Jack Schwager’s third interview in Stock Market Wizards is with short selling specialist Dana Galante. While I have always been interested in short selling as a portion of a strategy, I thought it was very interesting that Galante only plays the short side.
This didn’t make sense to me at first, but then a light bulb went off when Schwager explained that many investors use Galante’s short-only approach as a risk control portion of a larger portfolio. By trading exclusively on the short side, Galante has build her own niche in the trading community. She is able to offer her clients something that most investors would never think about.
Top Five Quotes From Market Wizard Dana Galante
“I was never really obsessed with the market, like a lot of the people that you have written about. I like the market, and I think it’s exciting and challenging, but I don’t go home and think about it.” – Dana Galante
Along with her overall strategy, this runs opposite of what we generally see from Market Wizards. Most of the traders interviewed have spent years obsessing over the markets and many have lost friends and family because of their obsessions. Galante is not going to be one of them. She says that she makes it a point to leave work at a reasonable time everyday and never trade or do research from home.
As someone who has struggled quite a bit with work/life balance, I appreciate that she is able to do this. I tend to get lost in whatever project I am working on and then miss out on everything else that happens while I am focused. I would love to become more like Galante and be able to leave work at work.
“I don’t want to grow. I don’t want to manage people; I want to manage the portfolio.” – Dana Galante
This reminds me of an independent music group or filmmaker. Galante doesn’t want to build the biggest hedge fun on the planet. She is actually quite content with the amount of success she currently has and would rather focus on doing what she does best than managing a conglomerate.
I find that most of my complaints about my day job have to do with managing people. While I find the actual work that I do to be quite enjoyable, the stress of managing employees is extremely frustrating, so I can completely understand where Galante is coming from.
“The key is anticipating what is going to affect future earnings relative to market expectations.” – Dana Galante
I have never been very good at anticipating anything, but I appreciate that Galante looks at her positions with respect to earnings. It is important to base your trades on a system or strategy that is grounded in real numbers as opposed to what you think might happen, or even worse, what you hope will happen.
“I won’t short a stock that is moving straight up. The stock has to show signs of weakening or at least stalling.” – Dana Galante
Despite the fact that Galante trades only the short side and regularly finds herself swimming against the current of the overall market, she is not foolish about it. She only shorts stocks that show signs of weakness. Therefore, she isn’t likely to be calling tops in stocks that are rocketing higher and increasing earnings.
“When a company blames the price decline in its stock on short sellers, it’s a red flag.” – Dana Galante
Galante went on later in the article to explain that the short sellers are the ones who are doing the buying when a stock finally bottoms. She makes the argument that short sellers covering their positions on the way down are actually slowing the decline.