The unique challenges of the short side
"When things go wrong, don't go with them."
– Elvis Presley, the King
People fail at short selling because they overlook three critical factors working against them: market dynamics, scarcity mentality, and asymmetry of information.
Market dynamics: short selling is not a stock-picking contest, but a position-sizing exercise
"This is space, the environment does not cooperate."
– The Martian
Successful longs expand. Successful shorts contract. On the long side, the market does the heavy lifting. On the short side, the market does not cooperate. Unsuccessful shorts balloon, while the successful ones shrink.
To illustrate this point, let's take a look at the table below. Imagine we have four stocks: two on the long side (A and B) and two on the short (C and D). The objective here is to illustrate how the long and short sides behave differently...
