Sometimes the Best Short Is Simply Not Being Long

Having an ego can be dangerous when investing.

We all have difficulty admitting we are wrong in every walk of life, and it is no different when it comes to the markets.

A steadfast opinion can crimp overall returns. This is especially true when it comes to short positions.

Most people shouldn't short a stock. There, I said it.

I have done it before with mixed results, but it hardly seems worth the hassle. For every hedge fund manager like Jim Chanos, there are 100 others who should never do it.

Just do a web search on "how I lost money shorting stocks" and shorting drawbacks will become immediately apparent. I suspect that those who are reading this aren't running hedge funds, so no need to pretend to satisfy some sort of animal spirit.

I don't have a problem admitting that Chanos and others like him are smarter than I am. Join me in the realization that "not long" is many times the best position in a stock viewed as overvalued.

That advice is a bit uncommon for good reason.

Brokers want commissions. Short positions inherently cause more trading, which leads to more revenue for the broker.

Folks who are selling subscription or other services like to tout short ideas because it can give credence to the service if the short plays out. Meanwhile, some don't even short the idea that they are touting.

The only free lunch in investing is collecting fees, commissions or subscription revenue. My hat is off to all who manage to do this.

Some "eat what they cook" and provide solid advice for a reasonable cost. Others don't.

I have met plenty of affluent people over the years, including parents of college classmates, pro athletes, real estate investors, etc.

I have never heard one of them say, "Boy, I made a ton of money shorting (blank) stock. It really set up me for the wealth I've built today."

Not once.

That isn't to say that investors can't still benefit from a short analysis or a short bias on a stock. Sidestepping land mines can be very beneficial when it comes to overall returns.

LinkedIn proved to be fairly resilient for quite some time. A person could have driven themselves crazy shorting it based on the fact that no one really seems to enjoy using the service and that the value of the company was more than $30 billion at one point.

One day it can go "boom," but it can be a long and arduous process to do it.

One day, an investor's instincts can be proven correct. Waiting for that day can be costly, though.

Buy puts? Let me introduce time decay.

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