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

Identify Benchmarks before Shorting

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.