The (Not So) Big Short

Those who know me know that every now and again I like to play the ponies on the NASDAQ and the NYSE.  It’s all sorts of entertaining and every now and again, I can make a couple of bucks doing it.  Buying and holding is fine, but the real fun is in shorting.

The idea behind shorting is that you’re essentially betting a company’s value will go down over time rather than up.  You sell shares in a stock that you don’t own, then hopefully buy them back at a lower price in the future.  The problem of course is that there’s no limit to the amount of money you can lose and your broker can do a margin call on you at any time, forcing you to cover your short.

There are a lot of people that think only a true shitheel would short a stock.  People who short are the same types of people who go to a craps table and bet the Don’t Pass line, making money when everyone else loses (since typically the short ratio is very small, in this case about 4.3% of the float).  So of course it should not come as a surprise to anyone that I do get a kick out of shorting every now and again.

Back in February, I shorted a dotcom company Marchex (MCHX).  I sold it at $8.83 and bought it back at $6.82 in April.  The market had a bit of a run-up in May along with some general excitement about dotcoms with the upcoming IPOs for Groupon, Linkedin, Pandora, Facebook, etc. so the price for Marchex went back up, reaching $8.45 yesterday.

Since it was back in range, I decided to short it again.  I sold it at $8.31 on 6/14 (clearly leaving some money on the table since I’m a rank amateur) so we’ll see how it goes.

As for why I’m shorting, I simply don’t believe in the core fundamentals of the company and it’s business.  In my opinion, they are a lower tier player in the local search game and there is far more downside than upside, especially when you’re going up against companies like Google, Microsoft and the various Yellow Pages websites.  Local search has huge growth potential, but I’m not a fan of the way Marchex is going about it.  I also really don’t believe in the pay per call business, which they’re pushing hard.

I’ll give myself a limit of $10 on this thing, meaning I’ll cover the short and take my medicine if the stock starts running and crosses the $10 price.

Disclaimer: This is NOT in any way suggesting that anyone should do what I’m doing.  I am simply writing about what I am doing personally.  Playing the market is risky and shorting is extremely risky to the point of being reckless.

If you do play the market, do your own due diligence and don’t go on the word of some lone jackass writing a blog, especially one that doesn’t work in the financial industry.  If you want real market advice, go to a site like the Motley Fool.  Those guys actually know what they’re talking about.

2 thoughts on “The (Not So) Big Short”

  1. Selling something you don’t own sounds more than a little illegal. But then, that and fear is what the stock market is all about.

  2. Naw, shorting is all sorts of legal. You just have to have enough juice to cover in case your broker gives you the dreaded margin call. This short has been a bit rougher the second time around. After I shorted, it dropped about 5% or so, but then spiked near $10. Still riding it since it hasn’t hit either target. Mos def not for the feint of heart.

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