In my trading, I have made a specialty of being a short-seller (that is, betting that a security will go down), and I've learned a few things about short-selling in my many years of doing so. I'd like to share some of my personal experiences and knowledge here.
Selling a stock short involves selling a security you do not own, pledging that you will buy back the same stock at a later date (and hopefully at a lower price). There are many financial instruments you can short (and many ways you can short the market by going long, such as purchasing put options), but I will use stocks as the focus in this chapter, since that is the simplest and most popular method.
Over the many years I've been trading and writing my blog, people have often asked me why I tend to be a bear in the first place. Let me first state that I am quite aware of a couple of reasons why a person shouldn't be a bear:
The whole world is against you. From the investment banks, to CNBC, to Jim Cramer, to the brokerage houses, everyone on the planet wants the market to go up forever. There is a huge, huge, huge vested interest in the markets going skyward for all eternity. So by being a bear, you are definitely going against the crowd.
No one gets rich being a bear. Fortunes like Warren Buffett's are made by investing in stocks that reap multithousand percent gains or more. There is virtually no one on the Forbes 400 list that got there by being a bear, although there ...