Best Anchor Stocks 17. Understanding Shorting w/ Paul Cerro
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Mar 20, 2025 
In this discussion, Paul Cerro, founder of Cedar Grove Capital Management and a seasoned investor, dives into the nuanced world of shorting. He shares insights on the importance of shorting in hedging and generating alpha while discussing ethical concerns around sponsored short reports. Paul uncovers how to identify profitable shorts, emphasizing management missteps over mere fraud. He also highlights the dynamic between long and short positions, illustrated by a case study on Hims & Hers, revealing market complexities and the psychology of trading. A must-listen for investors!
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Stick To What You Understand
- Do invest in small- and micro-cap companies only when you can clearly understand their business model and long-term thesis.
- Avoid complex sectors outside your competency and prefer profitable or near-profitable firms with aligned management.
Turn Over Rocks For Ideas
- Do continuously source ideas by 'turning over rocks' across newsletters, screener results, and industry reading.
- Allocate brief initial research time per name and funnel promising ideas for deeper work.
Shorting Changes The Risk Equation
- Shorting plays a portfolio role beyond profit: it hedges downside and can provide alpha disconnected from the market.
- But shorts invert the risk profile: limited upside, unlimited downside, and timing becomes critical.
