Our Favorite Short Sales

Our biggest negative bet is against housing, which will remain troubled for some time.

Short selling is a subject that engenders passionate debate. When you short a stock, you're betting that it will decline. Some people view short selling as something akin to flag burning. It's un-American to hope that a company stumbles and its stock plunges, right? Some people even blame shorts for bringing down entire companies, such as Bear Stearns and Lehman Brothers.

Although there have been occasional cases in which short sellers behaved badly—just as there have been (many more) cases in which promoters fraudulently pumped up share prices—we believe most of the arguments against shorting are nonsense. Just as a healthy legal system needs both defense attorneys and prosecutors, healthy financial markets need people who will look at companies in a skeptical light, given that executives, accountants and Wall Street analysts have such strong incentives to spin a positive story.

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Whitney Tilson
Contributing Editor, Kiplinger's Personal Finance