What's the best way to go Short?
I'm not quite sure why, but it always seems more satisfying to make money from shorting a share (profiting from it going down). Maybe it's because it doesn't feel conventional. With shares doing so well at the moment and some looking overbought, I feel that now is the time to open up at least a couple of shorts.
What's the best way to short? There are three main ways: CFDs, spread betting and covered warrants. All three methods have their good and bad points.
CFD's boast very tight spreads and low commissions, though profits (if big enough) are subject to Capital Gains Tax.
Covered Warrants are excellent in that you cannot lose more than you put in. Again, gains are subject to tax.
Spread betting gains are not taxed, but of course you pay in wider spreads. However, you do get guaranteed stop losses, which can limit any downside.
My favoured method of shorting is spread betting, although I am looking at using CFD's within my pension plan for shorting purposes. But how do you find something to short? Well I guess, for me, it's a reversal of how I look for something to buy. Instead of looking for positive statements, I am looking for the negative. I want a profits warning or a sector that is in the dumps.
For example, I opened two shorts recently and both are already in a nice profit despite the rising market. One was Provident Financial (I shorted at 675p). As soon as the company issued a profits warning, it interested me. Why? Because profits warnings, like buses, have a habit of coming in threes, and I see no reason why another one shouldn't be on the way. Another was Holidaybreak, which shorted at 605p. Two reasons for this: firstly, the sector it's in (camping and mobile-home holidays) is not exactly hot. Secondly, the recent statement was littered with the word "satisfactory".
As far as I am concerned, "satisfactory" means "we're kind of doing OK but nowhere near as well as we want to". So, after having a good look at recent announcements from both companies, I am happy to be short.
I have a guaranteed stop loss with both, so I'd get stopped out if there are sudden rises. Why the stop? Because, occasionally, when companies show a weakness, a predator can step in and there can be an unexpected bid. That would see a share price shoot up and I would not want to get caught out.
Elsewhere, the markets are being very good to me! In particular, I have now trebled my money in Burren Energy. Bought at 241p, the shares are, as I write, 745p. I also had a spot of luck this week when one of my holdings, Broadcastle, was bid for. I bought at 94p and the bid was for 123p! A nice 20 percent rise for me to wake up to. And a recent buy of Templeton Emerging Markets Investment Trust has also proved a winner. Bought at 197p, the shares are already 210p and rising fast. It looks like it is worth having exposure to the emerging markets sector right now.