My top Shorts


What makes you think they’re good shorts? A bunch of these stocks already had big moves, like NFLX, SPR, P, and MNST already plummeted this past week. NFLX then soared again on Friday.

Yeah I would like to see your rationale for the shorts here. I have a few on valuation (though these tend to be the worse) such as LULU, RP and CRM. Another one has been TR, but I see no real catalyst. P is interesting though.

You have 10 short positions? That’s a lot in a PA.

NFLX soared because Icahn made a very interesting move going long a ton of calls. If no one makes a move to buy them in the next couple months NFLX will resume its freefall.

I am more of a trousers person myself.

I don’t think it’s a good idea to short LULU. This is a good company with popular products that’s growing fast. It might be overvalued, but valuation shorts can backfire pretty badly.

This. There is no such thing as a “valuation short” for a rapidly growing momentum stock. Everyone already knows its extremely highly valued. LULU wets its pants when growth slows materially and not before. So if someone has a call that LULU is about to run out of runway, that’s the time to bet against the stock. When these crack, there are usually two or three big gap downs in subsequent quarters until everyone fully comes around to the idea that it’s really over.

I haven’t really looked at this stock before, does anyone know what inning this is in?

As far as a momentum play, I’d say it’s in the fifth inning. I’ve said it on here before, but shorting momentum plays is just not worth it. They eventually implode, but no one - except Einhorn - seems to be able to call it.

Besides, my wife is trying to bankrupt me by buying all these damn yoga pants from LULU.

They’re callable if you’re willing to do the work. I’ve had several that have imploded within 1-2 quarters of the call. There is usually a tip off and then management lies about it. Never looked at LULU though. My boss looked and passed, that was good enough for me.

Your wife buying yoga pants is not a horrible problem to have lol

They’re damn expensive. They do look good though. I like this trend of housewives wearing yoga pants as casual wear.

^ That doesn’t sound like a short to me…I think you’d need to wait for sales growth to turn in the other direction before you’d short. You’d also need to take into account their future expansion plans. They’re viewing mens apparel as a growth opportunity. If that takes off…who knows.

Here is an example of a valuation short that got killed (if he really had a position):

“Red Hat is a company that provides service for open-source software. It has benefited from a focus by enterprises on reducing their software spend, and has reported impressive retention statistics. However, the valuation is fairly egregious, the stock has run-up based on recent inclusion in the IBD 100 and end-of-quarter portfolio window dressing, and some aggressive accounting. In addition, most sell-side price targets are below the current share price.”

I"m currently looking at RHT as a potential long…if it hits my price of 45.

Men’s yoga wear will not take off. It would be a catalyst for LULU shorts if management started aggressively pushing men’s yoga pants as the next big growth driver. These kind of stocks always run longer in the core growth area then people expect, and then they start reaching for something else and that something else usually fails (Street will buy it though at first because the company has so much credibility built up as the stock has increased 10x and people are greedy / stupid).

I’ve been doing yoga for about 4 years. The ratio of men to women in the classes is like 1:5 or 1:10. And men are fine wearing an old pair of Nike shorts. It’s not the same experience for us, it’s not a fashion-based activity. We also don’t need to wear shirts, which takes a huge portion of the product line out.

Disclosure: I’m long yoga instructors wearing LULU pants but not long the stock.

RHT, that’s a brutal chart for a short. Value investors be all, “It’s teh valuation, stupid!” but really it’s not. Value investors are a minority of market participants, and if the “discussion” in a stock is dominated by non-value investors, the valuation is more or less irrelevant. The price only gets crushed when momentum slows or people lose faith in the “story,” neither of which has anything to do with valuation per se.

You can actually argue the same thing on the long side under a certain cap range (I would argue $500 million, and especially $200 million). There are lots of “cheap” stocks, but many of them stay cheap. You need to have a reason why they’re going to become uncheap or you’re just spinning your wheels.

I would like to press the “like” button for this post. Instead I’m cluttering up the page with my own post to simply say I completely agree with you.

Come on Chad. Give us a feedback system.


Maybe if I add to the clutter Chad will come around. Probably not though, I’m guessing he will just ignore us.

Chad, you’ve been called out. The gauntlet has been thrown down. How do you answer?

I called him out here about a month ago but no material response yet.

Agree on the above point, on top of that I think value investors can be myopic when it comes to analyzing franchises, they tend to favor firms with lots of liquid assets on the balance sheet in order to find a margin of safety, but don’t look for firms with disruptive business models that can expand greatly in the future. For all of Buffet’s talents, he totally missed out on tons of awesome firms in the 90s.

Peter Lynch is an exception at this though, and probably has the best investment record I’ve seen.

you’re wrong Palantir…some actually look for good growth…buffet, munger, einhorn, greenwald have all bught into companies that were not “value” per se but turned out to be quite cheap when the company “grew”…

what you’re referring to is growth without a proven track record…

i reckon you find a business that is better than coke and put 50% of your net worth in it…

By growth I’m implying emerging firms, not just firms that grow. Coke was a 100 year old business when WEB bought it. Google is by your definition a growth firm, but really, it’s a global near-monopoly. (I think Google is better than Coke btw).

I’m not saying “without a proven track record”, many of these firms have proven business models, but value investors stay away from them because they are allergic to high PE ratios. There’s nothing wrong with that, and a perfectly legitimate way to invest, but I’d rather invest in Apple when people start discovering the iPod, rather than hunting for value in the firm when it starts declining.

I agree with Palantir. Value is a relative term in relation to what the future entity will be worth; it is not a static absolute term – e.g., XYZ is not a “value” simply because it is trading less than book value. That may sound extremely obvious to some, and yet, a lot of investors view “value investing” as the latter.

Wrigley when it was public traded at like 20x P/E multiple and I remember lots of people saying it wasn’t a good value at such a high multiple. Those people are not real investors. Wrigley was / is a ridiculously good investment with built in structural growth and pricing power, huge barriers to entry, scale, brand, etc. Pretty much everything you would want. It was a bargain at 20x on emerging markets growth.

The quality of the business is paramount to estimating intrinsic value, and the market is pretty bad at that calculus IMO. Market’s game is, what are the statistical measures right now, and are those increasing or decreasing, and are those immediately priced into the stock. It is bad at understanding long-term intrinsic value creation or destruction, and is slow to react to changes in business quality (in both directions).