Coburn Ventures Podcast #115: Lessons from Shorting for All Investors: Investment Process Part 3 of 5
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Sep 22, 2022 Shorting might seem counterintuitive to long-only investors, but it offers valuable insights to enhance overall investment strategies. The discussion dives into the complex math behind short selling and its implications for portfolio risk. Discipline is key, as mastering this technique requires ongoing evaluation and a structured approach. Psychological dynamics play a crucial role in decision-making, with emphasis on data-driven strategies. Lastly, recognizing patterns and exit points can elevate investment decisions for all investors.
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Shorts Self-Correct Portfolio Risk
- Short positions shrink in size as they work, which reduces portfolio risk automatically.
- That math allows systematic re-ups as risk falls and Achilles heels become clear.
Prefer Gradual, Repeatable Shorts
- Avoid seeking the flashy one-off short and prefer steady shorts that decline over years.
- Build core short positions that drop gradually so you can add incrementally and avoid timing risk.
Shorting Sharpens Pattern Recognition
- Shorting strengthens your ability to spot major secular change and fatal Achilles heels.
- The same pattern-recognition helps long investors detect when a company faces irreversible decline.