Summary

Market participants tend to follow a predictable arc from the moment they proudly first set foot on the short selling terra incognita to the time they subconsciously abdicate sovereignty. The most important thing to remember is that the short side is not the inverse of the long. You cannot rely on mispriced stocks to revert to their fair valuations, and "structural shorts" are only profitable in the minds of short selling tourists. The short side obeys its own laws.

Among the challenges short sellers face that long-only market participants don't are overcoming a scarcity of information and bringing an abundance mindset to successfully counteract distorted exposures.

Now that we have dispelled a few myths about short selling and analyzed the idiosyncratic dynamics of the short side, the next parts of this book will be about building a short selling practice from the ground up. In Part II, The Outer Game: Developing a Robust Trading Edge, we will look...