“In contrast, on too many occasions than I care to remember, I shorted a stock based on hearing a compelling thesis but doing little work myself, which often led to severe losses. The lesson here is simple: if you don’t have an edge, don’t invest!” The words of Whitney Tilson. He writes in an article Lessons From 15 Years Of Short Selling: A Veteran’s Advice
If you are reading this, you’ll know what short selling is. The question is whether you should do it or not?
To answer the question, you need to decide if you are investing or speculating/gambling. It’s often easy to tell yourself you are investing but when the decision is analysed, short selling is gambling. Short selling is speculation. It is not investing. Short selling is no different than betting on the races or going to the casino. You can lose your money. A such, how much are you prepared to lose? How emotional are you with gambling? Is it fun? If it’s not fun, why bother? As always for the system to exist, just like the casino, the odds must be in its favour. So being 50% right means you’ll always lose.
If short selling is fun and entertaining and you can afford to lose, then why not jump in. If you are thinking of using short selling as a way to grow and protect your wealth, forget it.