I’m outrageously late for making seasonal new year predictions, and sorry for a title that sounds like Business Insider, but I want to keep a record to see if I have some predictive power. So, I would like to introduce my 5 best London-listed stocks to short, not for 2014 but for (end) 2016 — three years is a good time frame for short theses to develop, one year may not be enough for failure and they could easily keep being supported by momentum.
I’m not short any of these stocks (or any individual stock at all) as in real life shorting is a major pain and I would only do it when a limited risk instrument (e.g. options) is available at an affordable price, which is not the case for this set.
That said I’m also not long these stocks, which is really half the value of the Obliquity strategy: there’s probably more insight in what I don’t buy than what I do (I’m short relative to an all inclusive market index). These are just some of the more egregious examples — there’s also stuff I don’t like for more mundane reasons.
For accounting the success or failure of these choices, I plan — if I remember by 2016! — to check the total return of an equal weighted short position in all 5, including dividends and capital actions. Should a stock be delisted, the exit value should be the closing price on the market day following the day the delisting was announced. Suspended stocks should (probably) be considered to have exited at zero.The drawdown allowance is hard to decide in advance, minimum would be 2x I’d say (so allow £2000 running loss for £1000 notional short position for the full portfolio).
Lots of accounting trickery with the headline product a me-too product nobody uses. Matthew Earl has written more than I could dream to about it.
The business model seem mostly about enabling insurance fraud, layered behind piles of creative accounting, all run by characters that do not inspire great confidence. If the business doesn’t fail, the likeliness of their leaving anything on the table for outside
shareholders seems low.
Don’t you love the name? Spinning open source software they do not own or author, and selling add-ons of limited value seems both gross and ingenious. There’s probably enough mugs who don’t understand open source to have them run for a while and have the principals exit at a judicious time…
A Chinese shoe manufacturer, which despite the name doesn’t export outside China (why not? not starting well, are we?) and is a field of red flags hinting at possible accounting or corporate structure misrepresentation. It’s already heavily discounted relative to published accounts, so failure is largely already priced in, but I think the end game is delisting or the price languishing further down.
This is actually a much more legitimate business than any of the others here, but I’m not a fan of private equity masquerading as an operating business. Brilliant financial engineering, but I fear that the acquired businesses, left to their own devices, with founders pacified with a cash windfall, or retiring, may not prosper. Also the window it exploited where it was possible to buy private companies in this sector at a massive discount to a public market valuation could close as both sellers and competing buyers wise up to it. Combine that with it being a fashion stock on the back of past successes, and it seems more likely to go down than up in my view.