's between HLF and Einhorn's Allied short. Just in terms of how the narrative is playing out. Wouldn't want to take either side, but as I watch HLF unfold it seems eerily similar to the events of Allied. 2c.
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