With the market soaring, it’s easy to forget that what goes up must come down, and the market often has a nasty way of reminding investors of this, says an opinion piece in Bloomberg by Nir Kaissar. Because of the current boom, it’s tempting to bet on another bust, especially when one can point to such successes like John Paulson, Michael Burry, and David Einhorn, who all reaped rewards for shorting before the 2008 financial crisis.
The trio predicts that cryptocurrency is headed for a huge crash and tech stocks are a bubble that will soon burst. It would be easy to bet that they are right, especially with investors allowed to bet against a variety of stocks, short ETFs and trade options and futures through an array of discount brokers and trading apps. But the dark side of shorting is that while it’s safe to assume that the market will drop eventually, it’s impossible to know when. Timing is everything in shorting, and if it’s not precise, it’s costly.
Taking the long view has two key advantages, the article contends. In going long, time is on an investor’s side; the longer the investor is in the market, the better the odds that they’ll make a profit. And because there isn’t a cap on how high the market can climb, investors have more to gain than lose. At worst, they’ll lose only what they invested. Buying a wide range of stocks is one simple approach that is likely to pay off over time because the U.S. economy should continue to expand.
Legendary investors like Warren Buffett tend to take the long view, and even the star short trio of Einhorn, Burry and Paulson haven’t been able to recreate their one-time successes. Einhorn shorted Tesla and Netflix, only to be dealt huge losses as those stocks remain high, and Paulson wound up closing his fund last year. As Kaissar writes in the article, “I’m not aware of a single investor who has been able to consistently make money shorting.”