What do shorting and surfing have in common?

Hi,

Have you ever tried surfing? Like paddling into real waves on a board in a wetsuit and a nose full of saltwater?

It is an amazing experience and I recommend everyone to give it a go at least once in their life.

When I was a kid growing up in Italy I thought that surfing was only possible in places like Hawaii and Australia. Then once visiting a surf shop in Australia the old owner of the shop told me he had surfed many beaches in Italy and even told me where to go.

A whole new world opened up and I started trying to surf in Italy and later even in cold Denmark during autumn.

Similar to investing, opportunities are all around us, we just need to train ourselves to look in the right places.

Sometimes it could also be squeezing more profit out of the same opportunity.

This is where shorting comes in.

Want to beat the markets in any condition? Learn Mixed Active Investing here.

Shorting is a method to bet against an asset and make money when the price falls.

The way it typically works is that you borrow the asset and sell it. Then you buy it back at a lower price later and return it. Your profit is the difference in price.

I cover the mechanics of shorting and safer alternatives as well in the “Learn to invest confidently in 30 days” course.

The real difference between amateur investors and professionals is not the sophistication, arbitrage or hedging. It is the ability to trade both sides of the market.

Professionals focus on lowering risk and making money always, regardless of which side the market is trending, upside or downside.

The difference between a gambler and an amateur investor is that the amateur investor has a theory and a prediction for the investments.

Now the question: if you have a theory for when a price movement trends up and when to get out and take profits, why not flip and also trade the following falling of the price?

Shorting can be scary and it should be.

Investing long, in this case betting on a rise in price and not long term, the most you can lose is the amount you invest and the most you can gain is potentially infinite.

Shorting is the opposite.

The most you can win is only 100% and that would only happen if the rare case the asset price falls to 0.

The amount you can lose is infinite! This means you risk owing serious money to your broker that you would need to pay out of your pocket.

This is why the common recommendation is to stay away from shorting.

Surfing is an extreme sport even on small waves, even if it looks smooth.

Don’t go trying by yourself, get a coach and it will be much more enjoyable and less painful.

The main risks in surfing are currents, getting hurt on the beach or reef bottom, getting hurt by your board, getting hurt in accidents with other surfers.

Know how to handle these risks, and it goes from extremely dangerous to extremely fun and fulfilling.

Same with shorting.

Don’t gamble on bets.

Have a theory and predictions.

Open a position when the movement is confirmed.

Use stops to prevent losses you can’t handle.

Practice, practice, practice with funds you can afford to lose.

Imagine making money no matter what the market does?

Bull or bear won’t matter as long as the trend is recognizable.

Will the new year be the one you switch to investing like the pros?

Have a good one,

Chris

Originally posted 29th December 2023 on ElliottSays.com

Thank you for reading! :)

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