Wednesday, February 17, 2010

To short or not to short?

I'm reading some of the great stuff put out by the bloggers in the Stocktwits network and I wanted to share two great posts, from Joe Fahmy and Keith McCullough, on the pros and cons of short-selling.

The first post, by Joe Fahmy, is entitled, "Why I Hate Shorting Stocks". Here's an excerpt from Joe's lead in:

"When I called for a market correction in mid-January, I received several emails asking me why I don’t recommend short ideas. In my
Introduction blog post, I talk about finding an investment philosophy that fits your personality…and quite simply, shorting is not for me.

The title of this article is not meant to offend anyone, as I never try to impose my trading style on anyone. I actually believe that shorting is a necessary part of the stock market and that short-covering can add stability to a correcting or “free-falling” market. Nevertheless, it doesn’t fit my personality and here are my reasons why: ..."

Joe is one of the most interesting and educational stock traders/bloggers I've followed on Stocktwits and Twitter. In this post, he has taken the time to lay out why, in his personal view, short-selling is not conducive to his personality and trading style.

As I noted in the comments section of his post, I think that even traders with considerable short-selling experience might benefit from his arguments. It's all about what works for you.

On the flipside, we have a post from Keith McCullough at the Hedgeye Blog which argues short-selling is a necessary component of risk management:

"If you want to be a warrior of risk management, you need to be able to survive the daily battles of short selling. This is not a blood sport, nor is it one that deserves the attention of your emotions. It’s a mathematical martial art that requires flexibility and laser-like focus.

Overall, I’m probably a better short seller and risk manager than I am long term investor. That’s probably because I have more experience in down markets than I have in up ones. I entered this daily battle of ‘don’t lose money’ at a hedge fund in the year 2000. The first 3 years of my ‘be right or be gone’ experience were in down markets. Call me biased, but the only business I trust owning for the long term is the one I am building with my own hands..."

There you have it. Two differing views on a long-debated subject of relevance for investors and speculators, each from professional traders sharing their thoughts on Twitter and their respective blogs. Hope you enjoy their thought-provoking posts!

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