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Deal Addict
May 17, 2013
1775 posts
279 upvotes
techcrium wrote: That's because going short is not the exact inverse of going long due to the fact that when a company bankrupts, the stock goes to 0. Stock values don't go to negatives.


When you are shorting, you create a situation where your loss is unlimited and your gain is limited. By that logic, you are forced to "time the market".

When you are going long, you create a situation where your loss is limited and your gain is unlimited. By that logic, you don't have to time the market.


Let's say you long BRK at $1200 for 1 share and I subsequently short it. BRK drops to $600. Ok you are down $600 and I am up $600. BRK keeps on not making money and eventually debt catches up to assets. BRK goes to 0. You are down $1200 and I am up $1200.
You lose your initial $1200 investment.

What about the other way around? What if BRK goes to $2400? Ok what if BRK goes to $5000?
My $1200 short is now liable of a part of my other portfolio. Eventually, after enough years, that single BRK short put my entire portfolio to 0.


Meaning, going long doesn't necessarily equal market timing and going short does equal market timing.
You really don't need to say it twice. I think many people are fully aware shorting carries unlimited loss potential. This is investing 101.

When you are shorting something, no matter what your time horizon may be, you are betting the price should go down. You call that timing the market. When you are long something, again no matter your time horizon, you are betting the stock price goes up or the accumulation of dividends provide a positive return. This involves a level of market timing also. When something is expensive, you will not be buying it. It makes no sense if you can get it cheaper later, or if the price falls immediately after you buy something.

Either way, you are betting on something. You picked your time of entering your trade. Investing always involves speculation, even though so called 'index long term investors' like to use that as a disparaging statement against 'short term traders'. Investing also involves a degree of market timing when you throw new money in, with possibly the exception for people doing DRIPs where buy ins are not timed on their own merit per se.

So, someone choosing to long a stock hopes the price goes up and chooses an entry that they 'think' is likely a good level wherein the price begins to rise because there is more 'upside'. A short, does the opposite by betting against it hoping the price is near highs and falls lower. Speculation and market timing is in both cases. What you are talking about is the risk profile and the theoretical losses. That is a separate discussion in itself.
Penalty Box
Apr 16, 2012
3565 posts
688 upvotes
Greely
sunshinemoonlight13 wrote: You really don't need to say it twice. I think many people are fully aware shorting carries unlimited loss potential. This is investing 101.

When you are shorting something, no matter what your time horizon may be, you are betting the price should go down. You call that timing the market. When you are long something, again no matter your time horizon, you are betting the stock price goes up or the accumulation of dividends provide a positive return. This involves a level of market timing also. When something is expensive, you will not be buying it. It makes no sense if you can get it cheaper later, or if the price falls immediately after you buy something.

Either way, you are betting on something. You picked your time of entering your trade. Investing always involves speculation, even though so called 'index long term investors' like to use that as a disparaging statement against 'short term traders'. Investing also involves a degree of market timing when you throw new money in, with possibly the exception for people doing DRIPs where buy ins are not timed on their own merit per se.

So, someone choosing to long a stock hopes the price goes up and chooses an entry that they 'think' is likely a good level wherein the price begins to rise because there is more 'upside'. A short, does the opposite by betting against it hoping the price is near highs and falls lower. Speculation and market timing is in both cases. What you are talking about is the risk profile and the theoretical losses. That is a separate discussion in itself.
Market timing = picking a time frame to enter and then exiting right?

Yes, in your example both the long and the short pick the time of entering a trade. Ok. Agreed. However, the difference is that the buy and hold investor does not have to exit his position at all. He can hold it to bankruptcy or hold his GE stock or S&P index 130 years later and pass to his grandchildren. And his grandchildren would continue to hold it.

The shorter will eventually be forced to pick his exit position. Either through company bankrupting which he doubles his money or through company continuing earning money and he eventually gets a margin call.


By definition, a shorter must market time.
Deal Addict
May 17, 2013
1775 posts
279 upvotes
techcrium wrote: Market timing = picking a time frame to enter and then exiting right?

Yes, in your example both the long and the short pick the time of entering a trade. Ok. Agreed. However, the difference is that the buy and hold investor does not have to exit his position. He can hold it to bankruptcy or hold his GE stock or S&P index 130 years later and pass to his grandchildren.

The shorter will eventually be forced to pick his exit position.


By definition, a shorter must market time.
And thats all I was saying. Everybody times the market. Thats it.

You are expanding the discussion now into the risk profile of a certain trade and its possible associated rewards. Thats now well beyond what I was talking about.

Further I was pointing out that, in a secular bull market, where the market has more up days than down, it obviously makes sense to put on a trade that is more long. This is great it works out like that.

In a secular bear market, that many have not experienced first hand themselves, this doesnt work, because the path of least resistance is actually down. Look back to the chart. If you purchased the S&P index in 1929 at the peak, and say you are 50 years old with life expectancy of 80. Well, the S&P only broke even 30 years later for you in 1960. By then that person would have passed away and not be able to enjoy his 'riches' of breaking even from his stock market investment.

