Less than a month ago, I covered a short in Rubicon Technologies (NASD: RBCN) and wrote about it here. I estimated that the stock had another 25% to 75% to fall from where I covered it, but that because the shorting costs rose quickly and the timing of the payoff was uncertain, the new risk-reward scenario compelled me to cover.
Woulda, Coulda, Shoulda
RBCN has now fallen 25.25% from where I covered it. Still, I am not concerned with the decision to cover because the analysis was sound. Investing is a probabilistic endeavor, but when investors work diligently to put the odds in their favor—by, say, only investing when there is a Margin of Safety—and then exploit as many of those opportunities as they can when they present themselves, investors will win in the long run. It is akin to investors making themselves the “House” in a casino gamble.
The decision to short RBCN came after our analysis concluded that the odds were in our favor. With rising costs, the odds were no longer overwhelmingly favorable. In that case, any good value investor will use risk-management skills and cover to avoid a permanent loss of purchasing power.