Regarding short selling. My opinion will be totally different from you guys. And I've got a pretty strong one on short-selling-- as I've posted on other threads before.
One basic assumption I have is that to make money I want do what works. Not necessarily what I think should be done, or feel that should be done, or just use tools because they are available. Every single book that I have seen written for the average investor that is grounded in some academic basis or that empirically uses techniques of successful investors, says to leave short selling to professionals.
So to me, it is not a matter of when to short or how to short. It is a question of should shorting be undertaken at all by the average investor.
I have thought about it for a long time. Being in the market over a period of decades and seeing how people "invest" and their results and trying to understand why people "invest" the way they do (and I include myself in this), I have come to two basic condition why people miss when they sell short:
1. Short selling ought to be the reverse of going long. Basically the assumption is that if you can pick something that's undervalued and make money doing so, then you should be able to find and sell something that's overvalued. You cannot. It is like walking backwards. Sounds like it might be easy enough, but it is not.
2. It is not possible to explain to people that they will not make money over the long haul by shorting stocks. Absolutely impossible for people to believe this.
So I come to this conclusion which I would advise beginning investors: Sell short. As much and as frequently as you dare. Try every possible variation you read and think about. (You see this being done now imo by somebody in a prior post here.) People will lose, be frustrated that it ought to work out but it doesn't, be disheartened and finally focus on buying stocks as value or growth. And that's where people will begin to make money that they can keep. If the person is young enough, the dollar cost (short selling losses)will be reasonable for the experience that they will have gained.
(note: not meant as a knock on anybody on this thread. We've got apparently at least one professional investment advisor who does sell short. I've got no issue with that. I'm referring to the vast majority of people who say they're investors - not speculators- people with jobs and financial burdens and/or goals. That's most of the people on SI. They should not be short selling in any way. And I figure they won't be after they lose enough money doing it -g-)
All of course, IMHO, even if I am right!
Paul Senior |
