Action Alert: Are Stocks About to "Take the Elevator"?
There's an old saying that stocks "take the escalator" - moving slowly higher, in a bull market...
And they "take the elevator" in a bear market, dropping to lower prices much faster.
With that scenario in mind, I think it's time to position the goodBUYs portfolio for potential profits in the event there's another potential downside move in the stock market.
So how do we do that?
I'm going to start shorting a few stocks, in a strategic manner.
In the media, shorting is often portrayed as an ultra-risky activity. I don't know how many times I've heard people say on CNBC that when you short a stock - and if the stock does not go down - your ultimate loss is infinity.
The presumption is your losses are unlimited if you maintain your short position and your target stock keeps climbing higher and higher.
In my view, shorting a stock is no more risky than buying one.
Think about it. You can pour a ton of money into buying a stock, averaging down if it drops in value. If it never rebounds in a significant way, it's possible for an investor to throw an infinite amount of money as well and never see a profitable return.
Lastly, I remember what it was like in prior bear markets, like 2007-2009, and 2000-2003. Short-selling offers a way to bring in profits to a portfolio at points where most stocks are still in steep downtrends and shouldn't be purchased.
Cutting to the chase, I'm going to strategically short one of the strongest stocks of all. It's overvalued and over-owned.