Chapter 24
On Being a Bear
For this chapter, I switch to the first-person voice, because being a bear is a somewhat personal topic. In my trading, I have made a specialty of being a short (that is, betting that a security will go down), and I've learned a few things about short-selling over many years of doing so. I'd like to share some of that knowledge here.
THE PHILOSOPHY OF SHORTING
As mentioned earlier in this book, selling a stock short simply involves selling a security which you do not own, pledging that you will buy back the same stock at a later date (and hopefully at a lower price). There are many financial instruments you can short (and many ways you can short the market by going long, such as purchasing put options), but I will use stocks as the focus in this chapter, since that is the simplest and most popular method.
Over the many years I've been trading and writing my blog, people have often asked me why I tend to be a bear in the first place. Let me first state that I am quite aware of a couple of reasons why a person shouldn’t be a bear:
1. The whole world is against you. From the Federal Reserve, to the investment banks, to CNBC, to Jim Cramer, to the brokerage houses, everyone on the planet seems to want the market to go up forever. There is a huge vested interest in the markets going skyward for eternity. So by being a bear, you are definitely going against the crowd.
2. No one gets rich being a bear. Fortunes like Warren Buffett's are made by investing in ...
