Take a Walk on the Wild Short Side

"In theory, theory and practice are the same. In practice, they are different."

– Yogi Berra, Yankees philosopher

Short selling is a secret fantasy for many long-only participants. They have all come across some stock they have analyzed, concluded it was doomed to fail, and wished they could short it. Then, they watched it crater. They feel confident their analytical superpowers would work wonders on the short side as well. It all works well in theory until it has to work in practice. When market participants come to the world of short selling, they assume they should simply do the opposite of what they do on the long side.

In this chapter, we will map the journey from the long side to the short side. We consider why most traders think they can sell short yet fail in practice. First, we will look at why shorting on valuations fails. Then, we will eviscerate the structural short tourist trap for good...