How strange that just after posting that I don’t see Apple as a short I read an article laying out the bear case. Ken Kurson wrote the article, entitled “iPod, iTunes, iSell: Time to Short the One You Love”, for the March 2005 issue of Esquire Magazine (The article doesn’t appear to be online but its on page 112 of the mag). Kurson runs through the numbers and the story on Apple’s resurgence then proudly announces that he’s short AAPL at $65. His reasons all seem logical yet he’s down 37% right now, assuming he’s still short. He seems pretty convinced that he’s right, but as we all know the market’s aren’t about being right, they’re about making money. Ken made no mention of what it would take for him to be wrong and cover his trade at a loss. Nor did he mention where he would cover at a profit if the trade went (goes) his way. If he’s still short, and let’s say he wanted a risk/reward of at least 2-to-1, Apple would have to damn near go bankrupt for his trade to be work out.

I just wonder how much pain he’ll accept before covering. In his article he says (emphasis is mine):

If Apple is worth the $65 or so it was trading for at the beginning of the year, then why not $100 Why not $200? In fact, when a stock takes off on the back of its hot product, the best thing to do is to bet against it. But remember: Fighting the tape takes balls, a big bankroll, devoted attention, and a lot of luck.

Hoping to prove I have all four, I’m short a bunch of AAPL at $65.

Here’s why it takes balls. First of all , remember that shorting any stock is inherently riskier than buying it long, since your downside is unlimited…

Oh boy! Is it any wonder that AAPL keeps going higher. No doubt many a short is getting forced out of it on an almost daily basis. The idea of shorting something solely because it’s running due to a hot product seems like financial suicide. That flies in the face of what William O’Neil teaches. New (and hot) products are a key thing to look for in long candidates.

As for fighting the tape, he forgot to mention “a high threshold for pain.” Ken sounds like he’s a glutton for punishment and is out to prove that he’s smarter than the market. If you have to short AAPL to prove you have balls….

Finally, as I always have to do when I see the comment about shorting being riskier than going long, I must point out that shorting is only riskier if you allow it to be by shorting thin and/or volatile stocks, or by not adhering to any kind of risk control plan.