Customer Reviews

The Art of Short Selling (A Marketplace Book)

5 star:		(10)
4 star:		(6)
3 star:		(1)
2 star:		(2)
1 star:		(4)

 

 

I came across this book years ago in a bookstore, browsed through it, and put it away. Being caught up in the study of technical analysis at the time, I clearly wasn't ready at the time to find value (pun intended) in Staley's fundamental approach to the market. This time, however, I'm listening to her.

With a bit more experience, I can appreciate 3 of the many lessons _The Art of Short Selling_ teaches:

1) Fundamentals drive market action...eventually
2) It is often a costly mistake to short a stock simply because it apepars overvalued. A catalyst of some sort is needed to encourage massive selling.
3) Markets can ignore negative fundamentals for significantly extended periods of time--giving the astute trader ample time to sell at a profit, or even turn and sell short. Positive fundamentals are more rapidly incorporated into stock prices, but significant inefficiencies still exist on both sides of the market--long and short.

The author uses case histories of significant corporate failures from the 80's and early 90's in light of the publicly available info at that time, which clearly demonstrated the inivetable fall of Wall Street's institutional favorites.

Numerous fundamental techniques are discussed, such as tracking changes in inventory and receivables, as well as tricks companies play to make revenues and earnings appear better than they are.

Also interesting--a high short interest ratio in a stock is often a significant sign of potential trouble in a company. Do not let those analysts lead you to believe a high short interest ratio is always bullish. Check the fundamentals and make your own call.

Qualitative factors are also discussed, with specific examples on how a close reading of public financial data on one company would have lead you to a profitable short sale of another. This occurs frequently in the finance and insurance industries.

This book is especially important, because every book I've seen teaches which stocks to BUY on a fundamental basis. No book ever mentions what fundamental factors suggest you SELL. Even if you never sell short, this is profitable info.

Being a student of technical analysis, what struck me is the insight those skeptical shorts had about the companies mentioned. Clearly, they knew the eventual outcome in each specific instance.

Yet, despite being right, most of these guys lost millions by going strictly by fundamentals. Those who survived incorporated additional (ie. technical) factors, such as relative strength or momentum. As Keynes stated, "The market can remain irrational much longer than you can remain solvent."

It is clear to me that using both fundamental and technical analysis is the most efficient path to market profits.

Staley presents a thorough examination of the process of selecting companies for shorting. While Joseph Walker's book, "Selling Short" gives us the nitty-gritty details of the shorting transaction, Staley gives us the reasons for going short in the first place. She covers in fair detail the nature of short sellers and why some are successful while others are not. The majority of the book is comprised of case studies, written in the folksy style one finds on Wall Street Week (TV show) or in books like "The Motley Fool". Unlike "The Motley Fool" this book presumes at least a basic understanding of accounting and knowledge of financial statements. My one criticism of the book is common to many others in this genre; that being nobody edits these books (or, if they do, it is by running the "Spell Check" function on the word processor). Sometimes the folksy banter and financial slang is so thick it gets confusing. Nonetheless, this book is a must read if you are considering becoming a short seller; if for no other reason that it may save you a great deal of heartache and financial loss by convincing you that shorting is not for you.

This book offers an excellent introduction, explanation and overview of short selling as well as success stories. There is no doubt that short selling should be an integral part of any market participant's strategy. However, if you are looking for a reference explaining how to apply technical analysis to the identification of overvalued stocks, then this book falls short.

I cannot blame the author for heavily emphasizing the psychological aspect of short selling as too much enthusiasm, confidence and greed are mostly what drive up a stock's price to unreasonable valuations. Likewise, when the "castles in the air" disappear, the stock's price normally plummets and creates a very profitable opportunity for short sellers. It is critical to recognize when these stages are at their peaks and Ms. Staley does provide tell tale signs.

I think this book has something to offer all investors. Whether or not it is found to be helpful largely depends on the individuals investment strategy and what tools he relies upon.

This book, I believe, was written by the author to cash in on the fact that there are no books on short selling. Read about 15 investment books in the last few months. Some good, some not worth the money -- but this was the book that made me feel like being totally suckered. Gives some examples of companies that went bust, and about crashes. But does not even come close to suggesting any strategies or things to look for when deciding whether to short. Instead just says things like: high valuation alone is not enough to short, don't forget to read the SEC filings etc. Duh! No ideas at all. What a scam.

The author approaches the subject with a HEAVY emphasis on the psychology of short selling and the psychology of the markets. The book is marketed as "a timely and comprehensive reference that arms you with the necessary tools to make a prepared and confident entrance onto the short selling playing field".

For a book marketed as a "comprehensive reference" and priced as a reference tool, this book contains very few helpful techniques for sophisticated investors.

After initially reading this book, I have not once returned to a single page for reference or advice, unlike high quality finacial reference books like Martin Pring's Technical Analysis Explained or Scott Fullman's Options A Personal Seminar.

If you are interested in a general, non-technical review of short selling this book is fine. If you are looking for a in-depth reference source to be used for years to come, this will be disappointment.

Chapter Six of Kathryn F. Staley's excellent book is titled, "If You Can't Read It, Short It." In it she explains something called iceberg phenomena: "If you find five or six serious questions in financial statements, you can be sure that there are many more you cannot see." She's dead right.

My analysis is to go long this well-written (but very poorly proofread) introduction to the specialized realm of shorting equities. Ms Staley has chosen a style well-suited to the non-expert, rather breezily taking the reader through the balance sheet shenanigans, distribution channel stuffing and other tricks CEOs and corporate directors use to puff up share price and get option grants into the money before taking the next Gulfsteam outta Dodge.