So the other point made was the double standards people have on bashing shorts. Of course you'd look golden bashing shorts in a bull market. The vice is true in a bear market. Ultimately, just like many things in life, everybody is just talking up their own books and propping up their own positions with complete disregard to double standards.

The conclusion should be, there is a time and place for everything. ANd if you make money doing what you do then you've got it figured out. All this yenta yapping about what is the 'right way to do things' is all BS IMHO.
Penalty Box
Apr 16, 2012
3565 posts
688 upvotes
Greely
sunshinemoonlight13 wrote: And thats all I was saying. Everybody times the market. Thats it.

You are expanding the discussion now into the risk profile of a certain trade and its possible associated rewards. Thats now well beyond what I was talking about.

Further I was pointing out that, in a secular bull market, where the market has more up days than down, it obviously makes sense to put on a trade that is more long. This is great it works out like that.

In a secular bear market, that many have not experienced first hand themselves, this doesnt work, because the path of least resistance is actually down. Look back to the chart. If you purchased the S&P index in 1929 at the peak, and say you are 50 years old with life expectancy of 80. Well, the S&P only broke even 30 years later for you in 1960. By then that person would have passed away and not be able to enjoy his 'riches' of breaking even from his stock market investment.

So the other point made was the double standards people have on bashing shorts. Of course you'd look golden bashing shorts in a bull market. The vice is true in a bear market. Ultimately, just like many things in life, everybody is just talking up their own books and propping up their own positions with complete disregard to double standards.

The conclusion should be, there is a time and place for everything. ANd if you make money doing what you do then you've got it figured out. All this yenta yapping about what is the 'right way to do things' is all BS IMHO.

I believe you originally asked, "If shorters are market timing, betting a stock will go down after X time, then aren't longs also market timing betting a stock will go up after X time?"


And I am saying, no because market timing involves an entry and an exit. A shorter is forced to enter and exit after a particular time period.

A long does not have to exit, theoretically speaking.

For a shorter, X is finite. For a long, X is potentially infinite.

Thus, a long is not necessarily market timing.


This is all theoretical of course. In practicality, most longs are doing some form of "market timing".
Deal Addict
May 17, 2013
1775 posts
279 upvotes
techcrium wrote: I believe you originally asked, "If shorters are market timing, betting a stock will go down after X time, then aren't longs also market timing betting a stock will go up after X time?"


And I am saying, no because market timing involves an entry and an exit. A shorter is forced to enter and exit after a particular time period.

A long does not have to exit, theoretically speaking.

For a shorter, X is finite. For a long, X is potentially infinite.

Thus, a long is not necessarily market timing.


This is all theoretical of course. In practicality, most longs are doing some form of "market timing".
My point is most longs do the same thing most shorts are doing but betting in the reverse. It requires similar traits. Number one is luck on their side that the market, something that is beyond one's own control, goes in their favor. So after they have luck down, then its the timing issue of choosing of when to start or leave a position. Everyone risks money to make money. Everyone is speculating. Everyone times markets. The only exception to market timing for longs are DRIPs where buys are not controlled by the investor directly. Its analog is the accumulation of dividends hoping for a positive return to the money invested. But you are talking more about risks of taking on certain sides, and their rewards. Its clear there are different risk and reward profiles to taking long or short positions. But as to timing markets and speculating, everyone does it essentially.

Actually shorters don't need to 'exit'. Some people short companies hoping they go bankrupt. So in those cases, no they don't need to find a time to go in and then out. And even so, a short also doesnt need to necessarily look for exit. It can be a long term short. Why not? Your will be charged borrowing cost to be shorting shares. But you can be selling puts to collect some money back, which helps offset the cost.

So its no different then. A long can buy shares and hold the proverbial bag forever and be losing money forever. Its the same as a short who has stock price go up past them. Thats essentially what it is. Again, you are back to risk profile here. A short is theoretically exposed to unlimited loss to the upside, whereas the long is limited by initial investment. But both can be sitting on capital losses indefinitely before they close a position (which could be never also). And there is the issue of account size. A guy with a million dollars in margin room can short a few shares of anything and not worry about ever having to cover.

So you are mixing in market timing (the original point of contention), added with risk profile and also an investor's sizing and ability to absorb losses. So its now way way out of the realm of what I was talking about. I wanted to point out double standards is all. I'm fully aware shorts carry unlimited risk to the upside. My point of contention is people talk their own books and prop up their side because it is convenient while there are double standards at play that they completely ignore because its convenient.

