Goldman Sachs (GS) made a huge mistake: it earned too much money when too many others lost large amounts. While the economic circumstances were somewhat different, this is very reminiscent of when Drexel Burnham Lambert made the error of profiting from deals no one else could have done, and then had the audacity to pay the genius behind the deals, Mike Milken, a great deal of money. Those howls of moral righteousness that brought down Drexel and Milken are echoing in the halls of Goldman Sachs.

Continue reading Comfort Zone Investing: Is Goldman Sachs the Drexel Burnham of Today?

Comfort Zone Investing: Is Goldman Sachs the Drexel Burnham of Today? originally appeared on BloggingStocks on Sat, 01 May 2010 10:30:00 EST. Please see our terms for use of feeds.

Continue reading Short City Update: Carnival Corp., Royal Caribbean: all stopped out

Short City Update: Carnival Corp., Royal Caribbean: all stopped out originally appeared on BloggingStocks on Tue, 15 Sep 2009 16:20:00 EST. Please see our terms for use of feeds.

Forget stocks, go for the parakeet: What kids are learning about Wall Street originally appeared on BloggingStocks on Wed, 29 Oct 2008 11:25:00 EST. Please see our terms for use of feeds.

Ted Allrich is the founder of The Online Investor and author of the just released book: Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he'll offer advice to investors who are just getting started.

There's a way to make money on falling stocks. It's called "going short" or short selling. But before you put in your order, you need to know exactly what you're doing and the consequences. One of them: You can lose an infinite amount of money when you short a stock. Maybe reading further is a good idea.

We've all had stocks that have dropped dramatically in a day or two or week, sometimes 50% or more. What took months or years to achieve is lost in a matter of hours. Wouldn't it be nice if you could make money that fast, or at least make money from stocks when they go down? You can if you short a stock and understand the total concept.

First, shorting a stock means you sell something you don't own. The process is simple: You put in an order to Sell Short a stock, and your broker executes the order, if the stock can be shorted. Sometimes certain stocks aren't allowed to be shorted but that's another column. Let's deal with the ones that can.

Continue reading Comfort Zone Investing: Going Short: Easy Money?

Comfort Zone Investing: Going Short: Easy Money? originally appeared on BloggingStocks on Sat, 01 Sep 2007 10:30:00 EST. Please see our terms for use of feeds.

The SEC recently eliminated the 'uptick rule', which was put in place after the Great Crash of 1929 in an effort to prevent bear raids. The rule mandated that stocks could only be shorted on an uptick -- the price of the short-sale had to be higher than the last price.

Some commentators, including Chuck Jaffe, are complaining that the end of the rule has allowed short-sellers to pile into stocks more easily than before. And maybe that's true. They complain that this has increased the volatility of the market, and maybe they're right.

But here's the problem: There's really no particularly intelligent justification for the rule. Short-sellers are already required to go through the cumbersome process of borrowing shares before they short. If we're really concerned about the uptick rule making it too easy to short and drive prices down, shouldn't we also implement a downtick rule? That way it would be harder for pumpers and promoters to drive up the prices of stocks.

Of course we shouldn't do that. That would be insane. But it's really not substantially less crazy than the uptick rule.

We have tons of regulations on short-sellers, and the fewer we have the better it is for America -- effective short-selling keeps things from getting out of hand like they did in the internet bubble. It also provides an incentive for investors to uncover fraud. The market has such a bullish bias, and it's great that people can also make money by looking for signs of trouble. That's what makes a market.

The elimination of the up-tick rule is not a loss for investors originally appeared on BloggingStocks on Thu, 30 Aug 2007 14:45:00 EST. Please see our terms for use of feeds.

No June gloom for hedge funds originally appeared on BloggingStocks on Wed, 11 Jul 2007 09:00:00 EST. Please see our terms for use of feeds.

ShareSleuth, Mark Cuban's pet project (He calls it journalism) that seeks to uncover fraudulent companies has a new target: Orthopedic Development Corporation.

