I will have a different opinion.
Since this is a presumed Graham value thread, I believe he might say leave short-selling to the professionals.
Short selling would never be "a presumed requisite for the prudent investor", no matter how high the market.
Two reasons:
1. The standard. "Your loss is limited to your investment in the standard trade, but your losses could theoretically be unlimited with a short sale gone wrong". So... if somebody risked 10% of their portfolio on the standard trade, their max loss would be 10% (assuming the 90% remains steady), but their loss could be maybe much higher than 10% of their portfolio if the short sale goes against them a lot.
2. Short-selling requires a much different mindset than with value investing. It's not just about buying undervalued and turning the idea around and simply selling (shorting) over-valued, even egregiously overvalued. As in walking: it's one thing to walk forwards, quite different & not the same when trying to do the opposite and walk backwards.
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Remember, to get anything out of your general market shorts, you have too be in them before everyone gets it. If you get in when everyone believes it's a crisis, you're too late; there's no foresight left to gain from. You have too see the crisis coming.
If you are saying, with regard to "general market shorts", you mean shorting a sector, say for example, like cloud computing stocks, or shorting the general market in anticipation of the Dow or S&P falling, maybe you are right. Or maybe you are reminded of Mike Burry's famous trade where he got in before everyone else. That I believe was a special case.
In my limited experience with short-selling, I've found the best shorting opportunities with specific companies occur AFTER everyone believes it's a crisis. The stock drops, but not far enough, and that still leaves room for further shorting. An example of this is the fall of GE -- the crisis was public, the stock had fallen and was falling, but it was still at $25 at then $20, and still an opportunity to bet on a further fall. A safer bet, imo, than shorting something at what seems to be a peak, but may not be. |
