Publisher: John Wiley & Sons, Inc

ISBN: 978-1119527763

This is a very well written book that stands apart from most investment publications by its focus on short selling combined with long positions in the same equity. Whatever your market orientation, this is valuable information to broaden one’s perspective and understanding about hedge actions that can be profitable in up or down market directions. Parnes’ technique is not a speculator’s game. He provides documentation and clear illustrations of successful investing that uses a long-term horizon.

The background of the author is just as interesting as the technical information. Parnes came to the U.S. as a new immigrant and young college student. He was an orphan and arrived with almost no money and little means of support. Intelligence, drive and integrity are always rewarded in America. Persistent in his struggle for advancement, he learned a new language and a new economic system. After 20+ years of hard work and study in engineering, mathematics and economics, he slowly worked upward in his technical field. A keen observer of American enterprise, he began to study on his own the fascinating arena of stock market trading and investing. With growing knowledge and competence, he began to publish his own stock market advisory letter. As his success grew, he became recognized and sought after for media interviews and public speaking in high-level venues.

The serious reader of his book will find clear information and guidance on how to be successful in short selling equities linked to long positions that gradually, over time, can make one financially independent. He makes calculations for risk capital allocations and adjusting cash and equities ratios in portfolio holdings. Strategic use is made of short positions to hedge and protect long positions rather than using margin to increase dollar amounts in long positions and thereby reduce risk. These moves protect against the inevitable market reversals that occur in all cycles.

Parnes’ technique of using short positions avoids the inherent problem of puts and calls: an expiration date. Shorts don’t expire. He states, “If you think a stock is going to go down . . . why would you add . . . a certain period of time?” In using shorts he says, “I don’t have a ticking clock running against me.” What is unique in Parnes’ method is using shorts as support for long-term investments. If the fundamentals of a shorted company continues to look negative, one must have the patience and discipline to keep the short position. This action he terms, “shorting for the long term.”

Parnes uses proceeds from short positions to leverage long positions. That move increases the value of the longs, the value of the shorts and saves money by not borrowing to add to longs. Many companies can be found with narrow moats and rising competition that are trading at elevated price levels that are unrealistic. If verified by analysis of fundamentals, such companies are good candidates for long-term shorting. Parnes’ technique seeks to have close to 100% of long positions supported by 30% of their value from short-sale proceeds. He calls this “the 130/30 model” which has been reliable and profitable.

This book focuses on explaining the art of short selling anchored with long positions and how to deal with the unique problems of share scarcity, liquidity and rapid price movements. It is a strategy for investing----not intended for rapid in-and-out trading. One learns from the text how to recognize the long-term advantage of acting on price drops with short selling that reduces risk to long positions. In my view a remarkable and novel conception.

Overall, the author has a contrarian investment philosophy that distinguishes him from other investment advisors and money managers. He stays well grounded by doing almost all of his trading in U.S.-based companies and ADR’s. That keeps investment positions more stable and avoids the high risk of most foreign companies which can be very unpredictable.

In summary, Parnes provides the reader with intellectual and emotional satisfaction gained from really understanding how adverse price movements in equities can be used to advantage for long-term strategies and profit.