Are you saying that as long as you think the fundamentals, as you perceive them, are unchanged, you will hang tough no matter how much the position goes against you? Right. Of course, if it is triple horrible, I might trade around the position to take the pressure down a little bit.
I would say, "OK, this looks awful; I see nothing but buyers. Why don't I join the buyers and see if I can make some
money." In a matter of speaking, I dichotomize myself. I have a fundamental view, which I believe in my heart, but I
try to separate that from the short-term fervor and intensity I may see in the market. So even though I am short in
that type of situation, I might periodically be a buyer.
Might you actually go net long during those periods, or does your position just fluctuate between fully short and flat? It wouldn't even remotely approach flat, because that type of buying is based on very short-lived perceptions.
I might take 20,30, or 40 percent of the position and trade with it.
If you are very negative and short in a particular stock, but are not necessarily bearish on the industry, might you sometimes hedge yourself by buying another stock in that group against your short position? I have tried that at times, but have generally found it to be unsuccessful. What it tends to do is give me two
problems instead of one. Usually, your knowledge about the second stock on the other side will tend to be relatively
skimpy because you are just grasping at it to use as a hedge. If your problem is so great that you need to hedge it,
why not address the problem directly rather than taking on a totally separate position? Let's say you are short a
paper stock and the paper stocks are roaring, so you buy another paper stock against it. Maybe your short stock will
go up more; maybe the other stock will go up more. Who knows? If you have made a mistake, deal with the mistake;
don't compound it.
