Although short selling -- the practice of selling borrowed shares with the hope of repaying the loan by buying back the shares at a lower price -- goes against the American belief that stocks always go up, I have long been fascinated with it. Short Stories discusses what works, what doesn't, and what some of the leading lights in shorting stocks think about its opportunities and threats. I describe possible short trades and I seek your comments and questions for story ideas. I don't offer any investment advice and I don't trade on any of the posts I write.

I first suggested selling short Bally Total Fitness, Inc. (Pink Sheets: BFTH) last November at $2.59. Why? Bally owed $512 million this year, was spending $7 million more cash than it was taking in, and I doubted that banks would lend it enough money to stay afloat. Back then my biggest concern for the short position was that hedge fund billionaire Stevie Cohen had placed a big bullish bet on Bally -- his SAC Capital Advisors owned 6.9% of the company. I figured he must know something that I didn't.

But on Thursday, Cohen's bet went bust as Bally filed for bankruptcy. According to its filing, "Under the prepackaged restructuring plan, there will be a reduction in the principal outstanding on Bally's existing senior subordinated notes by $150 million by exchanging all existing senior subordinated notes for a new class of notes, common equity and the right to participate in a $77.5 million rights offering."

SAC's wipe out provides a useful insight for investors -- even the most talented players make mistakes. It's just that they make more good calls than bad ones. Meanwhile, those who followed my suggestion to short Bally could cover their position on Monday at $0.31 a share, pocketing a 736% return -- not bad for eight month's work.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Bally.

Although short selling -- the practice of selling borrowed shares with the hope of repaying the loan by buying back the shares at a lower price -- goes against the American belief that stocks always go up, I have long been fascinated with it. Short Stories discusses what works, what doesn't, and what some of the leading lights in shorting stocks think about its opportunities and threats. I describe possible short trades and I seek your comments and questions for story ideas. I don't offer any investment advice and I don't trade on any of the posts I write.

On October 8 I wrote about Bradley Pharmaceuticals (NYSE: BDY) arguing that I would stay away from the stock which was vulnerable both to a short squeeze and to weak fundamentals. Well, according to TheStreet.com, the short squeeze argument won out -- after BDY's CEO offered to take the company private at a 17% premium over its last closing price.

If you had found the short squeeze argument compelling, you could have bought the stock at $16.47 back on October 8 and could lock in a 37% profit if you sold today at its current $22.49. I find this interesting since BDY's CEO offered a lower price -- $21.50 a share.

Although short selling -- the practice of selling borrowed shares with the hope of repaying the loan by buying back the shares at a lower price -- goes against the American belief that stocks always go up, I have long been fascinated with it. My plan for my new blog series, Short Stories, is to discuss what works, what doesn't, and what some of the leading lights in shorting stocks think about its opportunities and threats. I will describe possible short trades and I'll seek your comments and questions for story ideas. I won't be offering any investment advice and I won't trade on any of the posts I write.

Bally Total Fitness Holding Corp. (Other OTC: BFTH) is in poor financial health. But there are some very smart investors who believe Bally will survive -- Stevie Cohen didn't build a 32,000 square foot Greenwich, CT mansion on money losing bets. On the other hand, 4.5 million Bally shares are sold short -- 11% of Bally's shares outstanding -- this makes me wonder what Cohen sees that I don't.

Bally generated $1 billion in sales and lost $19 million in the last twelve months during which time its stock tumbled 60% to $2.59 -- yielding a stock market capitalization -- shares times stock price -- of $107 million. A quick look at its balance sheet reveals a sobering reality -- Bally's liabilities are greater than its assets by $1.4 billion -- and Bally has had a negative net worth since 2003.

This raises a fundamental question -- how has Bally been able to stave off bankruptcy for so long? Thanks to an electric jolt to its economic heart from JPMorgan Chase & Co. (NYSE: JPM) in the form of a $284 million loan -- Bally came back to life after a sudden cardiac arrest with its announcement that it would not be able to make a payment due next April. Can Bally keep its heart beating long enough to make its stock a buy?