Spotting Clues In Qs

DEFINITION of 'Spotting Clues In Qs'

A method of selecting short-selling candidates based on identifying companies that may eventually be recognized for their use of deceptive accounting techniques. The phrase was made popular by Ron Gutfleish and Lee Atzil in the 2004 book "Short Selling: Strategies, Risks and Reward".

BREAKING DOWN 'Spotting Clues In Qs'

While the Financial Accounting Standards Board's accounting rules continue to change in an effort to stay ahead of companies' use of creative accounting, many corporations continue to find new loopholes to exploit. Serious short sellers often diversify their normal short-term short-selling strategies by searching for companies whose downturn is not likely to be immediate, but may be unavoidable based on their accounting practices. Novice short sellers should be careful in employing this technique, however, because the longer one expects to hold open a short position, the greater the risk that the stock will move upward creating a margin call and/or loss.