Van Meerten's picks

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