Investing is speculating, no matter if its short or long term, or whether it is the holy grail of index investor or investing in 'shoddy stocks' like AMZN. Investing for the most part involves market timing, no matter if you are long or short stocks.
Deal Fanatic
Jun 27, 2007
5507 posts
1956 upvotes
The concept of a stock going up/down unlimited/limited is misplaced. While in theory it is true, it rarely happens... When I enter a trade via stock shares, I have rough idea where my targets are. It's always defined. With FB, $72.59 clearly marks the point where holding my short will not make any sense. I'm risking .59c in this case... What do I expect to make? Downside targets - 20DMA @ $69 provides short term support (check). FB bounced today, it will be a test to see how high. If $72.59 holds, then next target would be down to $58. This is where I will be looking to cover, my first real target. Maximum I would expect FB to plummet to $44-46, but it will only happen in bear market. As you can see, I don't expect FB to go to 0, nor willing to let it run past 72.59 without taking action.
Deal Addict
User avatar
Nov 3, 2002
1321 posts
68 upvotes
Ottawa
I took my money and ran earlier this week. It's ran up a bit too far recently imo - of course it could go much farther but if someone is considering getting in at these prices I think it's a pretty big gamble and I'd be curious to hear their argument. Shorting in the face of such a strong trend is also probably not the smartest move right now - markets can remain irrational for much longer than you expect. I'll be on the sidelines until another opportunity presents itself...
Deal Fanatic
Jun 27, 2007
5507 posts
1956 upvotes
there you go, broke through 20 DMA and hit R3 in a jiffy. confidence to short this pig will only rise and all rallies are a sale now. will add more if it bounces... thing is, buy-the-dippers will be grossly disappointed by wave of selling. FB became 99% long, no shorts to squeeze, haha! Target firmly $58.
Deal Expert
User avatar
Feb 11, 2009
20055 posts
9836 upvotes
Toronto
Pretty big drop in FB today...
Realtor (Investment Properties) - CPA, CA
Member
Aug 26, 2009
450 posts
59 upvotes
Toronto
dlhunter wrote: there you go, broke through 20 DMA and hit R3 in a jiffy. confidence to short this pig will only rise and all rallies are a sale now. will add more if it bounces... thing is, buy-the-dippers will be grossly disappointed by wave of selling. FB became 99% long, no shorts to squeeze, haha! Target firmly $58.
You've been killing it with your calls lately. Cheers!!
Deal Fanatic
Jun 27, 2007
5507 posts
1956 upvotes
jainik18 wrote: You've been killing it with your calls lately. Cheers!!
Thank you! Enjoying $70 move on NFLX, $10 FB, $25 TSLA, $20 AMZN... CMG is a little green for me, didn't do anything on jerky move above 600 and look for lower prices now.

AMZN at important resistance. FB points to 59-60 area before the bounce (might be as high as 62). CMG will be longer hold. TSLA/NFLX selling naked puts here...
Deal Expert
User avatar
Feb 11, 2009
20055 posts
9836 upvotes
Toronto
ItechJester wrote: yowza! FB bought oculus VR for $2B!
Pocket change after the 19B Whatsapp acquisition :razz: ...I think FB is trying to compete with Google Glass with this.
Realtor (Investment Properties) - CPA, CA
Deal Fanatic
Jun 27, 2007
5507 posts
1956 upvotes
ItechJester wrote: yowza! FB bought oculus VR for $2B!
wow, this is so exciting! they will print more shares (and dilute existing shareholders in the process)! And there will be no contribution to the bottom line for at least 3-5 years! wow
Deal Fanatic
Apr 25, 2006
8452 posts
3627 upvotes
Fb taking a beating. Why? I'm considering buying at $60.

Minecraft creator part of Oculus Rift won't be working with FB.

"Of the $2 billion Facebook is ponying up for Oculus, about $1.6 billion is in stock -- 23.1 million shares with an average trading price of $69.35 a share for the 20 trading days leading up to March 21 -- and the remaining $400 million in cash. With $11.45 billion in cash and equivalents at the end of last quarter, Facebook can certainly afford it."
"If you make a mistake but then change your ways, it is like never having made a mistake at all" - Confucius
Deal Addict
Jan 3, 2012
1275 posts
33 upvotes
Mississauga
should I buy 1000$ worth of Facebook shares right now???

Please advise someone!!
Deal Fanatic
Jun 27, 2007
5507 posts
1956 upvotes
Approaching interesting point, pretty strong support in 58-60 area. Will be covering and selling puts... Ideally, I'd like to see weak open and then rally.
Jr. Member
Nov 1, 2013
140 posts
31 upvotes
Toronto
Big gap to 55 that needs filling
If it drops to 60.50 look for it to fall to 55 in a hurry..that's my entry point
Deal Expert
User avatar
Feb 11, 2009
20055 posts
9836 upvotes
Toronto
Stephen55 wrote: Big gap to 55 that needs filling
If it drops to 60.50 look for it to fall to 55 in a hurry..that's my entry point
Closed at $60.38!

Hoping for the drop to continue tomorrow to pick up my shares again! :) Should've shorted at $70 + lol
Realtor (Investment Properties) - CPA, CA

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