Short Selling for the Long Term

Find a method to evaluate stocks— and build a record of impressive returns

Short Selling for the Long Term describes the methods used by Joseph Parnes, President of Technomart, to obtain consistent returns in the stock market. Most investors fail to exceed the returns represented by the Standard and Poor’s Stock Index, but Parnes often does using his investment philosophy. This book outlines his method of stock assessment, providing an understandable formula. If the formula tells a reader to buy a stock, then, as explained, there is a significant chance that stock will go up. If the formula tells a reader to short a stock, then the book shows how there is a significant chance that the stock will go down.

Parnes advocates the use of short selling as a long-term strategy in combination with long positions, so advisors and individual investors alike can profit in both rising and falling markets. While most investing books focus on how to make money over the long term in a rising markets, Parnes's focus on short selling as a way of capturing volatility sets this book apart from the crowd. He offers insights into the difference between option trading and shorting which make his system useful in both type of markets.

• Profit in a bear market

• Borrow the stock you want to bet against

• Sell borrowed shares

• Learn the secrets of long-term short selling strategy

• Buy shares back and close by delivering at the new, lower price

Short Selling for the Long Term is essential reading for investment advisors, fund managers, and individual investors.

Preface ix

Chapter 1 Investment Philosophy 1

Chapter 2 The Bank of England Lecture 9

Chapter 3 Portfolio Management—General Principles 19

Chapter 4 Explanation of the Use of the 50-Day Moving Average and 200-Day Moving Average 31

Chapter 5 The Theory Behind the “Parnes Parameters”: Using Pattern Recognition, Retrospective Analysis, and Bayesian Analytics 43

Chapter 6 Variables to Consider for the Parnes Parameters 63

Chapter 7 Shorting for the Long Term 81

Chapter 8 A Case Study for a Stock I Shorted for the Long Term—Chipotle 107

Chapter 9 Case Studies for Integrating Shorts for the Long Term with Longs 121

Chapter 10 Modern Trader Charts 159

Glossary 215

Index 227

JOSEPH PARNES is an investment advisor notable for his involvement in short selling and his contrarian investment strategy. He is president of Technomart Investment Advisors and editor of the market letter Shortex. He has distinguished himself as one of the foremost short sellers in the stock market and is a regular contributor to top media outlets, including Bloomberg, Forbes, and Barron's.

Joseph Parnes, President of Technomart, describes the methods he has developed over the past three decades for producing consistent returns in the stock market. He is well known for his involvement in short selling, an investment strategy that seeks to earn profit when stocks decline in value. Most investment advisors recommend against short selling, particularly for individual investors, because it is a sophisticated strategy that many perceive as unnecessarily risky. In Short Selling for the Long Term, Parnes describes his approach to bolstering long positions with the profit made through short sales.

What goes up must come down. When the inevitable happens and a bear market begins, investors are often counselled to liquidate their assets and hold cash, biding their time until the next upswing. Although cash is safe, it's not profitable, and investors miss out on returns when they fail to use strategies that can yield returns in both bull and bear markets. Parnes' method of combining long and short positions can allow investors to stay invested, whatever the proverbial weather on Wall Street.

Short Selling for the Long Term shows professional and individual investors how to identify promising short positions, using Parnes' own parameters. Using this formula consistently, readers may be able to add the profits from their short positions to the capital available for long-term investment. The author describes methods for controlling risk and managing portfolios such that the interest and other costs associated with short selling are compensated with the returns from carefully selected long positions. Parnes focuses on steady, stable growth for his investment clients, and this book makes his formula for winning available to all.

The contrarian investment strategy that will strengthen your portfolio's long-term gains

Steady returns that outpace the market are possible under all market conditions. How? By taking advantage of short selling as part of an overall long-term investing strategy. Joseph Parnes is well-known in the investment world with his focus on shorting as a long-term growth strategy. If this seems iconoclastic, it is. But it works. Short Selling for the Long Term reveals the formula that Parnes uses to identify potentially profitable short positions, roll any profits into long positions, and manage portfolios to take advantage of market-beating gains in both bull and bear markets.

It's true that short selling can be complicated, and it takes a savvy investor to master it. With this book, you can become that investor. You'll learn how to improve your accuracy using fundamental and technical analysis to predict the movement of stocks. Armed with this understanding, you can apply the Parnes "long term shorting" portfolio strategy to boost your earnings and continue profiting during downturns.