Friday, July 5, 2013
Fraud/promote shorts versus valuation shorts
Either way we can describe what we do. We find things where the market is deliberately misinformed and hence comes up with inaccurate prices. We think (on reasonable grounds) that we are smarter than a deliberately misinformed market - and we often are.
We can answer the question "what is it that we see that others do not?"
Sometimes (rarely) we do valuation shorts. [We have a few valuation shorts now.]
In a valuation short we are working on the same information as everyone else has. This makes me uncomfortable. There is an arrogance in suggesting we can analyse the information better than anyone else. We find it harder to answer the question of what we see when others don't and hence harder to justify the position at all.
Indeed often we have no idea what the others are thinking and when I do not know what someone is thinking it is hard to justify (or test) the view that they are wrong...
I think this is the explanation for the cliché in short-selling circles that shorting valuation is a poor game.
Anyway - I am uncomfortable because I can't describe my informational edge and I don't like thinking I am smarter than other people (as opposed to better informed than other people).
That is all.
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