Collection: Mohnish Pabrai - #37 'Short Selling'
[Transcript]
MOHNISH PABRAI 00;07
Was the question that – thoughts on shorting and why I don't short?
Well, you know it's a stupid bet because – and maybe Bill Ackman can educate you why it's a stupid bet. But the maximum upside is a double and your maximum downside is bankruptcy.
And you know, Charlie Munger has a saying he says that I don't want to go back to 'Go', you know, in the game Monopoly. He says I don't want to go back to 'Go', he says I've been at 'Go' at one time of my life. I know what that feels like and I don't want to go back there again.
So, you know if you doing a straight short then there is no limit to how high stock prices can go and eventually you may be right. In fact, Warren Buffett and Munger said that they've many times identified great short candidates. Of course, they never pull the trigger, but they said that they were almost always wrong on the timing if they have gone ahead and done it because you may eventually be right.
But in the meanwhile, you know, you may have to withdraw the bet and not play – not get to play your hand up or you can flat-out wrong.
I mean, the thing is that the average business and the average CEO and employees and all of that go to work. They go to work to add value, they don't go to work to help the short-seller and subtract value every day.
So you have many forces working against you and so sometimes, you know, you can get irrational pricing, exuberant pricing, you know, you might say that Twitter has a ridiculous price, many of these dot-com that have gone public at ridiculous prices.
But you know, they can get much more ridiculous before they get to valuation that you and I might considered sane. And when they go from ridiculous to more ridiculous and you are shorted that is a very painful experience.
The other thing is that once you short a stock, you have a umbilical cord linked to a [Inaudible] machine that cannot be broken while market are open. So you constantly have to look at what stock is doing and you know, I am usually drooling on my pillow, almost half the trading days done in the morning.
And so shorting doesn't gonna work very well for me because, you know, by the time I rise from my slumber, you know, all hell would have broken loose so it just doesn't work for me.
And why short when it's so easy to make money on the long side? Especially, by being a shameless cloner.
(Source: https://youtu.be/ot6pzc9ZwfU)
[YAPSS Takeaway]
Short Selling has limited gain with unlimited losses whereas, Long Position is completely different.
