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Chris Johnston
ParticipantChris Johnston
iamafuturestrader.comI am not shorting these stocks here due to the valuations. I do not invest on emotions or opinions. I invest or trade based on what my systems tell me to do. These stocks although they technically look terrible, have ratios that are just out of line for what I would short. I do tend to make more money on the short side than the long side, but do it mostly in futures which is much more liquid. The reason for this is prices drop much more quickly than they rise in general. There is no reason to be afraid of the short side in highly liquid stocks.
I am saving my stock money for the fall long trade. I am putting a large chunk on that setup once it is in place. It will be spread across a group of undervalued blue chips at the time of the entry, probably 5 stocks, 20% in each. This trade should take place approx Nov 1 – Nov 15th depending on market conditions at that time. I do not mind being in cash making 5% for several months, knowing that I will likely make 20% or so in a few months, hence getting about a 25% return per year in stocks. Regardless of the stories you hear, very few people do that year in and year out.
The market over time has such a strong up bias, that most of my models to not meet my minimum return criteria to do alot of short stock trades. I require over 90% accuracy and very low drawdowns. Stocks with low price to sales ratios, and low debt will never give you that over time. The testing on shorting these types of stocks does not give good results.
I do not want to try and pick the one exception to an overall trend based on my opinion. I would much rather have a set of outcomes all pointing the same way, then pick the best one of the good ones. Shorting low price to sales stocks is like taking a set of 100 buy trades, where 90 win and 10 lose. Then you focus on the 10 that lose and try to trade it as a short. You may get lucky occasionally, but over time that is a losers game. I would rather focus on the 90 that win and try to pick say the best 40 of that 90 and buy them.
Here is another example. Lumber has a very stong tendency to rally in the fall. If you bought lumber on the 18th trading day of October and held it for 6 days and exited, you would have a winning trades the last 18 consecutive years. Would you rather buy it on that day, or try and find a reason why this year it will fail for the first time in 19 years? The wind is fully at your back in that lumber trade.
It is my opinion though that shorting the RE sector over the next few years on bounces is probably a profitable play. I will do it in the housing futures if the liquidity ever shows up.
I do not in general like the thought of shorting weakness in a momentum type of play like what we have now. The fally stock rally may put some gray hairs on the shorts because they could drag up everything. This rally could be a biggie.
The one guy claims he is making big bucks on that trade so good for him. I am not trying to rain on the parade, this is just my position as to why I am not short them. I also think the housing fallout will be less severe than what some people think. For those who think the big crunch is coming, I do not see any reason why at some point they should not have put positions.
ParticipantChris Johnston
iamafuturestrader.comI do not need any more time, I have already been doing it. I would say about 80% of the people I have talked to in OC think prices will not fall much, if at all. THe great weather, job climate, the usual bs is what they use to support their argument. I do not even bother debating them, I just leave with the chesire cat smile on my face.
I just ran into two more yesterday. I do not care if people agree with my assessment or not, I have my plan and I am following it. I love to fade the majority, so me lika these kinda numba!
The majority is not wealthy, so why would they be able to predict accurately major asset class price swings?
ParticipantChris Johnston
iamafuturestrader.comFrom someone who has traded from both sides for over 20 yrs, I feel compelled to clarify one thing that is being discussed here. Squeezes are almost impossible for the insiders to pull off on highly liquid stocks like this.
The Squeeze is an insiders play make no mistake about it. As long as the stock you are looking at is trading over a million shares a day, and also has plenty of individual trades, there is nothing to worry about in terms of a squeeze situation.
It is only when the bulk of the shares are in a few hands, that a squeeze takes place. LEND is not likely to be a candidate for anything like that by looking at these aspects of it. Just stay away from shorting stocks either under $10 or with small capitalization, or low volume, and you should be fine.
Just for what it’s worth
Nice trade by the way
ParticipantChris Johnston
iamafuturestrader.comMy experience in dealing with the VRM was that the lowest price in the range was a price the seller would never under any circumstances take. They put it there to get more people into the game. How it will work in a changing environment is anyone’s guess. I dealt with it in 1998 with Prudential people. They told me at the time that the low price would always be below where you would ever want to sell. It is annoying when looking at listings to see that.
ParticipantChris Johnston
iamafuturestrader.comI too welcome the other side of the argument, but would like some numbers to back it up. Just having my own opinion reinforced will not make me any money. The only thing that makes me nervous at all about my view of a 30% drop that has begun, is that I am so sure of it.
My best trades as a trader are always the ones I am the most nervous about. Whenever I have been sure I was right, I have gotten my …. handed to me.
I do completely agree, that the long term prices of real estate are ever upward. However, just from an analysis standpoint I would challenge the bulls to point out one parabolic price move in any asset class ( you can name it ) that corrected sideways during the ensuing correction.
I have yet to find one, and I do not think we are in the midst of one in RE. For those that are new here, I have a good chunk of money in relatively liquid places waiting for a buy spot. That chunk is well into 7 figures, so do not target me as someone who cannot afford to buy a home. You can classify me as someone who is trying to time the market though. That is exactly what I am trying to do.
Timing markets is what I do for a living, and sometimes I am wrong. I am not so cocky as to think that I have the holy grail model for doing this. As a result, I absolutely welcome the bull side. If there is something I have overlooked I would openly consider it.
I am looking in the 1.5 range so mis timing that by 30% is 500k, and that is not chump change, so I wait patiently as a renter for now. I have bought and sold a few homes in the last 10 years, the last sale being at the end of 05.
It does seem to me just anecdotally, that things have changed dramatically in RE in just the last few months. It does feel like the tide is turning, and the numbers do support it. There are 3 major high rise buildings coming out of the ground in Irvine, with not one single pre-leased tenant combined in them. This is unprecedented. The standard would be about 50%. I am sure the appraisers could comment on this better than I can. Although this is commercial, the two are tied together at the hip. This is a topping sign, raw speculation. Two of them are Irvine Co. developments, so it makes it a little better than if it were anyone else because they have no carrying costs.
The comments on Greenspan made by Rich are the correct ones regarding the 2000 top.
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