How to Sell Stocks Short

Betting against stocks can be a great way to enhance your profits and stay fully invested when times are tough.

One smart way to cope with volatile, unpredictable markets—aside from praying and consuming a lot of single-malt scotch—is to sell stocks short. Many otherwise savvy investors simply don’t, either because they don’t know how or because they fear they’ll end up on the wrong side of a one-time juggernaut like Netflix (symbol NFLX) and lose $60,000 on a $10,000 investment.

I was a little like that before I boned up on the subject four years ago. Shorting helped stanch some of the bleeding in 2008 (I shorted Lehman Brothers, among others). In both 2009 and 2010, I added about 1.75 percentage points to my returns with short selling even though the stock market rose both years. And my shorts were making money this year, even before the market’s summer nose dive.

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Andrew Feinberg
Contributing Columnist, Kiplinger's Personal Finance
Feinberg manages a New York City-based hedge fund called CJA Partners.