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STRA - Stockdocx is right- Conviction and patience are important
Poster stockdocx has taken issue with the use of stops to limit losses, saying that if one is truly confident about a position, a tight stop is not necessary. While I do not completely agree with his anti-stop stance, I think he is generally right about being patient with those shorts in which one has a high degree of confidence.
I previously posted here back in April that I was shorting the bloated for-profit education sector via a STRA short position. I shorted this company a couple of times in the 250s. Unfortunately, I took my profit the first dip I could get, in part because shorting was new to me. It was a relatively large position and I didn't want my gains to evaporate due to the rally I knew was coming. It is also frustrating waiting for the market to realize what you already know. There's nothing wrong with taking an early profit, especially with a short, but as STRA was an especially high-conviction short, I should have held on to my short postion longer. Yesterday STRA hit 155. Had I kept my short, I would have made some major bank.
Despite the steep drop, I still think STRA is the biggest POS in the for-profit sector. I don't think there is any price at which this represents a good buy. I may short again on any significant rally. But I won't be able to short in the 250s again, that's for sure.
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You made some money on the trade though -- that's better than a sharp stick in the eye. You might want to check out Leigh Drogen's recent post on this ( http://leighdrogen.com... ). Excerpt:
" There were heavy short positions all through the run up of many of the education names in March and April. The shorts were getting squeezed for sure, but the short interest just kept piling up, they weren’t giving in. They knew that it was only a matter of time before the whole house came crashing down, similar to the housing mess. In fact, it was so similar that many of the hedgies who made a killing on the short side of the housing collapse were back for round two and were targeting the education names for many of the same reasons. Easy credit and a negative return on investment don’t add up well. The main character of Michael Lewis’ book The Big Short, Steve Eisman, was one of them. And when this guy takes aim at an industry, you don’t want to be in his way."
Leigh ends that post saying this might be a time for value investors to start looking at the sector -- I wouldn't look to buy anywhere in this sector, but if value investors are thinking that way, than it might be a good idea to wait for them to give some of these names a dead cat bounce before shorting them.
FYI, for those who missed it, Hesperian's initial short call on the sector: http://shortscreen.com...
Shorting a momentum stock is scary but can pay off if you're not wiped out. I would say at least hedge with some long calls if stops aren't going to be used.
For the STRA and other college stocks, eventually some of them will be buys again, in my opinion. I think WPO will be a buy around $200 if it gets there. Their Kaplan division is killing an already weak stock. It was weak because newspapers are in decline. WPO is a fine company in a weakening industry and I believe will be a classic value play at some point. $200 is the figure I've picked but I might refine that price if/when I've don more due diligence.
WPO is a different animal because it's also a media company, but do you think the pure-play for-profit colleges will be buys at some point? Leigh Drogen seems to think so, but I don't know. The sector is almost wholly dependent on government financing, and it's in the government's sights now. Maybe they can do some Goldman-style Jujitsu, but I'm not so sure.
Yes, Dave, at some point I think there will be some terrific buys. I'm thinking DV will be a good one. I think of it as a trade school. I don't remember them not being around. This doesn't mean that they will survive any economic environment but I remember, as a little kid, in the 70s seeing there commercials. ITT also, which I don't know if they're public would be one I would look to. Trade schools might pull through a protracted recession as they are "easier" than 4 year schools. Perhaps they are shorter too? I need to look at that. Anyway, if finance is not going to be a growth area for the next 5, 10, or 20 years, maybe we will need more skilled labor types in this country.
These are just some thoughts and I need to do some research. Some of the others will surely be okay later too. The ones with the strongest balance sheets might buy out some of their competitors.