Collection: Mohnish Pabrai - #155 '8th Commandment of Investment Management'



Commandment number eight is, "Thou shall never short a stock."

So I don't think we need to spend much time here but that’s pretty obvious is we don't need to figure out what’s going to happen to Tesla. That’s – you know, we don’t need to go long and we don't need to go short, that just falls into too hard pile. And so like Tesla for me – the stock, not the car – is there for pure entertainment purposes just to watch from the front row seats as opposed to being in the arena.

So we just don't need to figure out exactly what’s going to happen and we don't need to go – so first of all, you know, commandment number three is you will be wrong one-third of the time. I think we’re shorting you’re going to be wrong like 80% of the time.

So both Buffett and Munger said they’ve always been right on the stocks that they thought ought to be shorted but they were always wrong on the timing and the timing can get very painful, also the math is against you because the maximum you can make if you’re right in a short position is a double. And you know we’re not going for doubles and the maximum you can lose is you can go bankrupt.

So there’s no point making for making bets where the highest upside is a double and the highest downside is that you’re out of the game. So I shall go to my grave without ever having shorted the stock and I think you should do the same.



[YAPSS Takeaway]

8th Commandment of Investment Management: "Thou shall never short."

Never short a stock because the risk is higher than reward and it is very hard to time it.