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Customer Health as Bell Weather for Short Selling Stocks (Part 2)

26 October 2007 - Features - Editor

Cutting back on cellular telephone use is a threat which all network service providers must face. Some of the threats to market shares of such companies is obviously competitive, but the more difficult obstacles to profit and sales growths may be because people are loathe to spend the incremental amounts which can turn cellular telephones in to small computers.

Customers in all countries may not respond uniformly at a given point in time, which results in rapid growth of cellular telephony in some territories while others experience a tapering off in their patterns of revenue growth. However, the central lesson is that changes in customer spending habits affects not just network service providers, but their prime suppliers-network hardware manufacturers. This is a specific example of a change in fortunes of an industrial customer affecting the stocks of its main supplier industry. Stocks of network technology leaders in developed economies could have been sold short in late 2006 or even in early 2007, on the realization that mature customers may take time to use their cellular telephones for expensive entertainment and news.

Modeling Stocks for Short Selling

Modeling future values of stocks for short-selling transactions need not be restricted to electronic communications alone, for the principle has nearly universal application in all fields covered by industrial securities. One has to invest in surveys to find out about the needs and opinions of individual and small groups of customers, but the annual reports of listed companies provide free information about the likely fortunes of their suppliers. There is money to be made in short selling stocks of companies whose large industrial clients are running in to heavy weather. We can also use trends in mature economies to forecast future developments in emerging ones, though such connections may have longer time cycles.

 


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