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The market's long-term upward bias can make short selling difficult to master, and shorting has only been made harder by the generational bull market we're in today.
But the case of ITT Educational Services Inc. (NYSE: ESI) proves that when you know how to spot a company posturing for a fall, short selling can help you double your gains – or do even better…
In fact, spotting the profit opportunity stemming from ESI allowed Money Morning Capital Wave Strategist Shah Gilani to deliver a 345.5% profit on ESI…
You see, this for-profit educational services firm saw its stock rise 35.2% at the start of the year – but savvy short sellers knew this rally wasn't sustainable.
The short float – the percentage of shares floated that are in short positions – has been steadily climbing since the end of January, and is currently flirting with 50%, according to recent data from BeSpoke Investment Group.
To put that in perspective, the S&P 1500 – an index that combines the S&P 500, the S&P MidCap 400, and the S&P SmallCap 600 – has a short float of 5.7%.
Heightened short selling hastened an 83% collapse of ESI stock this year. In late January shares were selling at $45.40, and on Aug. 4 they had slipped to $7.72.
ESI has felt the pain of investor backlash on for-profit educational institutions, a sector that really began to attract scorn in 2010…
This Sector's Short-Selling Appeal
At a June hearing with the U.S. Senate Committee on Health, Education, Labor and Pensions in 2010, Steve Eisman, the noted money manager who put himself on the map by shorting subprime mortgages just before the housing collapse, condemned for-profit colleges as "marketing machines masquerading as universities."
This prompted a federal inquiry, and in August 2010, the U.S. Government Accountability Office released the results of an undercover probe that revealed for-profit colleges encouraged fraud and employed deceptive marketing in their business model.
2014 has been an even tougher year for this sector – specifically for ESI.