Sunday, May 15, 2016

How to Spot a Table Pounding Screaming Bargain

In order to find a table pounding screaming bargain, we must first find a screaming bargain that has yet to pay off. That's why, with the help of Seeking Alpha, we shall begin our search in the department store retail space. Plenty of screaming bargains to be found there, no doubt.

October 15, 2014
Seeking Alpha: The Extremely Dangerous Gamble Of Shorting Sears Holdings

This brief article is about a bullish trading opportunity in Sears Holdings Corp. (NASDAQ:SHLD). I will briefly discuss 5 specific reasons supporting this fantastic opportunity.

Fantastic opportunity is a euphemism for both screaming bargains and Nigerian Prince email scams. Fortunately, we started with Sears so our search for the perfect stock ended as soon as it began. Lucky us!

1. Short Interest

First, the metric of short interest as a percentage of float is historically high. This is an excellent barometer to determine the risk/reward for shorting a particular stock.

Yes, when a large number of investors all despise a stock simultaneously, only good things can happen to the company and its existing shareholders. The more despised, the better.

2. Billionaires and Millionaires

Second, billionaires and multi-millionaires have been adding significantly over the past 3 quarters. If this trend continues, each share they purchase will result in fewer shares available for shorts to cover.

Yes, the best time to buy a stock is always after the billionaires and millionaires have purchased it, just like the best time to sell is right after they do. Not that they will ever sell, of course. Why would they? It's a screaming bargain.

3. Technical Analysis

Third, a massive bullish wedge is in play.

Don't let it bother you that massive wedgies are what billionaire and millionaire children did to poorer children on the playgrounds at recess. That's purely a coincidence. If you cannot trust technical analysis to generate massive profits, then what can you trust? Astrology?

4. Forced Purchases

Fourth, speculators holding shares short are required and/or forced to buy them back at some point. It's a matter of when and not if.

This is absolutely correct, unless of course, the shares ultimately become worthless. That never happens to screaming bargains though, so there is absolutely nothing to worry about.

5. Predatory Lending

Fifth, the cost to borrow (the amount those holding shares short have to pay to those lending out the shares) is 15%+ at many brokers. If the stock doesn't move at all the shorts still lose 15% per year holding their position.

This is the most important point of all. You must find stocks that are shorted by the extremely stupid. Ideally, you need to find those borrowing from payday loan stores. The next best would be shorts using credit cards. Under no circumstances do you want to see the shorts using margin rates as low as 1.5%. How can you know? That's easy. Only the extremely stupid would short a screaming bargain.

Now that we have found our screaming bargain, how do we find a table pounding screaming bargain? It's quite simple really. Just need three more reasons.

6. Effective Advertising

The company must advertise its products in such a way that sales will surprise and delight potential shareholders and scare the s%^t out of the shorts. Take the following advertisement, for example.

Can you appreciate the genius here? It starts off with two couples enjoying a dinner together. One mentions the products that Sears sells, and before you know it, everyone is unhappy. Brilliant! And that part at the end where two Sears employees are smiling? Evil genius! Love it! Hahaha!

It's nothing at all like the following commercial from Amazon.

Who wants catchy songs, touching stories, bright yellow One-Click buttons, and/or Amazon Prime logos stuck in their heads like me? Oh, sure. Just because I never fast forward past it and sometimes even seek it out to watch again, it doesn't mean you should. But c'mon, it's a cute horse. Right? Little man! Can't get enough. Seriously. Horrible ad. Makes me feel brainwashed because I love it so. Why did Amazon do that to me?

7. Momentum

Every table pounding screaming bargain needs a good dose of fundamental momentum to the downside, and Sears is no exception.

This chart made from the data at the St. Louis Fed shows real inflation adjusted department store sales per capita (March 2016 dollars). See how they've been falling since the beginning of this century? Do you see how they've fallen by more than half of what they once were? Awesome! Just think of the turnaround story! It will be legendary!

8. Value

In order for a screaming bargain to transform into a table pounding screaming bargain, at least twice as much value must appear. The easiest way is for the stock to simply drop in price, allowing you to confidently buy the dip, or as some might say, adeptly catch the falling knife.

According to Yahoo Finance, those investing in the Sears screaming bargain on October 15, 2014 (the date this Seeking Alpha article was posted), have lost 60% (including dividends and stock splits).

Fists. Table. Pound. Pound. Pound.

Every table pounding screaming bargain needs at least a bit of anger. Try to imagine Eddie Lampert on a yacht in the warm sun to properly motivate those fists. Or better yet, imagine him comparing Sears to Guantanamo, lol. Sigh.

This is not investment advice.

Full Disclosure: I am neither long nor short the Sears fiasco.

No comments: