by Travis Johnson, Stock Gumshoe | September 7, 2014 10:19 pm
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It is possible to in effect short without the same level of risk by buying out of the money longer term puts–you are out the money if the stock goes down; but don’t pay interest and don’t get killed in a bear trap…..Also I don’t think Buffett actually lost money on the airline–he ended up making money on the USAir deal–he bought a preferred with conversion rights in 1988, it went down a lot for a decade but then in the 1997 letter he said it would be redeemed after 10 years of paying 9.75% and that the conversion rights would be worth something. Then in the 2007 letter when talking at length about airline stocks and how an investor should have shot down Orville Wright he said it was a miracle they made money on the deal.
Yes, I think you’re right about Buffett — but the mythology of “Airlines are always bad” remains strong for value investors. Many things don’t have put options, of course, and they typically have a substantial cost (premium) that makes up for some of the “cost to borrow” for some shorts, but they certainly do cap risk very precisely.
Travis I always look forward to reports from the VC.
Thank You
Re: Five Below (FIVE) short: (disclaimer: I’m short FIVE–at a significant current % loss)
FIVE is a (really rare) short in one of the Motley Fool premium services (of which I am a member and believer) . Mr. Tilson’s words, as as transcribed by our Gumshoe into about 10 words, are an uncanny mirror of MF’s thoughts.
SO yes, short FIVE and be 17% ahead of me to start….