It’s far easier to recognise poor underlying business fundamentals in a stock and simply avoid investing in it.
In investing parlance, to “short a stock” is to make an investment with the view that a stock’s price will decline. On the surface, shorting seems like a fairly easy thing to do for an investor who has skill in “going long”, which is to invest with the view that a stock’s price will rise – you just have to do the opposite of what’s working.
But if you peer beneath the hood, shorting can be a really difficult way to invest in the stock market. Nearly four years ago in April 2020, I wrote Why It’s So Difficult To Short Stocks, where I used the story of Luckin Coffee to illustrate just how gnarly shorting stocks can be:
In one of our gatherings in June 2019, a well-respected member and deeply accomplished investor in the club gave a presentation on Luckin Coffee (NASDAQ: LK)…...