January 3, 2017

Lessons from a Legendary Short Seller

“I was always net long.”...An unexpected statement from a short seller.

Wilson routinely maintained net exposure between 25% and 125% depending on how bullish or bearish he felt. Even when extremely negative, Wilson was 25% net long. When asked why he never went short, he answered:

“Because I never wanted to get up in the morning hoping that things would be getting worse. All intellectuals I think — and I don’t use that as a particularly flattering term — but all intellectuals tend to have a pessimistic streak.

“There’s something intellectually much more intriguing about failure, which is knowable, rather than success, which is sort of unknowable.

“The way people fail is understandable and predictable and almost inevitable, whereas the way people succeed may never have happened, and so an intellectual is drawn towards failure, I think.”

Pessimism has long been a lure for journalists: “If it bleeds, it leads,” after all. But there’s a difference between generating clicks and generating alpha: We all know there are no short sellers in the Fortune 500.

To quote Warren Buffett’s 2015 letter:

“For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs.”

Optimism is what pays in markets and Wilson knew this.

Read more at https://blogs.cfainstitute.org/investor/2016/12/22/lessons-from-a-legendary-short-seller

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