On Shorting Netflix and Salesforce.com

I was having dinner with a friend last night and we spoke about shorting stocks like Netflix and Salesforce.com. I have little doubt what the ultimate fate of these stocks will be. However, the chances of being left standing as a short seller when these stocks ultimately go down is not very high. I have had very bad experiences with these types of shorts.

In 2006 I came off of two very successful short selling campaigns. When GM was trading close to $50 I purchased leap Puts at the 30 strike. There was  a bankruptcy scare that year that allowed me to cash out of those Puts at many times my purchase price. That summer I also caught  the top in Toll Brothers, which made me dangerously confident.

Commercial real estate busts tend to follow residential busts by about six months and the residential market had clearly rolled over. I aggressively started shorting CB Richard Ellis' stock and buying puts. The company was trading at a high multiple of earnings that were dependent on a real estate bubble.

Despite the fact that I was ultimately correct, the stock tore me a new one and major damage was done to my account. I was forced to turn tail and puke up my position. Ultimately, the stock traded to $3 but I was not there to collect.

That feeling of knowing I was right but having no choice but to take a huge loss is still etched in my mind and I try to avoid putting myself in that situation again at all costs. So when I look at Salesforce.com trading at 100 times 2012 earnings I think about selling it short and then the flashbacks kick in.

4 comments:

nicasurfer said...

Today is window dressing so all the fund managers want to show that they had netflix on the books for this month.

Also we have amazon reporting after the bell and i expect them to be talk about the lovefilm aquisition and when it is coming to america.

Good luck netflix

Anonymous said...

i don't think any respecting manager would want to admit that nflx is the driver of his performance.

nicasurfer said...

Say what you must but it is one of the best performing stocks in the s&p.

At the end of the month mutual funds will buy shares of companies that have performed well so they can show them on a prospectus.

Look i bought netflix and it was up 200%. Even though they bought it on the last day of the month.

I agree, a respecting manager would not admit this stock is a driver of his performance ,but the fact of the matter is it that today was window dressing after a blow out quarter.

Lets listen to the amazon call about lovefilm

Anonymous said...

If I was a hedge fund, I would short NFLX in 3 parts. 225, 250, and if needed 275.

OL DAWG