https://financialpreparedness.substack.com/p/respect-the-shorts
I've been a value investor for over three decades. Not only do value stocks have the highest return over the long term, they also have the least risk (unless they're a Value Trap) because they provide the largest margin for error.
There are lots of reasons to not buy stock in a company, including:
- management has made it clear that the goal of the company is not to maximize shareholder value
- it's not a good business (i.e., its long-term return on invested capital is below its cost of capital, or it's not consistently profitable)
- it's losing its competitive advantage (e.g., its return on invested capital has been declining)
- it produces a commodity (so can only compete on price) management is trying to defraud investors (usually by manipulating financial statements)
- it doesn't pay a dividend, or the yield is too low, or its dividend hasn't increased over time or was cut in the last year or two
- the dividend is at risk of being cut if the company has a bad year
- it's financially weak or isn't growing
- it's overvalued (due to high investor sentiment, artificially low interest rates, etc.) insiders have been selling a lot of shares recently
- political and regulatory uncertainty (e.g., clueless/utopian/kleptocratic people are in power)
- it's heavily regulated (e.g., utilities)
- its operations or balance sheet is opaque, or it's prone to imploding suddenly (e.g., banks)
- management spends a lot of time, money and energy on virtue signaling and interjecting the company into irrelevant political and social controversies instead of on maximizing shareholder value (management may be forced to do this due to pressure from fund managers Blackrock, State Street and Vanguard, even if they know it's imprudent and don't want to do it) poor management
- management is plundering the company
- it's too popular with investors and/or analysts (which means that it's probably fairly priced or overpriced, so little chance of an abnormal profit opportunity)
- low trading volume (so large bid/ask spread)
- it's a newer issue (so hasn't stood the test of time)
- currency fluctuations
- potential or current lawsuits
Lots more follows, including probably the longest sentence (on today's unprecedented conditions) you'll probably come across this year.
He's not suggesting you respect them as paragons of virtue . . . only that you consider that people who survive and prosper as short-sellers KNOW WHAT THEY'RE DOING and you'd be wise not to bet against them in the market.
Very different. And yes, one reason a particular short-seller may be doing well is that he or she has inside information and/or is working (perhaps illegally) to tank the stock he or she is shorting -- none of which changes the advice to not bet against them in the market.
I know what he meant.
OK. I don't understand your comment then.
No problem.