5/23/2011

Value investing heresy? Exploiting mispriced stocks by shorting

Investing in mispriced stocks and waiting for Mr Markets weighing machine to value the stock rationally.


So why not attempt to exploit irrational pricing on the short side? Why can’t this be a form of overlooked opportunities for value investing?? Is the path of least resistance when measuring gains for short periods of time far greater on the short side? I don’t have the data to prove this comment but it seems right.

Are opportunities for profitable short positions in mid cap and smaller stock far less analyzed and participated by investors. Does this area provide us with a niche?

We spoke mentioned in the previous post that the pain of losing and equivalent amount is far more painful than an equivalent gain. So this human ingrained survival emotion should create opportunities for the least resistance to a lower price and couple that with an area of the market that is almost completely ignored for the majority of market participants.

I will spend more time on this topic. Yes I’ve been investing and exploring stocks that will outperform; on the short side. I said it I’ve been shorting baskets of what I perceive over valued stocks.

2 comments:

valuegeek said...

Sound in theory, but as you've mentioned in the previous posts, many of the best microcap short targets, the frauds and scams anyone can spot from a mile away, are not available for borrowing on most online brokerages. Unless you are a hedge fund and have a prime brokerage account, you're pretty much restricted to shorting mid/large cap stocks.

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