Myth #9: Short selling is unnecessary during bull markets
"The best time to fix the roof is when the sun is shining."
– John F. Kennedy
Some market participants do not want to sell short during bull markets. They lament the scarcity of "good short ideas." Besides, they do not want to trail their competitors by wasting precious alpha shorting stocks. They procrastinate about sharpening the saw until it is rusty.
No bull market has ever boosted anyone's IQ. Market participants do not get smarter in bull markets; they become complacent. Just as waiting for a first heart attack to get in shape is not healthy, waiting for a bear market to learn short selling is an unprofessional way to manage other people's money. Short selling is a muscle that atrophies when not flexed.
The reason why investors keep their money in long/short funds is downside protection. Investors will forgive mediocre performance and stomach high fees through a bull market as long as they know there is downside protection in a bear market.
Beta jockeys believe there will be ample time to pick up short selling when the broader market turns bearish. After all, the outer game of short selling, tools, and techniques may be a little more sophisticated than the long side, but it is not rocket science. Short selling is, first and foremost, an inner game. Do not underestimate the time it takes to internalize the mental discipline of short selling.
The wrong time to start is when the long side is hemorrhaging money, and investors are breathing down your neck.