For those of you who are unfamiliar with ShareSleuth, the basic idea is this: Cuban hired a guy named Christopher Carey to do investigative research into companies that may be engaging in deception and then write about them on the website. The way that Cuban pays for it is where it gets a little controversial: Before the "picks" are posted on the website, Cuban is told about them and he shorts them. This is all disclosed on the website, and Cuban bills it as a new type of financial journalism.

While I don't have any problem with what Cuban and Carey are doing, I'm not so sure it should be called journalism: Journalism is paid for through the sale of publications and advertising. ShareSleuth is more reminiscent of the work of Manuel Asensio, an investor who put out research reports slamming stocks he was short.

The site received a fair amount of negative publicity, and its latest pick differs from its first two picks, Xethanol (AMEX: XNL) and Utek (AMEX: UTK). Orthopedic Development isn't public and, as such, Cuban has no financial stake in the company. The choice of a non-public company may be an effort to appease those who complained about the supposed conflict of interest in the earlier picks, but I'm not impressed.

The problem with exposing a non-public company is this: Who cares? There's no way that we can seek to profit from the expose, and it's just not very interesting. Public fiascoes are much more fun to follow.

Meanwhile, Mark Cuban is writing about his colonoscopy on his blog. That could possibly be less interesting than the piece on Orthopedic Development.

Mark Cuban's ShareSleuth has a new target -- Does anyone care? originally appeared on BloggingStocks on Mon, 18 Jun 2007 12:40:00 EST. Please see our terms for use of feeds.

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.

Last November, I analyzed Bally Total Fitness (NYSE: BFT) and concluded it was a good candidate for a short sale. With its announcement today that it may file for bankruptcy, that looks like a good bet. If you had shorted BFT at $2.53 on November 6th and closed your position at today's $0.67, your return would have been 278%.

Back then I was concerned that hedge fund giant Stevie Cohen, who had bought shares of the company, knew something I did not -- his fund, SAC Capital Advisors, owned 6.9% of BFT. I guess Stevie can afford to lose money on BFT which had $827 million in outstanding debt as of March 14, and said that it may need to reorganize its operations under Chapter 11 if it's unable to restructure that debt. BFT also noted that it won't be able to file its Form 10-K for the fiscal year ended December 31 by today's deadline and it sees a loss from continuing operations for 2006.

I still don't know what Cohen saw in this investment but he still owns a 32,000 square foot mansion in Greenwich, CT -- and I don't.

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 bleeds out originally appeared on BloggingStocks on Fri, 16 Mar 2007 13:37:00 EST. Please see our terms for use of feeds.

McDonald's Corporation (NYSE:MCD) seems like a very nice company, notwithstanding the fact that it sells a lot of food that can give you coronary artery disease. The company's quarterly earnings were excellent. Revenue went up 10% to $5.88 billion, and net income rose at an even better rate to $843 million.

After all the good news, McDonald's stock moved to a 52-week high of over $42. The stock has been as low as $31.48 in the last year.

So, why does McDonald's have the largest increase in short positions of any stock traded on the NYSE? Not only was the increase large, it was spectacular. Shares short in McDonald's went from 13.1 million to 60.5 million in the month ending in mid-October.

For a short position in a large company to rise 20% or 30% is not odd. But for it to increase by a factor of four times is almost unheard of.

McDonald's stock has not been this high in over six years. And, if it adds a few dollars, it could hit an all-time high. That, by itself, may be a reason to believe that the stock could come down some. Just a little bad news can take shares back a few rungs once they have had such a substantial run.

But if McDonald's continues to do well, whoever bet against them could lose a lot of money.

Douglas McIntyre is a partner at 24/7 Wall St. He does not own securities in companies that he writes about.

Someone doesn't like McDonald's originally appeared on BloggingStocks on Tue, 24 Oct 2006 10:39:00 EST. Please see our terms for use of feeds.