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Shorting is much more risky than buying stocks. Compare: 1) I'm confident that in the long term, company X will grow in value. I invest $1000 and will wait how
by The_Colonel 4y ago
Shorting is much more risky than buying stocks. Compare:
1) I'm confident that in the long term, company X will grow in value. I invest $1000 and will wait however long it will take, 10 or more years. I risk these $1000 only, but can earn multiple of it.
2) I'm confident that in the long term, company Y will decrease in value. I can short it with $1000, however either I risk much more than $1000 or I can't set the timeframe (because of forced liquidation). I also can't earn more than $1000. In the long term, I'm also exposed to inflation. Effectively, it's possible to short only in a short timescale, which is super risky.
The two betting options are very asymmetric, which IMHO favors overvaluation of certain hyped stocks, since there's no reasonable (not extremely risky) way to bet against them.
- game-of-throws 4y agoThere are ways to bet against stocks that don't expose you to unlimited downside.
- The_Colonel 4y agoDo you have more information? I'm interested.
- game-of-throws 4y agoOptions. https://www.investopedia.com/terms/p/put.asp https://www.investopedia.com/terms/p/put.asp
- ericd 4y agoThe timing aspect is still brutal, though. Market can stay irrational for a very long time, and prove you totally right but totally broke if it waits until after your puts expire.
- deleted 4y ago[deleted]