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Strategies & Market Trends : Value Investing

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To: James Clarke who wrote (8385)9/25/1999 12:04:00 PM
From: Michael Burry  Read Replies (1) of 62533
 
Jim,

I thought of you this week as I looked at the stocks on my some-25 watch lists, and noted that of the hundreds of stocks, the net stocks are doing quite well. I had thought you covered. Ouch.

For the last week I've been carrying "The Art of Short Selling" around with me just about everywhere. Every time I get a break, I just open to a chapter. Doesn't matter if I've already read it. I just read it again.

If there's one thing that keeps hitting me in the head about that book and its cases is that there's a lot of time to short and still come out ahead. The problem with net stocks is that they appear as if they require constant capital infusions, which makes them good shorts. But they're getting these infusions at will. That makes now now a good time. When the capital spicket is turned off, the stocks will react downward, but won't fully account for how bad the news is then. They'll be terminally wounded but the price won't reflect it. That's when IMO you'll be able to grab a lot of the net stocks on their way to zero. But before that, a lot of smaller companies will pitch themselves to larger companies. So the wild card is that they get taken over by a bigger, stupider, more capital-rich, company, a la Yahoo of GeoCities, which stands out as the single most characteristic action of this era. The AofSS describes this risk as the thing that keeps ss's sweaty-palmed and awake at night. I think for good reason.

For my next, more certain short, I'm taking a long, measured look at Pre-Paid Legal (PPL). I posted why over on that thread. I think I finally understand that one.

Mike
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