Are There Still Shorts to be Found?

After 2 days and 900 points down, I am still some how finding shorts. The market is moving so fast it is hard to feel safe recommending new ideas.

It is difficult to guess at a bottom.

I was speaking to one friend who thought the market would calm down after the election. I don't think that will make much difference but hopefully I will be wrong.

I saw 2 articles this week, one said the economy may not be in bad shape and another that said we were at a bottom. Taking a contrary view you would have to wonder about both.

When things are on the front page of various news papers bet the other way.

So, got to look forward to the world series. That should be fun.

Monday was Wild

The market has been crazy for weeks but Monday was really wild.

We were up 980 points a new record for sure. The problem now becomes, what happens from here. I think the market will have to at least retest or get close to Fridays low as a start.

Earnings are starting to come out and we will see how cautious people are and what tone that sets for the market. It could be very volatile from here until the end of the year.

I think that there will be plenty of stocks that will go down whether the market is strong or not.

Are We Any Better Off?

The market isn't responding to the liquidity added to the economy yet. The feds agreed to buy commercial paper issued directly from companies and in a few weeks the bailout package will start to hit.

In the meantime, yesterday I watched the market go from down 200 to up 150 to down 250 to up again and finally closing down nearly 200.

The actions of the government are not making anyone more confident in America or its money.

The Dow is down 37% from the highs it set last fall and people are in a panic. It seems like the market has no chance and things are moving down so fast it is hard to find something to short.

You can basically short anything right now so fundamental research isn’t playing any part in anything.

Today, Thursday, we were down another 678 and I have no idea what to think.

Mutual funds which are supposed to be the safe havens of the market are down huge amounts over the past year. Fidelity Magellan is down 44%, I doubt people ever thought that could happen. I certainly didn’t. Peoples lives are changing and mostly for the worst.

Is this Market Botton?

Today brought the news that Warren Buffet had invested 5 billion dollars in Goldman Sachs. He said that the government was doing the right thing with the bail out.

Then I read that Bill Gross from PIMCO said the government was doing the right thing as well.

So I guess we are now near a market bottom.

Both men are extremely smart and understand these sorts of debacles.

Let's hope that the politicians don't spend too much time trying to figure out how to mess things up. If they do the market will collapse.

Wrong Target

As I am sure many know, the government has intervened in a large way. I haven’t seen anything this large ever. $85 billion to AIG is small compared to the $900 billion they are going to help out financial institutions with.

When the government came out and said no short selling, well that was a bit too much.

People now have the wrong reason for the market decline. It isn’t short sellers, it is bad management decisions by financial companies such as Bear Stearns and Lehman Brothers. Those companies and others ended up making large over sized bets that nothing could go wrong. Almost all of it is real estate related. And plenty has gone wrong.

We haven’t seen the end to this crisis just because someone diverted the attention off of the financial problems to people who short stocks.

You will now get artificial up moves in stocks because people will believe these problems are over.

Banning short selling may be one of the worst ideas ever, even if it is only in financial stocks banning. Forcing people to short stocks legally is another matter and I hope that part of the plan works.

I wonder how much bad real estate paper is left to write down. It has to be more then the 900 billion. That will tell us when the market decline is over.

I think most of these moves by the government are politically motivated and they may not be in the best interests of the American people. Blaming short sellers is sort of retarded.

This week was extraordinarily stressful for traders and investors and me.

Financial Institutions Getting Crushed

It is interesting to watch these financial institutions get crushed.

I have no information or way to know if Bank of America would buy Lehman (I wouldn't have enough knowledge to know what they were buying, in terms of assets).

But, the amount of leverage they were using must have been so large they couldn't get their hands uncuffed at Lehman. So many billions of dollars down the toilet for investors and employees.

It will be too bad for all the people out of jobs and all the people who have lost money in what should have been a very stable company.

How I became a short seller

I had a very interesting route to becoming a short seller.

I have never followed tradition: from not finishing high school to playing professional poker in order to supplement my income when I first started in the market.

For example, shooting pool was a big part of my high school life. While other 16-year-old kids were out drinking and messing around, I was using a different approach. I wanted to make money. This was in the ‘60’s and playing pool for 5 or 10 dollars a game wasn’t going to lead to riches. But I did learn that being a student wasn’t really something I was cut out for.

After leaving high school, I lived in Israel for 18 months on a kibbutz. I was just 17 when I left. The kibbutz had apple and orange orchards and also turkeys. I worked in the turkey area and most days started at 5 a.m. and finished at 5 p.m. All of the people I worked with there put in long hours. It always felt good to work and this was where I learned the value of hard work and putting your time in on a project. I followed this with a trip around Europe staying in youth hostels, camping out and meeting people. I still have a friend or two that I met on that trip.

Upon returning to the States, I tried going to junior college, but again higher education wasn’t for me. I ended up working in a gum factory for $2.50 an hour. I lasted about 9 months and haven’t had a real job since.

For the next few years I tried selling various things including gold and diamond jewelry. In 1978 I met a diamond and estate dealer who put me in business in the diamond and estate jewelry trade. He is still a dear friend and one of many who gave me a good starting chance in life.

In order to supplement my income from the diamonds, I started playing poker. I started in a relatively small game playing for 100 to 200 dollars. By 1980 I had graduated to a very large game for its day. The game I played in then took $3000 to get into. It was a no limit game, so every hand all your chips were at risk. Even today it could be considered a BIG game and in 1980 it really was. Often times there was $50,000 to $100,000 on the table.

Learning about value started with diamonds, learning about people started with judging poker players. You can also learn value from understanding the value of cards in your hand. Do they have it or don’t they, can you call someone with all of your chips if that will put you out of the game?

Then there was the worry of whether you could pay the rent or feed your family. There really was only one option, which was not necessarily to win, but to survive. Basic economics applied to poker. If you didn’t have any money left, you couldn’t play. It was exhilarating and quite fun.

During that time, I made my first investment in the stock market. It was 1978. And I made my first short sale, an oil company, in 1981.

I continued playing poker until about 1984 when our business was growing so fast that I just didn’t have any time. It has been interesting to see the popularity of poker and tournament play grow over the last years. I rarely play anymore, although I enjoy watching some of the tournaments on T.V.

In 1980 I left the diamond business and started doing financial public relations for small oil and gas companies. At that time I met one of my early mentors who taught me how to read balance sheets and income statements. He showed me over and over again how to do valuations and how to understand business and their economics.

During that period oil and gas were all the rage and learning asset values was part of my training. It was simple back then: reserves plus acreage minus the debt gave you the value. It was amazing how many came up at zero.

I started managing money for a few friends in 1981 and then founded Feshbach Brothers along with my brother Matt in 1982; Falcon Research was started in 1984. The bull market of ‘91 made it particularly hard to be 100% short and we lost a few too many investors to keep going. My brothers and I trained 2 dozen short side analysts, many who are still active and successful today.

I have shorted hundreds of stocks over the years; many are no longer around. My scope has included energy, entertainment, financials, retail, restaurants, fads, frauds, dumb ideas, uneconomic ideas and companies who have missed the mark entirely.

No one I worked with in the early ‘80’s dismissed me because I hadn’t finished high school, hadn’t gone to college or business school. I was extremely lucky to have had people who taught me skills that have been useful for the past 28 years.

I was also guided by these same investors to do investigatory research and to dig into companies’ businesses. Learning about businesses from the outside instead of the companies themselves keeps you balanced. Doing the research and finding the key elements to a story is fun for me.

And finding a good short is one of those things that still gets my heart rate up.