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How in the world can anyone short anything in this market with central banks expanding their balance sheets, plethora of meme stocks and a market full of new investors who think of the markets like they're betting on this week's football game?
I'd rather just go half in tbills and half in stocks and takes my chances....
How in the world can anyone short anything in this market ...
You might as well ask how in the world anyone can underweight anything in this market. Easy, because some securities perform better than others. Shorting just takes underweighting a step further. Do you remember 130/30 funds?
The rationale for the concept had a degree of logic. A 130/30 fund combines a gross long position of 130 per cent with a short position of 30 per cent, meaning it still has the same 100 per cent net exposure to the market as a traditional long-only fund.
However, long-only managers can only underweight, not short, stocks they do not like. This leaves little room to generate outperformance from these stocks, particularly if they are say, only 0.1 per cent of the index.
It doesn't matter whether the shorted stocks go up or down. What matters is that they don't do as well as the stocks purchased with the proceeds from shorting them.
That article goes on to note:
"The problem came when many asset managers discovered they did not have the necessary skills to short,” says Amin Rajan, chief executive of Create Research, a consultancy. “It’s a very specialised skill. It’s more a psychological than academic discipline.”
If one uses shorting to time the market rather than to magnify the impact of stock picking skills, it's easy to get burned:
While some mainstream fund managers periodically have shorted stocks - Mario Gabelli of the Gabelli funds and CGM's Kenneth Heebner come to mind - most have shied away from it.
The late 1990s story of manager Jim Crabbe and his Crabbe-Huson Special fund illustrates why. Crabbe-Huson Special (eventually sold to Liberty Funds Distributors, now part of FleetBoston Financial) adopted shorting provisions in the mid-1990s to guard against a downturn. But Crabbe got bearish early, going short on technology stocks just as they rocketed to new heights. From 1995 through 1999, the fund lost more than 20 percent, while the Standard & Poor's 500 index was up roughly 200 percent; years of gains in the fund were wiped out.
How in the world can anyone short anything in this market with central banks expanding their balance sheets, plethora of meme stocks and a market full of new investors who think of the markets like they're betting on this week's football game?
I'd rather just go half in tbills and half in stocks and takes my chances....
Best
Baseball Fan
You could also ask why anybody would want to be long given how extended valuations are.....
Comments
I'd rather just go half in tbills and half in stocks and takes my chances....
Best
Baseball Fan
You might as well ask how in the world anyone can underweight anything in this market. Easy, because some securities perform better than others. Shorting just takes underweighting a step further. Do you remember 130/30 funds? https://www.ft.com/content/fdbf6284-b724-11e2-841e-00144feabdc0
It doesn't matter whether the shorted stocks go up or down. What matters is that they don't do as well as the stocks purchased with the proceeds from shorting them.
That article goes on to note: If one uses shorting to time the market rather than to magnify the impact of stock picking skills, it's easy to get burned: https://www.baltimoresun.com/news/bs-xpm-2002-10-13-0210120267-story.html