Re: "I agree that shorting is much more risky, but the rewards far outweigh the risks, if you play shorts properly."
Ridiculous.
This is what happens when you combine someone who doesn't have much investment experience with a technique (shorting) where you can read tons of articles on how to do it and also get psychological support with the observation that there are plenty of people out there who short every day. Shorting - a very logical technique to employ, plus the benefits are rather quickly seen when it works. (Stocks go down a heck of a lot faster than they go up, usually)
The question not much asked though is: SHOULD this technique be used and by whom?
Here on the value thread, I've argued that I do not see where value investing gurus have written that they have employed short selling either as a technique to hedge a downturn or as an opportunistic way to make profits. I recall only one article from a value fund manager who admitted to it. I've pulled down now the books of Graham, Klarman, Dreman, Train and Tanous ("Investment Gurus"). There're only a couple of paragraphs about "shorting" and "hedge funds" in Train's "The Craft of Investing". Not much, if anything, in the other books.
Now none of this may mean anything to you. But it means something to me and it might to value investors here also. I'm one who tries to do what works. What works for the majority of people, into which category I likely fit. That's to whom these authors address themselves. I don't doubt that there are especially flexible, brilliant, astute, steel-nerved, well-capitalized people who are tremendous short-sellers. Or just forgetting the adjectives, there ARE successful short sellers. Maybe you are one. (Although, with one year's experience and early success, you remind me of the first time craps player who wins $30K and says, 'Wow. Where have I been all my life. This is great.' And promptly becomes addicted).
Most people should try, imo, to follow what successful people who have gone before them have done and said--- leave short-selling to the professionals.
Funny how this is. One would initially suspect that value investors- presumably astute enough to find bargains- ought to be among the best sources for employing short-selling since they ought to be able to tell when something is grossly overvalued. But, as I say, walking backwards is not the same as walking forwards. And short-selling, although obvious, is not so easy a technique to be used successfully. But it's insidious in that NOBODY believes that or listens to the experts. It has to be experienced. As I've often said, I encourage people who are just starting to invest to try everything - don't miss short-selling! Because the earlier and quicker they try it-- and lose money, the easier and quicker they can recover. Then they can discern those techniques that make them money and don't tear at their guts while doing it. For the vast majority of people who will become millionaire stock investors - that means buying and holding common stocks. And not using short-selling as a tool to allegedly augment their progress.
Paul Senior |
