Short-sellers take an interest in area firms

4/15/2006

Stocks of several Toledo-area public companies did very well in the first quarter, but many investors thought they were becoming overpriced.

Other stocks stumbled, and some investors thought they should drop even farther.

Overall, investors last month sold short more than 36 million shares of firms based in northwest Ohio and southeast Michigan.

Short-selling is a sophisticated tactic to make money on falling stock prices by selling borrowed stock at the market price, hoping it will drop so that the stock can be repaid with lower-priced shares.

Short-selling is really gaining momentum, said Dylan Wetherill, of Kansas City, Kan., founder and president of ShortSqueeze.com, a Web site that provides data on short sales. It s a way to make money [even] when the market is going down.

But he cautioned that the tactic is best reserved for savvy investors and hedge funds, because investors could get caught betting on the wrong side of a rapidly rising stock and could end up paying far more than the original value of their deal.

Short-sellers had an interest in 12.9 million shares of Cooper Tire & Rubber Co. in mid-March, or 21 percent of its stock 60.7 million outstanding shares, according to the latest figures from the New York Stock Exchange.

Second-highest among 12 area firms, in terms of the number of shares shorted, was La-Z-Boy Inc., with 10.6 million shares, or 21.3 percent of its 49.5 million shares.

Near the top locally on a percentage basis was Tecumseh Products Co., 1.8 million shares sold short, 10.7 percent of its 16.5 million shares.

Even though some speculate that the rapid rise in the share price of The Andersons Inc. means that stock may be overpriced, shorting has been relatively limited, at 175,000 shares, or 2.8 percent of its 6.3 million shares.

Short-sellers of those stocks were betting that the prices would drop, and often they were right. Whether those investors profited depended on when they sold and how much of a fee they had to pay to borrow the stock.

All 12 of the regional stocks dropped, at some point, below their prices of March 15 by an average of 6.8 percent even though some rebounded to even higher levels this month.

Even stock of The Andersons, which has been hot in recent months, suffered a temporary reversal in the last month.

Mr. Wetherill, who was a broker and trader before starting his own firm, said anyone wanting to get into short-selling should be careful.

They need to be market savvy and disciplined enough to cut their losses and let their winners run, he said.

Contact Homer Brickey at: homerbrickey@theblade.com or 419-724-6129.