In their latest Discovering Value column for Kiplinger’s, Whitney Tilson and John Heins discuss the ins and outs of short-selling, and offer some insight into where they are currently focusing their short-selling efforts.

Tilson and Heins say they are value investors, and in choosing their long positions they take a classic value approach. But while short-selling has many pitfalls (and has gotten some major criticism in recent years), they say they incorporate it into their overall approach for two main reasons. “The first is simple,” they write. “We believe it’s a moneymaking opportunity. The market often overvalues certain companies, and we can profit when their valuations return to earth.”

The second reason, they say, is that shorting is “an excellent tool for hedging against risk — particularly in a market trading at a 20% premium to historical valuation levels despite significant areas of concern, such as the housing market and sovereign debt risk.”

Right now, Tilson and Heins say, they are focusing their short-selling efforts on “wildly hyped companies,” such as InterOil; “good companies with spectacularly overvalued stocks”, such as Netflix; and “companies with decaying business fundamentals,” like Garmin. And their biggest short sale bet is the homebuilder industry. They say the housing woes are likely to continue for some time, and these companies will struggle.