Wednesday, December 24, 2008

Origins

This past summer, I was visiting a web-site that almost exclusively followed and reported about investment analyst opinions. As I was skimming the stories they covered, one of them stood out: "Rotten Investments Sink British Banks". And my first response was, "No WAY! There's an investment analyst firm called 'Rotten Investments'? Awesome."

As it turned out, the story was quoting an analyst firm with an unimaginatively boring name that had done a research report detailing a British bank that got hammered with their real estate-oriented portfolio. However, being a frequent visitor of the old "Stock Lemon" web-site, I had to appreciate how provocative an analyst site with a name like "Rotten Investments" could be. ("Stock Lemon" decided to get respectable and adopted the name "Citron Research".)

I don't intend to get "respectable". I write about rotten investments. As an investor, I am usually long some form of an index holding, either S&P 500 futures, broad-based index call option contracts, or index ETF's. It all depends on what I'm trying to accomplish and whether or not I feel compelled to use a little leverage if I think stocks, as an asset class, are relatively cheap. Against this backdrop of long index exposure, I take short positions in asset classes, sectors, and sometimes individual securities where I feel prices are irrational relative to the risk/reward potential I see in the security.

Short selling imposes a higher level of risk upon an investor than simply buying and holding a diversified portfolio of stocks. It's not for everyone. But even if you don't decide to short the securities discussed on this blog, you should at the very least consider avoiding the rotten investments discussed here.

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