Minimizing Risks by Short Selling Subsets of the Market that Make for Good Short Sales

Identify Benchmarks before Shorting

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When you short, it’s important to have the right benchmark. People look back and say, “I spent all this time and effort on shorting and only broke even – what a waste of time.” We compare how our shorts have done against the market. If we’ve broken even on our shorts over a period where the market is up 7-8% per year, we’ve generated huge alpha that has allowed us to be levered to our longs. I would call that a zero-cost hedge and a very valuable tool.
Source: http://www.valueinvestorinsight.com/