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Performance Update: Sell and Short Recommendations

Investors are getting  bearish these days, which comes as a surprise to me, since I'm used to being in the minority.  I was a bear when I first took the leap from mutual funds and started trading stocks in 1999, and am a bear still.  I wish I'd turned bullish for a couple of years at what I consider to be the large bear market recovery of 2003-2006, but I didn't.  However, since I was (and still am) bullish on commodities since around the same time frame, I can't complain about my returns over the period.

This spring, I was more bearish than usual, which is why I brought you my ideas for stocks to buy when you think we've hit bottom, and some very un-green stocks to consider shorting.  With it becoming clearer and clearer that GM, Ford, and Chrysler are in serious trouble from high oil prices, while the Airlines are going from bad to worse, I only wish I had been less cautious about advocating shorting these industries than I was, and also that I'd been willing to take bigger risks myself.

I've already covered by proposed short of First Solar (FLSR) in a previous performance update, but I'll also throw in the various stocks I've warned people to stay away from here.

Stocks We Love To Hate

My April 20 article on un-green stocks had the following suggestions for shorting, which I will benchmark against the 7.5% decline of the S&P 500 since then (as of the close on July 1.)

Short idea What I said  Performance
Tyson (TSN) "the vegan investor might consider shorting"  24.6% decline
China Fund (CHN) "shorting China scares me"  11.2% decline
Trucking Industry (I chose JB Hunt (JBHT), because I see their trucks all the time-- I'm no trucking expert) "take a look at shorting long haul truckers" up 5.1%
Airlines -  NWA, DAL, and LUV "we may have missed the plane on this one" - I changed my mind about airlines a week later and shorted the three stocks listed 32% decline; 36% decline; up  4%
Housing Developers - KBH (I'm also no housing expert, but KB Home sticks in my mind as a builder who slaps them up fast and cheap. "strike a blow against urban sprawl" 29% decline
Coal ACI  "Don't do it." up 24%
Oil  XOM "Don't do it." 6% decline
SUVs Ford (F), General Motors (GM) "I feel strongly enough to actually dabble in this" 33% decline, 29% decline

As you see from the chart above, the sector I said I was shorting myself was down about 30%, and the sectors I said people should consider shorting were down and average of 13.3%, slightly more than the 7.5% decline of the S&P, although there was a wide variation between the different companies chosen.   The three I suggested were bad ideas to short (China, Coal, and Oil) included the biggest gainer I talked about (Coal) and the other two roughly matched the index, so I'm pleased with the performance of these ideas as a whole, and not to mention my auto and airline shorts.

Pink Sheet Stocks to Avoid

I've also come out against a few pink sheet stocks which caught my attention (usually because a PR person sent me one-too-many press releases.)  I'll benchmark these against the iShares Russell Microcap Index ETF (IWC) from the dates of the original stories.  IWC is not a great benchmark, because even microcaps are considerably larger than these tiddlers, and there is no energy emphasis, but I know of no existing index of tiny, non-listed energy companies for comparison.  Click on the company names for the original articles.

Company Date Stock Performance Benchmark
US Sustainable Energy (USSE) 7/2/2007 -72% -27%
Global Resource Corp (GRBC); October 2007 Follow-up 7/20/2007 -56% -28%
PetroSun Drilling (PSUD) 3/15/08 -22% -4.2%

All in all, it's been a good time to be short, and I'm certainly happy with my performance (although I've lost plenty of money by shorting in the past, most of it during the 2003-2006 recovery.)  As I learned in studying for the level III CFA exam, it is often easier to find good ideas for shorting than it is to find good long ideas.   There are fewer analysts looking for overvalued stocks than for undervalued ones, so there are more overvalued stocks to go around.  If only my broker would let me short those pink sheet companies!

The End, For Now

With this article, I have covered most of the stocks I've written about in 2008, and some from 2007.  (See also 10 Speculations for 2008 and 10 Stocks to Buy on the Cheap.)  I plan to revisit these in 6 months or so, but if you have suggestions for other "performance update" themes, please leave a comment.

DISCLOSURE: Tom Konrad has short positions in NWA, DAL, LUV, F, and GM.

DISCLAIMER: The information and trades provided here and in the commetns are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.



was posted on AltEnergyStocks.com.


       

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Comments

I recently bought shares of AAE INC (AAERF, and I am currently down 15%.

I was wondering what your recomendations are now on this stock?

I know you have been following it for a long time

Is it a good candidate for a buyout from american super conductor or GE?

My general advice is to buy companies because you believe they have good businesses. If that is the case, then they'll either give good returns through increased profits, or though acquisition by other companies... Don't waste time worrying about which company might buy you out... hold it if you think it is worth more than the current price, sell otherwise.

Here is a recent article on AAER.

with the SLAUGHTER of Wind Stocks by the stock market in last 3 months, why not a Wind Index post the demise of the DOW Jones????
APWR down 28% TODAY ALONE
Broadwind down 20% today
PWND down 10% today
PBW down 12% Today

Keith,
I'll keep it in mind, but right now I write everything is out of date by the time I publish it.

At some point the market will calm down, and we can pause to count up the damage.

One thing I can say about my shorts: I wish I had taken MUCH bigger positions.

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