Schadenfreude: A German phrase meaning "The pleasure felt for observing the misfortune of others". Leave it to the Germans to have a word for this. It's completely unamerican. We love to see the underdog triumph. The Little Train That Could, The Little Tramp, Rocky 1 - 87 (how many were there?). I even remember when I was just a little boy my Dad and Grandpa took me to a wrestling match where a bunch of midgets ganged up on 600 pound Haystack Calhoun and threw him out of the ring. The crowd went wild when those ants swarmed over that 600 pound carcass and threw him over the ropes.

Why am I even on this rant? I've gotten a lot of emails asking me: "How you should I short?". People are so used to the downtrodden rebounding that they are afraid of getting burnt during a recovery.

I'm going to do a series on shorting, and every couple of weeks I'll highlight an industry that just can't help but fail. You've heard of "Dumb and Dumber". This will be Low and Lower.

The worst thing that can happen to these companies (and the best thing that can happen to your short position) is for the companies to bankrupt.

OK, Let's begin. Everyone has been beating up on the banking and financial stocks lately. Could there be any worse industry than them? Think of a sector that has big ticket items and not only has to use short term and highly expensive borrowing to finance their inventory but also rarely has a cash sale and has to find their customer highly expensive short term financing to finance the sale? Do you give up? How about the Retail/Wholesale Auto and Truck sector?

The industry has been in the pits for a year and will be very slow to recover. Who do I think are the 4 "Biggest Losers" and how far are they down or the year?

KMX CarMax off 55%
AN AutoNation off 60%
PAG Penske Automotive Group off 65%
SAH Sonic Automotive Inc off 86%

Short any or all of these stocks and put in a "Buy Stop Loss" at the 50 day moving average just in case the Dumb and Dumber twins, Bernanke and Paulson do something to mess up your positions.

In this market of no federal regulation but excessive federal intervention you must protect yourself from the unexpected.

The trend is your friend and the stop loss is your Savior.

I would enjoy hearing your comments at VanmeertenFund@aol.com

DISCLAIMER: The stocks selected should not be taken as buy/sell recommendations. They are the stocks that were selected by my stock screening process and then each was analyzed before adding or subtracting from the portfolio. Do not concentrate on the stocks but learn the selection process.

Jim Van Meerten
Strategy Lab Open Winner July 2008
VanMeerten The Amateur Strategy Lab 2008

Comments: View Comments |  Thursday October 16, 2008

I really can't find a lot I like about this stock at this present moment in time. MOS is a part of the agricultural chemical industry and the whole industry is in a tailspin. As an industry they have a Weighted Alpha of a negative 29.60 and most have been dropped over 25-50% this month alone.

Potash POT and Monsanto MON are both down up to 50% in just one month alone. They are all lemons right now.

When life gives you lemons you make lemonade. How do you do that. You can short one of these or short all three - of course with the proper stop losses.

My recommendation in this market is not to put all your eggs in one basket but to buy a basket. Why not look at AGA the PowerShare Double Short Agricultural ETN. This allows you to take a short position in the whole industry in a cash or retirement account.

I would enjoy hearing your comments at VanmeertenFund@aol.com

DISCLAIMER: The stocks selected should not be taken as buy/sell recommendations. They are the stocks that were selected by my stock screening process and then each was analyzed before adding or subtracting from the portfolio. Do not concentrate on the stocks but learn the selection process.

Jim Van Meerten
Strategy Lab Open Winner July 2008
VanMeerten The Amateur Strategy Lab 2008

Comments: View Comments |  Saturday October 4, 2008

Just what is going on in Washington and who is in charge? This is not the way to fix anything!

During the Depression we had a total bank, saving & loan association and financial services failure. We installed regulations to make sure our banks, S&Ls and investment banks would stay separate and secure. There was to be a brick wall between them and each was to have its own and separate mission. Little by little that brick wall was chipped away until be had a S&L crisis.

We didn't learn from that one and let the brick walls be chipped away even more and more.

Everyone assured us that with all the regulations in place at the SEC, FDIC and the oversight of the House and Senate Banking Committees nothing like that could ever happen again. Somewhere along the line Barney Frank Chairman of the House Banking Committee, Chris Dodd Chairman of the Senate Banking Committee and Chris Cox Chairman of the SEC went asleep at the wheel and let us all down.

Years ago after working for a CPA firm in Fort Lauderdale I moved to Atlanta and became an Internal Auditor and passed the Certified Internal Auditor exam. I became a real student of Operational Auditing and found it to be a very valuable tool. Internal Auditors had some standard questions they always asked:

Why does this unit exist? What is its mission. How does it support the Company's mission? How can we tell if it is accomplishing its mission? If this unit didn't exist how would it effect the Company? If it isn't accomplishing its mission how do we fix it and how much will it cost to fix it?

Have you heard anyone in Washington ask these questions?

Back in the 70's there was a professor at Georgia State University named Harvey Brightman who studied corporate problem solving. We had him come speak to our Chapter of the Institute of Internal Auditors to talk about problem solving. He noted that there was a big difference between American corporate problem solving and how the Japanese approached their problems.

The Japanese spent a lot of time defining the problem, measuring the effects on the Corporation, studying the history of the problem and how it came to be. Only after they had studied the problem in depth and knew it from top to bottom did they ever even start on a solution. After their study, the solution was pretty obvious and they had to have a total agreement of al the causes and effects before they proceeded to begin implementing the solution.

In the US however you had to do something immediately. To pause was to show weakness. We ran to a "Get 'er done!" Larry the Cable Guy mentality. Isn't this what Washington is doing now?

We have not figured out how we got in the hole. Were the regulations the wrong ones or were they the right ones but just not enforced properly? If we begin enforcement now will the problem go away?

Who cares! Just "Get 'er done!" Throw money at it and it will fix itself. For good measure add in some provisions on mental health care, the AMT and a lot of other stuff. Who cares if mental health had nothing to do with it and additional mental health funding won't fix it; we are doing something. " Get 'er done!"

We can step back, define the problem, determine how our controls failed us, analyze the regulations and enforcement, then solve the problem rationally and permanently or we can just do something, anything, throw money at it, and Get 'er done!" and we will be throwing money at it for a long, long, long time.


I would enjoy hearing your comments at VanmeertenFund@aol.com

DISCLAIMER: The stocks selected should not be taken as buy/sell recommendations. They are the stocks that were selected by my stock screening process and then each was analyzed before adding or subtracting from the portfolio. Do not concentrate on the stocks but learn the selection process.

Jim Van Meerten
Strategy Lab Open Winner July 2008
VanMeerten The Amateur Strategy Lab 2008

Comments: View Comments |  Friday October 3, 2008