Why am I Short?

Let's first explore, why is it hard to Short? 

First; Stocks can go up 100 times but they can fall by 90% or go bankrupt. So the payoff is asymmetric. The profit is capped on the downside but are significant on the upside.

Second; Markets spend 90% of their time in a bull market i.e going up. The statistics could get more skewed if we look at the speed of fall (drawdown). Market collapses are swift, rarely giving a chance to get out. This is why when the majority stampedes through the exit door, there is a capitulation.

Third; Shorting is sometimes considered to exacerbate the market drawdown. Short selling was banned for brief periods during the March 2020 meltdown.

Fourth; Shorting is more expensive than going long, which is relatively inexpensive and sometimes free (Robinhood).

Fifth; Shorts get squeezed.

Sixth; If you short, Business Week could carry a cover with you in shorts (pants), which you decided to wear because Elon sent you the same with love.

Seventh; Global equities correlation creates a selection of short ideas an AI challenge harder than AlphaGo-Fold. You can lose all your money.

Eighth; Unlike qualitative long - quantitative shorting is relatively new tech and not Scientific, Systematic, and Replicable. 

Ninth; Raising capital for short biased funds in a bull market is a challenge.

Tenth; By the time the fund can prove itself, the bear market could be over.

You get the point. Shorting is capped, fast like a lightning, sinful, expensive, squeezy, humbling, and full of challenges.

So, Why am I Short?

First; extremities are happening all the time in selected regions, assets, economies.

Second; some markets are behaving parabolically, creating bubbles (maybe short term and not historical) which could implode.

Third; because pain around foregone profits is a behavioural flaw.

Fourth; I am generally a lone voice, I am comfortable having no one hear me.

Fifth; because I study mechanisms that allow normal to flip to non-normal and vice versa.

Sixth; I focus on the behavior of risk rather than on the excitement of returns. I run a long-short global macro fund which sometimes has a short bias.

Seventh; because I believe, shorting has an economical, societal, and righteous value.

Eighth; because AI can be replicable, invertible across markets and assets, allowing for diversification, risk neutralizing and generating short ideas is the flip side of brilliant long selections.

Ninth; because the passive ETFs no outflow craze creates liquid and attractive shorts.

Tenth; because zero interest rates makes it an easier hurdle to cross and a potential drawdown (maybe short term not historical) in the markets would naturally assist in fulfilling an absolute performance mandate.

Gary Shilling, “The Age of Deleveraging”.

" The Perennial Bear - Take it one step further and suppose the investor is a skeptic and shorted the S&P500 not only in the weakest months but also in the strongest months and went long otherwise. Despite his error in taking exactly the wrong action in the strongest months, his short position in the 50 weakest proves to be so beneficial that he winds up with a 9.1 percent annual gain more rewarding than the perpetual bull. This, to me, makes a very powerful statement. Being negative on stocks in the weakest time pays well even for the investor who is negative during the strongest months as well. He could make a lot of mistakes in being bearish and still have an excellent performance."

My 2013 feature on redesigning Shorts.

Disclaimer: Shorting is not for the retail investor and is extremely risky.