John Czerw

Portfolio Review / Short Positions on my Picks

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I'm a bottoms up stock picker. I look for companies that can cost effectively recreate their unit of value creation. For ACAS, it's business loans and equity positions. For XTO, it's gas wells. For LTFD, it's bingo hall locations. For PSYS it's psychiatric hospitals. For FDS it's customers for their systems. For GIL it's wholesalers that carry their activewear. For VLO it's additional refineries.

Good market or bad. Strong economy or weak, I'd expect these companies to advance. The market and the economy affect their stock price, but their fundamental prospects should remain the same throughout any market or economic cycles.

Once I commit to a stock, I tend to view dips as buying opportunities. But I also spend a lot of time challenging my base assumptions to make sure I haven't missed something. This is especially so if the market isn't agreeing with my assessment of a stock. To that end I decided to review the short position ratios on my portfolio. In essence, I'm' trying to find out where the market disagrees with me and by how much. I also want to see how short positions may be affecting the performance of my stocks.

Short Ratio Stock Performance to date

6.4...........GIL .............(3.09)
6.3...........PSYS ......... 3.05
4.5...........ACAS.......... 2.31
2.9...........FDS........... (5.79)
1.8.......... XTO............. 3.33
1.4.......... VLO............. 1.19
0.............LTFD............. 5.95

The stocks where the shorts disagree with me most are GIL, PSYS, ACAS and FDS. Four different sectors and overall the shorts appear to be winning at this point. The average gain/loss for these four stocks is (3.5%). And the forward PEs of these stocks run from 11 to 23. The richest stock is FDS (the biggest loss). The question is, does chaos in some financial markets create a need for more or less analytic software and/or systems. I think more, although there could be some stalling of sales momentum in the short run. But FDS has had 22% quarterly sales growth recently, so there's room to maneuver.

The energy sector seems like a mild short play and the stock returns are good. So there doesn't appear to be a lot of argument between the shorts and me here.

Finally, the stock that very often sends people screaming when I mention it, LTFD, has zero shorts. So the little stock that has $12M a year in revenue, is up 60% ytd, trades 20K shares a day, is up 5.95% program to date, and has no one actively betting against it.