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4 Stocks That Could Burn Short Sellers

NEW YORK (TheStreet) -- I have a confession to make.

I have never shorted a stock.

It's not because I think people who short stocks, particularly for a living, are freedom-hating, un-American scumbags.

Not at all. Short sellers help keep the market running smoothly. The ones I know are really great people. I consider them small businessmen and women. It bothers me when fans of battleground cult stocks say nasty things about them.

In any event, for whatever reason, shorting stocks is a bit too rich for my blood. I have never liked dealing with margin. So, I rarely do. I only use margin with relatively predictable and stable strategies such as certain option spreads.

The thought of a stock taking off and running while I'm short nauseates me.

However, like a good LA car chase, there's nothing I like watching more than a short squeeze. Short squeezes -- the perfect illustration of how the stock market can, in an instant, produce winners and losers. When you're long a stock getting squeezed, it's a beautiful thing.

For a time it was not only fashionable, but an incredibly smart move to short Netflix (NFLX) and Research in Motion (RIMM).

Now, it's just fashionable for some. And, like many fashions (e.g., constant flip-flop wearing), it's incredibly stupid.

A time comes when traders and investors just need to move on. That can be difficult though. A parallel exists between jumping in too late on a once-juicy short and the allure of low-priced stocks.

Often, investors jump at low-priced stocks that have already made an improbable run. Sirius XM (SIRI) and Ford (F) are excellent examples.

Both stocks hit rock bottom. On the verge of extinction, some investors took a chance -- when SIRI traded for pennies and F moved below $2 per share -- and reaped handsome rewards. Most investors watched on the sidelines, unwilling to take on the risk.

But, then, the lottery ticket pays off.

You missed out, but you figure since the stock pulled off the unlikely once, there's no reason why it cannot do it again. In fact, at a higher price with that exciting history behind it, the odds of even more upside have likely increased. It's a bit like dumping a once-perfect boyfriend or girlfriend who went sour, only to take them back expecting a return to the glory days.

Stock quotes in this article: NFLX, RIMM, SIRI, F, ZNGA, CSTR 

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