The book is chock-full of entertaining examples of games CEOs and their pliant Boards try to play with shareholders' money. Don't let Ms Staley's light-hearted style fool you. This is very serious business, and she's got years of success in the trenches to bolster her credibility as a writer on this topic.

Reading The Art of Short Selling also reminds even experienced practitioners of financial statement analysis that a 1OK is often an attempt to put a wedding dress on a dog in order to pretty it up for the next financing. I feel obliged to point out that this review is being written during earnings season, and it never ceases to amaze one when supposedly objective analysts are heard on conference calls being cheerleaders for company managements obviously in need of good thrashing.

Kathryn Staley is not unknown to the community of financial analysts. She was profiled as being among the most innovative of analysts in a recent issue of CFA Magazine. To understand the nature of the book she has written, it will be helpful to share two of her quotes from that article:

"...a company's prospectus clearly showed the problems that would ensue with the business plan. It was revelatory for me to find such specific, honest information in the SEC-filed documents about what was going on with a company in both the risk factor section and 'Certain Transactions.'"

"Short sellers think differently from normal brokerage house stock analysts. They work the same numbers but take a different view, a jaundiced view, of growth and the patterns that emerge."

With its focus on the fundamentals of a stock, the business of a company and the manner it which it reports financial results, The Art of Short Selling is not a book on technical analysis (tea-leaf ~ oh, pardon me ~ chart reading), and thus those who have complained that it's not should have their reviews appropriately discounted by potential purchasers.

This is a book for people who want to dig line-by-line through SEC filings to come up with nuggets of knowledge that can be spun into gold ~ if one is willing to risk capital. And, ultimately, it is all about the degree of risk exposure one is willing to assume. Short selling is not for the risk-averse.

Kathryn F. Staley's, The Art of Short Selling, is the best introduction to this iconoclastic field of equities investing. I reiterate, go long this book.

One criticism: this book is hideously proofread and copy-edited. There are dozens of ludicrous spelling errors and inconsistancies. In example, abbreviations aren't uniform throughout the text. There are other errors of this kind. To not make corrections in future editions discounts the future value of the knowledge between the covers. Thus, four stars, not five.

The author presents a number of case studies and through these examples highlights certain quantative (accounting) and qualitative things to identify when evaluating an investment. Although she focuses on the short side, the practical application of accounting and business theory makes for a very effective learning tool for general financial statement analysis which can be applied by investors for their long positions as well. This is a great book for someone who is familiar with some basic finance and accounting and has a lot of useful information even for more experienced investors (it at least reinforces what some "advanced" investors think they know but unconsciously overlook). It is a good read, and not too dry or in-depth, or too superficial in its analysis.

I recommend this book for any new beginner. The main reason I say for beginners is that I have not seen another book that adequately describes the emotional forces of the general market concerning short selling. As any finance student can tell you. One of the best ways to learn about short selling is through particular case studies. Many people have criticized the author for this type of instruction because the book does not explain in detail everything the reader should know about each case. This book was defiantly worth it because I further researched each case explained in the book. This is what any investor should do in order to get the big picture when looking for possible shorts. Look up the past articles and company reports that were published concerning each case. Observing certain trends within the financial media and company managers was extremely helpful to recognize when case examples were just beginning to fall.

The real complaint about this book is that the author could easily have provided this information, especially for the price range of this book. I give it four stars simply because it is helpful to beginners and so few books cover this topic.

This book, first published in 1991, received little attention thru the run of bull market prognostications in the 1990's. Even in the aftermath of the collapse of one of the largest stock bubbles in history, 2000-2002, one still reads little about this book or others of its genre.

The text provides the layman with an overview of the way in which basic fundamental analysis is practiced in Wall Street. Those who practice their craft like Staley i.e. Robert Olstein, were loathe to buy Enron stock because they didn't like the way their books were kept. Obviously this fact was overlooked by many other analysts, many of whom are now looking for another job.

Staley belongs in the same class as Asensio, Olstein and O'Glove, all of whom pour over the footnotes of financial statements while eshewing management contacts. That more investors do not avail themselves of this discipline, demanded and emphasized by Staley, plays mute testiment to the giddy optimism they substitute for reasoned investment analysis.

A little investment success can go to the head of any investor and thereafter sow the seeds for his greatest losses. Think the investment version of Hitler's Operation Barbarossa; Hubris..... all too prevalent in the rise and fall of markets and of civilizations. This is a good book for all investors. The time to read it for the first time or again is NOW. It's always the human component that does you in, and not the unavailability of the tools for proper analysis. This is Staley's ultimate message.

Whether you want to short a stock or go long, this is a great source of info - the stuff you don't find in the average book on investing, contrarian or otherwise.

I used to hate going through numbers on the 10-K's and assorted filings (Zzzz). After a bit of reading this book I actually got excited about going over annual reports, etc to REALLY UNDERSTAND all the stories that are woven into the numbers. Sometimes what is more important is all the stuff that is NOT disclosed or clarified.

I periodically review the company info from some of my favorite short sales remembering all the tell tale signs that told me something was eskew. Now that I am using the principals in this book I see even more than I'd previously picked up on, e.g. so many footnotes on what should be a fairly straightforward document.

I would have given 5 stars except that a little accounting backround would be helpful in chapter 6. But don't let that keep you from buying this wonderful book! Being the cheap guy I am, it took awhile before I actually broke down and forked over the money for this title. Definitely worth the money for ANY investor who needs to know what's really going on with a company - even when the hot shot Wall Street analysts are giving a stock a screaming "buy".

Happy Trades!

omni_bull