Bubble stocks are the purest and easiest form of short selling.
The simplest form comes from a company with a fad product that is perceived to have a long life. The next level of financial complexity is a concept or theme stock, from companies that sell a product or service to fill a newly perceived need.
Wall St awards preliminary kudos to companies just for trying or just for hiring the right investment banker or public relations agent. And that is what makes shorting concept stocks chilling, palm sweating, white knuckle hard work.
Questions to ask about concept stocks: does it work? how soon will it run out of money?
Shorts almost always judge correctly if the business is dying. On the timing of the demise, they are seldom right. Someone is usually available to buy stock, loan money, offer short term bank debt long after the company's financials are in nearly terminal condition.
Add two years to a short's best projection, and you might only have a couple more years to wait.
Grizzled analyst wisdom says sell the stock of a company building a new headquarters that is owned, not leased. It is a top of the earnings cycle clue.
Cute tickers for fad/concept companies is another tell.
The patience required to track the trail of failure is a critical skill for short sellers avoiding the wrong stock or the wrong time in a growth company's price trajectory.
Cockroach theory: there is no usually just one bad quarter. Expect more to follow.
Concept stocks: cabbage patch kids, Coleco (home computers), Scoreboard (baseball cards), J. Bildner (yuppie/upscale grocery stores), Jiffy Lube (quick oil change franchises).
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