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.

Short Stories: Bally goes belly up, yielding 736% return for shorts originally appeared on BloggingStocks on Sat, 02 Jun 2007 09:30:00 EST. Please see our terms for use of feeds.

Hedge Fund genius, Stevie Cohen, bought a tiny cottage in The Hamptons. According to the New York Observer, It's a trifling 10-bedroom, two-acre estate at 96 Further Lane, listed for $19.95 million by Corcoran Group.

Cohen, whose net worth is about $3 billion, has had more good stock bets than bad ones. His investment in AC Moore Arts & Crafts Inc. (NASDAQ: ACMR) has risen 19% to $22.47 a share since I posted about it last September. On the other hand, his bet on Bally Total Fitness Holding Corp. (Pink Sheets: BFTH) has not fared as well. I was right last November in calling it a good short -- it would be worth a 272% return if you closed off your $2.53 a share position at today's $0.68.

New York's elite is stunned by the modesty of Cohen's Further Lane real estate score. Although Cohen's new estate is "a schlep" from the water, "his schlepping" will be on a short, private ocean-access pathway. He decided not to buy a grander place because he decided that Further Lane will be his interim summer spot until he finds something a tad more spectacular on the ocean: "He didn't want to rent, and this is what he bought."

Even though he's made some bad bets, Cohen's net worth testifies to his fantastic track record. So what's a little schlep to the water?

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 the securities mentioned in this post.

Stevie Cohen's Hamptons cottage originally appeared on BloggingStocks on Mon, 21 May 2007 14:24:00 EST. Please see our terms for use of feeds.