**[investwise]** Ajit Dayal: Sell The Dogs-DLF, Unitech, Reliance Capital and Reliance Infra

 

What is common amongst companies like DLF, Unitech, Reliance Capital and Reliance Infra? Indeed, all of these were the darlings of the last Bull Run. The story does not end here though. These companies also turned out to be huge duds when the markets corrected from their peaks. So much so that they didn't just give up all the gains of the bull run. They are also unlikely to make meaningful returns to the investors who invested in them at their highs. However, there is a set of investors out there who would have made tons of money from the entire episode. These investors are none other than short sellers, people who excel in the art of short selling. Short sellers derive their profit from a fall in the value of asset.  We believe that the risks involved in short selling are too high for an average investor. However, this does not mean that there is nothing for us to learn from short sellers. Jim Chanos, arguably the world's most successful short seller believes that there are certain recurring themes in short selling. And we could do well to remember those themes if we were to avoid the mistake of investing in another DLF or another Unitech at peak prices.  Chanos talks of four broad themes. He believes that companies that have a lot of debt or have strong growth rates priced into their stock prices are prime candidates for short selling. Also, he asks investors to look into the technological obsolescence aspect as the cash flows here can go down just as fast as the share prices. Finally, he also asks investors to be wary of companies that resort to complex and structurally flawed accounting.  We may not want to short sell like Chanos does. But these points are worth remembering from a buy and hold point of view as well. First, we should stay away from companies that possess the qualities mentioned above. Secondly, if you already have such stocks in your portfolio, perhaps it's time to sell them now. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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