How to "short" local companies?

[schin]

I bump into a lot of small businesses with inept management/bad customer service, bad locations, and overpriced/shoddy products or services. I know if it's traded in the stock market, i could short a stock. But, is there a way to short local companies?  It's like CDS for a small business with no stock?  I can't think of any, but would be interested in any ideas people might have. It would be easier for me to track customer volume versus how Bruce Berkowitz going to all these Sears and doing cross country market research.

 

I would love to bet on their lease not renewing or vacating before it's all done.  I guess it's the John Bury conundrum on how to short "the housing market".  GS is not going to make these CDS on a small scale, but how would one bet against on a small business with obvious faults in their approach?

 

TIA.

[DTEJD1997]

I don't think there is any way to do this in a direct way you are thinking about...

 

The thing that comes to mind quickest is to maybe set up your own competing business.  If the competitor is weak, you could take their customers & sales.

 

Another way might be to alert their competitors.  For example, if you've got a weak grocery store or hotel, alert one of their competitors to the opportunity.  How does that benefit you though?

 

 

 

 

[LC]

sell shovels to them:

 

commercial lease brokerage

bankruptcy/tax services

etc.

[schin]

I don't think there is any way to do this in a direct way you are thinking about...

 

The thing that comes to mind quickest is to maybe set up your own competing business.  If the competitor is weak, you could take their customers & sales.

 

Another way might be to alert their competitors.  For example, if you've got a weak grocery store or hotel, alert one of their competitors to the opportunity.  How does that benefit you though?

 

Setup a competing business is an interesting thought... But, very capital intensive. Grocery stores and hotels are generally bigger than I'm targeting. I'm talking about poorly run restaurants that aren't clean. There's generally a plethora of good restaurants, so I don't want to start a competing one.

 

My thought experiment is how would one benefit (make money) on a small business (which by definition fail more often than succeed)... when just by walking into the store, you feel you know enough about the economics/fundamentals to make a call.

 

Using a Buffett analogy, you buy more when things go on sale. I know some people who purchase clearance items that they know they can sell on eBay for 20% more. Including fees, they get a decent return. Classic arbitrage on a small scale.

 

So, I was looking for a short on a small business scale. Not shorting Amazon, Telsa, or Walmart.. but, a small mom-and-pop shop that selling crepes in a dark alley, with no parking for customers, and overpriced compared to the Morton's across the street.

 

[schin]

sell shovels to them:

 

commercial lease brokerage

bankruptcy/tax services

etc.

 

Good answer. I'll Glengarry Ross them.... I know you're going to fail and let's admit it, your business sucks... denial is not only a river in egypt....

 

commercial/tax services is not my background.. sadly.

 

I just see a lot of business that make me say.. how do they make money when nobody comes in.. it's like Chipotle on a local scale. My local Chipotle is not full, but I cannot canvas all the West Coast Chipotles to see if they have similar empty lines. Bruce B. does for Sears.. but, I just want to beat the one mom-and-pop burger place that only has 2 customers as all of them are going to an Five Guys and McDonalds just down the street.

 

Again.... maybe, it doesn't exist.. but, just wondering... I wish there were CDS on the lease.

[AzCactus]

 

 

Setup a competing business is an interesting thought... But, very capital intensive. Grocery stores and hotels are generally bigger than I'm targeting. I'm talking about poorly run restaurants that aren't clean. There's generally a plethora of good restaurants, so I don't want to start a competing one.

 

 

Didn't you answer your own question?  If you see a lot of good restaurants and a few bad ones won't the bad ones simply go out of business over time and the customers will flock to the good ones?  The easiest way to short it would be to find an area that probably has demand for restaurants but most (not all) of the existing ones are below average and add a decent one in the area. 

[schin]

Didn't you answer your own question?  If you see a lot of good restaurants and a few bad ones won't the bad ones simply go out of business over time and the customers will flock to the good ones?  The easiest way to short it would be to find an area that probably has demand for restaurants but most (not all) of the existing ones are below average and add a decent one in the area.

 

Yes, you're right over the long run -- it'll go out of business and the customers by definition gravitate to the better restaurants. I guess I was trying to figure out, if there is a way to profit off of it without a large investment in building a comparable business.

 

For example, a lot of people have shorted Sears, that doesn't mean I should go out there and try to build a better retail experience. I just know in this case, I want the "opposite" of the beat.

 

I'm not trying to be John Bury and short the whole restaurant market, but if I could make a bet on one restaurant...  The owner of the business is by definition "long" on his product and service. Can one take the "short" position that it will not succeed, without making your life mission to build a better version of it.

 

A local, financial derivative.

[SharperDingaan]

I don't think there is any way to do this in a direct way you are thinking about...

 

The thing that comes to mind quickest is to maybe set up your own competing business.  If the competitor is weak, you could take their customers & sales.

 

Another way might be to alert their competitors.  For example, if you've got a weak grocery store or hotel, alert one of their competitors to the opportunity.  How does that benefit you though?

 

Either don’t buy from them, or use their inevitable sales to bulk buy your household consumables. Occasionally look over their fixtures & make a low-ball offer on what you like. Industrial freezer, pretty lights, etc.

 

SD