Statistically Russian roulette and short selling should work. But there are 3 probabilities that are not in our favor of short selling (even though we know that more than 50% of businesses fail within the first 6 years):

1. The cost of shorting stocks is higher than going long. In order to sell short you will first have to borrow the stock.

2. Companies strive to make a profit. The odds of a stock price increase is therefore higher than the odds for a decrease.

3. Dollar depreciation. The value of a company is denominated in a currency that loses value over time. (If inflation is 2%, the stock price “should” increase with 2%).

However… What If You NEED To Short The Market?

The strong investment trend in ETF’s (Exchange Traded Funds) has brought with it a heap of alternative methods to traditional shorting and derivative plays. The superiority of the ETF’s lies in risk management:

The usual method to short is to borrow a stock and then sell it short. If the stock’s price rises instead, you could face potentially unlimited losses as there is no limit on the upside of the stock price. But if you buy for instance the “TZA” ETF to short the Russell 2000, then you can only lose what you spent. (The ETF will likely not even go to 0 as there’s usually a reverse split when the value goes to 1). So short selling a stock carries the risk of unlimited losses, while buying an inverse ETF limits your losses to the amount you invested.

In case you are convinced of a downtrend or you simply want to hedge your bets, here are some tickers that might interest you:

SARK – Short Cathie Woods flagship innovation fund when you think special tech is stumbling.

SH – Short the SP500

SPXU – Short the SP500 with leverage

SQQQ – Short the Nasdaq x 3 if you think the MAG7 is a thing of the past

SRS – Short real estate

Note that the trading costs are high on ETF’s and the costs and liquidity varies depending on the provider.

Position Sizing As An Alternative Shorting Method

What if your service provider (or boss) does not allow you to short stocks? Maybe you don’t need all the fancy structured products that financial institutions are pushing to you. Actively re-balancing your portfolio is technically not selling short, but you can at least limit and increase your exposure by selectively selling and buying stocks in different sectors, for instance.

Especially if you are established enough to have the luxury of time, you easily start to overthink your risk and questioning your investment instruments.

Remember: Being broke is an effective way to limit your currency risk, but I still don’t recommend it. Even though, then you don’t have to worry about margin calls either because no one will lend you any money…