Short Selling as an Investment Strategy

A great post on Jim Chanos of Kynikos Associates and how he views short selling versus being net long.  The quote below from Charlie Munger mentioned in the article sums up the art of short selling and why most investors should steer clear of the investment strategy.

I’ve experienced the irrational exuberance of these type of promoters all too often when being short.  Even being right on your thesis is not enough to be a successful short seller.  Shortly after the 2007 iPhone launch, Palm announced that it would be coming out with a competing smartphone (the Pre) that was going to blow away the competitors.  Backed by Elevation Partners the managing partner would go on TV every chance he could get to promote the coming phone and how great the sales were going to be.  The stock rose until the eventual launch of the phone, once sales were seen as disappointing the stock began to drop, but Elevation engineered a sale to HP and managed to save their investment and make short sellers lives miserable.

“It’s dangerous to short stocks.” “Being short and seeing a promoter take the stock up is very irritating. It’s not worth it to have that much irritation in your life.” “It would be one of the most irritating experiences in the world to do a lot of work to uncover a fraud and then at have it go from X to 3X and at h the crooks happily partying with your money while you’re meeting margin calls. Why would you want to go within hailing distance of that?  We don’t like trading agony for money.”

Source: A Dozen Things I’ve Learned about Investing from Jim Chanos

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