fundamental shorting

[doomsdayza]

Just want to determine if all the guys on OST who buy quality companies at below perceived intrinsic value (fundamentalists) for the long term are then conversely happy to (short) sell fundamentally overvalued companies. Or is this a big no no? The method is the same, the decision to buy or sell just being on either side of "value". I mean surely if you're not willing to buy a company because it's "overvauled", then you should be willing to sell it and hold the position until it returns to value? One of the traders Jack Shwager interviews in New Market Wizards is a lady who manages a short only fund {been a while since I read the book so stand to be corrected}. She uses fundamentals as her method on her buy / sell signals. Interested to hear the forum's opinion.

[#2]

shorting is a completely different discipline, and a lot more tricky than going long. Market corrections, and downturns tend to be short and violent, meaning a quick in and out, whereas there are many different types of strategies for going long, including trend following

[doomsdayza]

I think people are just predisposed to go long. Sounds like you only acknowledge a trend when it's up? :)

[NJ_1]

I think your question deals with two trading/investment methodologies that cannot be compared to each other. The fundamentalist who invests for the long term cannot be compared to the trader who short sells the market using instruments such as warrants and CFDs. The investor may very well exchange overvalued stocks in his/her portfolio for undervalued stock from time to time, but that isn't selling short.

[john_1]

Ya 3 things... Selling out and going short are 2 seperate things..I think selling on or above fair value is perfrctly acceptable practice, somthing Alan Grey has been advocating for 30 years. second a trend or the acknolagement there of, is a technical tool not a fundamental tool. last the act of going short requires a geared instrument were as going long can be done with out gearing..the effects of gearing when getting it wrong to your capital are not to be underestimated. as fundamentals tell one very little about timing..one only need ask a gold bull fundamentalist like Dinnen or Zarp how expensive it can be to be right at the wrong time.

[louisg]

If one initially bought a share because one believed the underlying company was one of the very few top quality businesses available to invest in, why sell it? Surely, one does not sell just because it is "overpriced". What would one do with the proceeds? "Our favorite holding period is forever." Buffett

[#7]

oops, here we go again with the trader investor debate. Traders believe in the time value of money, and that we can do better returns at less risk by catching the ups and downs.

[Werner_1]

in my view trying to predict the tops and bottoms is more risky than buying bargain value shares at extreme discounts. Louisg, i am once again in agreement with you on holding for long term, i have a portfolio of shares that i really dont think i will get rid of for many years to come, unless their fundamental businesses change considerably.

[john_1]

OK boys the proof is in the puding..BUFFET with his hold for ever approach has compounded at 22% a year..Aan Grey who believes in selling at or above value has compounded at 30% per year... FACT

[john_1]

both are measured on a time frame in excess of 30 years.

[Werner_1]

Is Allan Gray's compounding calculated in USD as Buffett's is?

[john_1]

I do not think that is relative to the discution ..it is not about how one mitigates currency exposure risk.

[Werner_1]

USA is a developed market and has lower growth than RSA, but more stable currency, so in real terms i think it is important to factor that in. in the end a lower return in USA can make you more wealthy than a higher return in RSA.

[#14]

I think the only thing that is forgotten when asking when something is priced in USD vs ZAR is Buffet lives, works and spends in USD, Allan Gray earns in ZAR for clients that spend, live in ZAR so the fact is you have to compare apples with apples.

When you travel as a SA citizen the mistake made is always to convert back to our home currency. You will go crazy trying this all the time. I travel with money in a currency. If I am in UK and have pounds I look at the price, get a feeling if it is fair to pay the price in pounds and either buy it or not. If I have 50 pounds to buy things I can spend 50 pounds (not I have 50 Pounds and can buy for R600).

Same applied to where and how you invest. If you investing in USD and the account is in USD the spending/earning power is in USD (until you bring the cash to SA to live on if that iswhat you want to do). If you earn in ZAR you use the ZAR as comparison. IMO

[topgun]

The comparison has to be done in real terms, i.e. adjusted for inflation as SA's CPI over this period was much higher than in the US, even if measured only in domestic currency terms. Higher relative CPI will reflect in higher earnings growth and hence share price growth in domestic currency terms.

[Werner_1]

I agree. one has to factor that in as separating them totally and comparing US growth to SA growth in not a true figure. I have the idea if one runs 2 portfolios, one in USA and one SA one needs to reach a common denominator to actually compare. resulting in the idea that Allan Gray and Warren Buffett cannot be directly compared, either make Buffett's growth in ZAR terms or Allan Gray in USD terms.

[warhippo]

Inflation comparison could be the real answer.

[john_1]

Bollocks.. The point is which stratergy has the better return..Buffet was free to invest in SA as was alan grey able to invest in the US during that perriod.. return on capital is what matters..

[Werner_1]

we will never agree on this, i agree with topgun.

[john_1]

wener I obviously realize that were you put your money will effect your after tax and inflation returns..but we are not talking about what country or infaltionary enviroment has higher returns..We are simply measuring the compounded returns of thier portfolios over a time frame..30 odd years.. and in that time Alan grey out performs.. and he sells.