Why there are only 3 books on short selling | stockbee

6/08/2007

Why there are only 3 books on short selling

There are many bears and many perma bears, but there are few valid methodologies to sell short. There are very few books on short selling. Essentially if you want to seriously develop a methodology for short selling you can look at the following three books.
How to Make Money Selling Stocks Short

Interestingly this book came in after the bear market was over. In earlier books William O'Neil was ambivalent towards shorting.

This is based on shorting growth stocks after they have peaked. All growth stock at some stage reach levels where it is difficult to sustain the high growth rates in sales or earnings, such stocks make good short sell candidates as they have run up a lot due to their earlier track record. However the tricky part is stocks top before the growth actually slows down. The book details various ways to short using chart patterns and moving averages.

The Art of Short Selling

This book by Kathryn F. Staley , is one of the best books on short selling. It takes a fundamental view of short selling and comprehensively covers the topic of short selling from valuation and forensic perspective. It details how fundamentals drive long term stock prices. Why stocks get overvalued and remain overvalued sometime for long periods. What kind of catalyst can signal good time to short. What to look for in fundamentals to uncover shorting opportunities.

Quality of Earnings
Earnings drive long term stock price. Companies use lot of tricks to dress up earnings. The best shorts are where there is some problem in companies earnings story. To detect such problems, one needs to understand earnings quality. This book is a bit technical but it is very good book on understanding what to look for in earnings quality.

These three books are some of the best resources if you are serious about developing a short selling strategy. Sold Short : Uncovering Deception in the Markets by Manuel Asensio is another book worth reading.

Earlier post:How to find high probability short

7 comments:

Bill Luby said...

Good post, Pradeep -- and an excellent companion to "How to Find High Probability Shorts."

FWIW, I get the sense that How to Make Money Selling Stocks Short was largely the doing of former O'Neil employee Gil Morales -- with O'Neil lending his name to help boost sales, etc.

Also, while not exactly a book on short selling, I can highly recommend Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports , a book that does an excellent job with fundamental issues that are of considerable interest to the short seller.

walter said...

i enjoyed the first book.

pradeep, just like amzn, might aapl continue up, just to spite all the calls for its downfall...?

Pradeep Bonde said...

Possible, but AMZN rallied post earning, AAPL is running in anticipation and everyone is bullish on it. Everyone was skeptical of AMZN.
Plus till now whenever Economist puts a company on cover in next six month that company will be down 25% plus. Consistent record. Look at Ebay, Goldman Sachs, Walmart, and many others.

Pradeep Bonde said...

Bill
I have that book and yes it is another good book for short sellers.

Muthu said...

Pradeep, you mentioned in one of your blog entry few weeks ago about a book that will change your way one thinks about technical analysis. Are you going to write about it?

Gotham Gastronome said...

FYI my new book, "An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund" deals extensively with short selling because 1/2 of my $2 million was made through short selling smallcaps! Trust me, I know it sounds crazy, but it's my gift for better or worse.

Tim
http://www.timothysykes.com

Jim Collins said...

"FYI my new book, "An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund" deals extensively with short selling because 1/2 of my $2 million was made through short selling smallcaps! Trust me, I know it sounds crazy, but it's my gift for better or worse."

Your "gift" is stupidly losing one third of your fund's money and being a relentless self promoter of your badly written book. How's that buttboy I mean butler thing working out? Hey Tim, how about a loan?
Schmuck.
http://gawker.com/news/wall-street/tim-sykes-capital-schmuck-240054.php