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Subject: Evaluating "Book Value" Short Selling Strategy rss

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Benson Propst
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I'm a recent newcomer to 18xx games, and have gotten to play a snmall handful of varying titles. 1817 is not one of them, however the short-selling mechanic is intriguing to me.

I was reading the rule manual, and was intrigued by the strategy described in 11.1.4, for evaluating whether a company is a financially viable target for short-selling of stock, or not.

Book Value of a company is calculated by a companies:

Remaining Stock Shares in Treasury +
Total Train Values +
Station Token(s) Values +
Total Cash -
Total Loan Values all divided by (/)
5 or 10 (depending on they type of company it is.)

After reading 11.4.1, my interpretation is if a company's Book Value is significantly greater than its Stock Value, then buy the regular stock.

If the Book Value is significantly higher than the its Stock Value, then sell a short for the company.

What are people's thoughts on the effectiveness of this strategy?

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Shawn Fox
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The payouts of the shorted company, what trains are going to rust, and the potential for the owner to move trains around are the main things to look out for. A company might appear to be a fantastic short target based on the math you are talking about, but what if the owner has another company that has tons of money and an extra permanent train they can easily move to the weak company or possibly merge the weak company with a strong company?

The real question is always going to be how much money you can make off the money you get for shorting the target company. If you can turn that cash around and buy another company that is paying out a lot more than the company you shorted you are going to do very well.

The stock price plays into shorting a great deal. It is usually not worth shorting a company that is < $100/share but companies that rise above $200 can be great targets even if they aren't weak companies just because of the potential to turn that $200 into a lot of other shares that pay out good money. Not to mention if no one buys the shares the drops a lot more for a high share value company.
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Benson Propst
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sfox wrote:
The payouts of the shorted company, what trains are going to rust, and the potential for the owner to move trains around are the main things to look out for. A company might appear to be a fantastic short target based on the math you are talking about, but what if the owner has another company that has tons of money and an extra permanent train they can easily move to the weak company or possibly merge the weak company with a strong company?

The real question is always going to be how much money you can make off the money you get for shorting the target company. If you can turn that cash around and buy another company that is paying out a lot more than the company you shorted you are going to do very well.

The stock price plays into shorting a great deal. It is usually not worth shorting a company that is < $100/share but companies that rise above $200 can be great targets even if they aren't weak companies just because of the potential to turn that $200 into a lot of other shares that pay out good money. Not to mention if no one buys the shares the drops a lot more for a high share value company.


These are great thoughts on how to evaluate companies that are in susceptible/not not susceptible positions to sell-short. Thank you for sharing.

This is one more example of where an 18xx game has created a space for making predictions based on known information about opponents' train companies, and opponents' play styles.

 
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J C Lawrence
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In my last game of 1817 I took ~30 shorts and floated 7 new companies. The companies I shorted had 3Ts, a typically modest number of loans (often just 1-3), and nice track and tokens. Loan interest was around $20. By the end of the SR loan interest was ~$50. By the end of the next two ORs we'd sold almost all the 6Ts, two players were destitute, a third was teetering, and the game was mine.

!817 is not a game about company values and asset building. Or about portfolio building or market control. It is a game about the use and control of weaponry via constant mutually assured destruction.
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Dan Lokemoen
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I don't think of shorting companies so much as players. I look for a company that will pay out poorly (based on performance and owned trains) in the coming OR, and cannot be significantly improved by partner companies in the second following OR. Or I have to consider shorting a company and a couple of its partners, so the operating player can't just shift all of his assets to the shorted company. If three of his five companies have been shorted, there aren't enough assets to shore up all of them.

If the train market puts a player in a position where he will need to scramble to buy a bunch of trains, short the crap out of that player, and use the money to open companies, which will increase the train rush pressure.

It's generally bad to short a single company, and bad to short at all if you don't have an immediate use for the resultant cash. You usually want to short multiple companies owned by a single player (or communally short multiple companies of a couple of players) to open a bunch of new companies.

Shorting strong companies actually makes them stronger. Learn by doing. Play a few games, short what you think looks right, and watch the outcome. I have seen one player hand the game to another by shorting her companies early.
 
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