2 ms·
Did you actually read this article? Please read the part about the problems with short selling.
by georgeecollins 6y ago
Did you actually read this article? Please read the part about the problems with short selling.
- kqr 6y agoI did. The example showed many problems: 1. Any time you make a risky investment (and this includes low-cost index funds) you should make it based on a falsifiable trading hypothesis specified in advance. E.g. "if Microsoft gets valued over $25, I should realise that I got either the direction or the timing of this one wrong and close the position, profit or loss." 2. Again, in advance, formulate a more general drawdown policy to gradually decrease the size of your losing positions. 3. Not ever make risky investments with anything that approaches your entire wealth. My bearish position is not going to throw me into debt even in the worst case. And the EMH, in a sense, guarantees that less commissions, this bet (as would any bet) is on average going to get me my wager back. So the question that remains is why I think the long-term average return is an unusually bad approximation for the near future. I could argue fundamentals, I could argue technical analysis, but it'd all be bunk. I can list other reasons, too. Many big investors are short the market. My employment is long the market, so my capital being short it is sort of a hedge. I can also list reasons it might be a bad idea. They don't weigh as much in my mind, of course. In the end, I just don't know. I'm fully aware that I might have either direction or timing fully wrong. Most likely I do. But it seems to me like a low risk bet with potentially fairly good payoff.