“The market, clueless as usual, does not price in the risk of loss.”
How delightfully naive you are. The market, in fact, does price in the risk of loss, but perhaps not at the “correct” time or to the same degree that you do. The market is certainly not clueless, although it is fairly impatient. I guarantee you that I can find 100 analysts who are not short WAMU’s stock who have forgotten more about the company’s financials in the last 60 seconds than you will ever know. That is they understand WAMU far better than you ever will and they still choose not to short the stock. Why? Timing is everything to a professional.
I actually agree with you that at some undetermined time in the future WAMU’s stock might decline for reasons that we would agree on. But the timing and extent of that decline are highly uncertain – even for professionals that watch WAMU every day. That you think that you have some analytical insight that these analysts don’t have is incredibly naive. In fact, you’re at a distinct disadvantage. The ONE advantage you do have, though, is patience. Most professionals can’t wait a year or two for the WAMU boat to sink – they have to be right within six months or so. Otherwise, their job is in jeopardy. Furthermore, there are some very smart people who are short WAMU, so you’ve got that going for you. But, stocks can trade anywhere in the short term – they’ll defy the fundamentals. Remember: the stock doesn’t know you own it, and doesn’t care.
I’m going to beat a dead horse, but I’d stay away from shorting individual stocks. It’s a full-time pursuit and I know plenty of savvy professionals who have lost their asses shorting “obvious” shorts. And remember that lots of the people analyzing WAMU’s stock have myriad sources inside the company that tip them on loan trends, etc. You’ll never be able to compete with that. The stock market is like a poker game: If you can’t spot the fool at the table, it’s probably you.
Having said all that, do I think WAMU’s stock will be lower at some point over the next two years than it is today? Yes. But it’s not a bet I’m willing to take. And, more importantly, it’s not a bet I have to take. There are no called strikes in investing – you can pick your spots and swing for the fence when you get lobbed a softball. WAMU – long or short – is no softball.
