Review of four-step thought process

1. Why long (short)? – risk/reward based on detailed analysis (no short cut: read annual? Read industry background? Met or talked to mgmt?)
2. Why (have to be) now? – imminent catalyst based on facts (not speculation)
3. What could go wrong? – mkt sentiment
4. How wrong could it be? – absolute downside given liquidity, short interest, over-owned (or under-owned), etc.
= > do or not do? If do, how big is the position? What is the game plan if price deviates significantly from here?

Case study
Success – Huabao, Rexlot
Disaster – most US shorts (Yum, DRI, ORLY, FDO, etc.)


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