Sell-short advice turns out to be in wrong direction

It takes real nerve to recommend selling shares short in a bull market. But, that's just what T.J. Holt & Co., publisher of the T.J. Holt Investment Advisory , did in its Dec. 17 newsletter. Holt reasoned that the August rally had stalled and institutional buyers of stock would get over their euphoria once disappointing earnings started to roll in. Profit taking would set in, said Holt , sending shares plummeting. The Dow was then at 993 (that's about 60 points lower than current levels) and Holt was predicting that once the average broke through 980, it would free fall. Thus, Holt recommended that subscribers keep 40 percent of their portfolios in short sales, particularly in weak industries.

Specifically, Holt told subscribers to short shares in Alcoa, the leader in the hard-pressed aluminum industry, and Texas Instruments, a leader in the semiconductor business. Holt figured the shares of Alcoa, which were then selling for $28 per share, would tumble to the low 20s and TI stock would collapse to $92 per share. When selling shares short, investors borrow shares of a company's stock and then sell them in the hope of buying them back later a lower price. They then return them to the original owner and the difference between the first selling price and the price paid to buy them back is the investor's profit.

Unfortunately for Holt's subscribers, this scenario has not ensued. In the last two weeks the Alcoa shares, which Holt considered overpriced, have shot up to $32 per share. And Texas Instruments has jumped as high as $141 per share. Currently it is $136 per share. Holt recommended to its subscribers they place a ''stop loss'' order at $33 per share for Alcoa and $165 per share for TI.

Getting stopped out of these short positions, won't be anything new for the subscribers. Holt has also recommended selling short American Airlines, Chrysler , Digital Equipment, Hewlett-Packard, IBM, May Department Stores, and UAL. All of these short positions have been ''closed out'' at losses since the stocks have touched Holt's ''stop loss'' orders. He still has short positions in Amdahl and Cluett, Peabody.

Frank Ventura, a vice-president at Holt's Westport, Conn., office, says the losses don't bother him. ''As an investor,'' he said in an interview, ''you must be prepared for the tide to go against you temporarily.'' He notes that when the investors have been stopped out of short positions, Holt has recommended that they buy puts. A put is the right to sell a stock short at a certain level. Thus , in the same newsletter, Holt recommended buying a UAL put at 1 3/4. Investors following that advice currently have a profit of 3/16 of a point, not counting commissions.

Mr. Ventura says Holt continues to look for a 100- to 150-point decline in the market - possibly early in 1983. He reels off seven reasons he thinks the market will go lower.

First, he says the market has used up much of the institutional cash that pushed it up 300 points.

Second, he thinks stocks are discounting a recovery that may not take place.

Third, he believes the small investor remains bearish and has been selling into the rally.

Fourth, he notes corporations have been busy floating new equity offerings, which have soaked up a lot of cash.

Fifth, corporate insiders have been selling shares in the last few months and the specialists have been heavy short sellers as well.

Finally, short-term interest rates have been edging back up.

''The bearish factors are overwhelming,'' he claims.

Unfortunately for the subscribers to the newsletter, no one else sees it that way and the tape continues to run against them. The next copy of the newsletter is due Jan. 7, when subscribers can get some more short sale ideas. That is, if they have any money left.

After three years of declining productivity, the trend will reverse in 1983.

According to William C. Freund, chief economist for the New York Stock Exchange, productivity will ''pick up handsomely in 1983.'' Productivity normally would have spurted for cyclical reasons since the country should be moving out of the recession. Productivity turned down during the recession as companies cut production more than employment, decreasing the output per worker hour. As the economy rebounds, the reverse happens since firms tend to increase production faster than they hire new employees.

However, Mr. Freund points out that there are also noncyclical factors at work since ''the deep recession has led companies to trim unnecessary fat.'' This rise in productivity, he adds, ''will itself stimulate the economy.''

As 1982 comes to a close, the New York Stock Exchange reported all of its volume records were exceeded in the last six months. The high-volume day for the year was 149,385,480 on Nov. 4. It will also be a record year, with more than 16 billion shares traded, compared with 1981's 11.8 billion shares.

On 25 trading days since mid-August, trading volume has exceeded 100 million shares. NYSE president John J. Phelan remarked, ''We look forward to the ability to handle share days exceeding 250 million.''

The market ebbed and flowed to the crosscurrents of tax selling and portfolio shifting. When the broad tape finally stopped the Dow Jones industrial average showed a gain of 1.47 points, closing at 1,046.54. Trading slowed to a crawl on Wall Street last week as vacations and holidays took their toll.

Among the active issues was General American Oil company, which was locked in a takeover battle with Mesa Petroleum. As of Dec. 29, Mesa said it has been tendered 77.5 percent of GAO's shares. Shareholders have until Jan. 11 to accept or withdraw their shares from Mesa's offer of $40 per share.

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