As a former Portfolio Manager of a top performing $1.2 Billion dollar Hedge Fund, I still love to short short stocks or buy put options on a stock when I see a great set up. It’s exciting to be a contrarian and go against what everyone else is doing plus it can be extremely profitable, and a great way to hedge your current portfolio.
Right now there is a perfect set up to short Facebook ($FB) or sell you Facebook stock for 3 reasons:
1) Smart Money- The Top Billionaire Hedge Fund Tiger Gloabl, a $7 Billion long short technology based hedge fund, sold all of its stake in Facbeook ($FB) last quarter even though it was one of the largest holders in the stock, both Pre IPO and Post IPO.
2) Valuation- The stock is extremely overvalued on any financial metric, it has a price to sales ratio of 12 that’s more than twice Google’s Price to Sales Ratio ($GOOG) of 5.5., and Google as we know is one of the most profitable companies in the World, is a Market Leader with a Dominant Competitive Advantage and its actually profitable, Facebook isn’t it.
3) Performance and Facebook’s Relative Strength. This one you can’t ignore. Even as the Stock Market has rallied to new highs in the the last three months Facebook’s stock been has flat to down. This is a very important indicator which many of the best hedge funds and biggest mutual funds use to comapare stocks to invest in. (By the way its been the real reason why all the biggest Growth Mutual Funds have been buying Google ($G00G) and Selling Apple ($AAPL).
Its called Relative Stength, and its a concept which compares one stock’s performance to an index or another stock over a certain period of time. The reason its such an important indicator is that is shows you what stocks are participating in a Bull Market Rally, like the one we are in now, and what stocks are flat or down. Stocks like Facebook ($FB) that are not going up when the market is rallying are stocks that institutions and hedge funds are not buying, meaning there is no real money flowing into these stocks. So what happens with stocks with negative money flow is when the rally stops, and the market sells off, stocks like Facebook ($FB), get sold quickly and hard.
To put Faceook’s recent performance in perspectice, The S&P 500 is up 9.3% over the last 3 months, while Facebook is actually down -1.4%. During this huge rally in stocks which has taken the Dow to record highs and the S&P 500 to almost double digit returns, none of the smart money or institutions have been buying Facebook ($FB), since Facebook has not participated thes stock is actually down over more than 1% durint this most recent rally, and when the market starts to correct, this will mean Facebook will be one of the first stocks to sell off and sell off hard.
Editor of the Billionaires Portfolio
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