Finance and Investing
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With an account, you can revise, criticize, and comment on ideas.I don't like shorting.
When you buy a stock, the most you can lose is 100% of your investment, but your potential gain is infinite. When you short a stock, your maximum profit is capped at 100% (if the company goes bankrupt), but your potential loss is mathematically infinite because there is no limit to how high a stock price can climb. This creates a "bad bet" where you risk everything for a relatively small reward.
Shorting is also a battle against time. To succeed, you must be right about a company’s failure and the exact timing of the market's reaction, all while paying interest on the shares you borrowed. Instead of fighting the natural upward trend of human progress and productivity, it is far more rational to invest in "compounding machines"—high-quality businesses that grow in value over the long term. This allows time to work in your favor rather than against you.
Can shorting be a mechanism of error correction?
I've also noticed incumbent advantage in business. Unless a competitor offers a better product, a company can be as corrupt and lazy as possible.
I think it is an error to short stocks in most situations.
It might be an error correcting mechanism at the level of the market, but that is not what I am talking about when I say I don't like shorting. This discussion is specifically about making money in the markets.
This is not exactly true. The business still needs to produce something people want to buy, at a price they will accept. This is separate from competition.
Another way to say that is: all businesses are in competition with all others at the broadest level.
If you like Snickers bars, but they suddenly 5x in price, it isn’t necessarily true that you will buy a different chocolate bar. You might go to the bakery instead, or use that money to put a little more fuel in your car.