Naked shorting by itself neither proves nor disproves the allegations, it simply points to a severe deficiency in the regulatory structure. Since this has been an issue for some time now maybe it's time to sue the regulators for dereliction of duty?

You'd think some enterprising law firm would initiate a class action on behalf of the companies affected, given the amounts involved. You'd also expect the issue to be raised in the House of Commons since this practice affects not just the companies themselves, but the reputation of Canada as a place to invest.

Of course you also might have expected US bank regulators and the rating agencies to do their job prior to the MBS fiasco leading to the 2008 collapse....

Short of taking your toys and going home, there's a few things you can do to protect yourself.

1. Diversify your holdings so that no single event takes you out of the game. Ten percent is the maximum you should have in any one stock. People with low pain thresholds should probably have less. Take profits along the way (you never go broke taking a profit) and remember, cash is a position. You should always have some on hand to take advantage of opportunities. Obviously this means NO LEVERAGE.

2. Only play the high risk areas with money you can afford to lose. If the market blows up (as in 2008) and all your stocks go in the crapper, you should have enough remaining capital to maintain your lifestyle. Most of us are in our middle to latter years and don't have the time it takes to rebuild from a devastating loss. So, don't expose yourself to that kind of event. Keep it in line with your means and don't overreach.

3. Hire good help. Independent analysts are available and their fees are often quite reasonable. Budget part of your risk capital to these services and don't rely on a single analyst for all your advice. Three or four is probably a good number. On the same note, avoid so called "free" services where the analyst is compensated by the companies he/she covers. There are some exceptions to this rule, but in general free advice is worth exactly what you pay for it.

4. Treat this as a business, not a day at the race track. No competent business relies on a single supplier or customer for their success. Maintain good records, monitor your performance and run frequent "what if" scenarios. When making new investments "what is my possible loss" not "what is my possible gain" should be the guiding principle. Protect your downside and the profits will take care of themselves.

I haven't mentioned this before, but back when I was compiling the mailing list I had several people respond indicating they were out of the game for good. The hit they took on ARU was too much to bear, so they decided to withdraw entirely from the stock market. The common mistake was too much exposure to a single stock. The old adage "if it's too good to be true" applies here. No matter how good it sounds, safety always comes first.

Stay in the game, people. Practice good risk management and an event like ARU or SVM won't take you out.

ebear