The Art of Short Selling

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...eventually2) 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.

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.

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.

This is a very readable manual for long-term investors (disregard word 'short-selling' in its title). Its style and format is in line with Peter Lynch's texts on investing, but the book does require some proficiency with corporate financials. The book is particularly strong in 3 areas: (1) clearly states observations/principles of detecting bad stocks (2) provides many examples of how particular observation is applied to real-life companies (3) gives a brief historical perspective on speculative bubbles and investor dilusions. Read this book with highlighter.

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.