I live in the United States of America — a place where short selling isn’t just allowed, it’s celebrated. Other countries do things differently, and that’s fine.
But here, the ability to profit from falling stock prices is one of the many features that makes our markets great.
If CEOs make bad decisions, if companies fail to adapt, or if leverage spins out of control, stock prices should fall. That’s how markets work.
And if prices fall, it would be irresponsible not to take full advantage of it for ourselves, our families, our clients, and our LPs.
Making money from a company’s collapse — or even from a sharp pullback in an otherwise long-term winner — is not immoral. It’s smart.
And it’s one of the most effective tools we have to grow our portfolios.
Short Sellers Are Guaranteed Future Buyers
Most people misunderstand how short selling actually works.
On the surface, it feels simple — you hit the button next to “Buy” and now you’re short. But behind the scenes, your broker is borrowing shares on your behalf, selling them into the market, and charging you margin interest while those shares are out on loan.
When you eventually close the position, you return the borrowed shares and the interest payments stop. In the ideal scenario for short sellers, the stock falls, you buy the shares back at a lower price, return them, and pocket the difference.
But many times the opposite happens. Prices rise. And short sellers are forced to buy back the stock at higher levels, locking in a loss. Those losses can be enormous because short selling comes with unlimited risk.
A stock you own can only go to zero — but a stock you’re short can rise to any number, and your losses rise with it.
And here’s the part investors need to remember, whether you ever short a stock or not:
If you own a stock, you’re only promising to be a future seller one day. If you’re short a stock, you’re a guaranteed future buyer.
The more short sellers out there, the more inevitable future buying pressure exists. What exactly is the problem with that?
The More Short Sellers the Better
If you own a stock that’s rising and you know the short interest is off the charts, that’s a built-in catalyst. All those short sellers eventually must buy back shares. That future demand is already baked into the setup.
At TrendLabs, we like to measure this using the short ratio — also known as “days to cover.”
It’s simple: take the total number of shares sold short and divide it by the stock’s average daily volume. That tells you how many days it would take, at normal trading levels, for every short seller to cover.
The higher that number, the more vulnerable those shorts are. And the more explosive a squeeze can be.
And here’s what most people don’t realize about short squeezes: A lot of the time, the short sellers don’t even get the chance to cover themselves.
When losses get big enough that the broker is now carrying the risk, the margin clerks step in — and they don’t negotiate.
Margin clerks don’t place limit orders. They fire off market orders and hit anything that moves. Their only goal is to get that position off the books immediately.
So when you see a stock suddenly go vertical with no news, it’s often not magic. It’s not rumors. It’s not manipulation.
It’s just margin clerks blowing someone out of their trade.
And honestly? It’s beautiful.
Their Problems Are Not Your Problem
People love to say shorting stocks is “un-American.”
“How do you sleep at night betting against an American company?”
“With the fan on,” I tell them.
Let me be very clear: I don’t care about a company, its CEO, its board, its shareholders, or its employees. I don’t know them. They don’t know me. And none of them have any role in my life — especially not in my portfolio.
I’m in the market for one reason: to make money. That’s it. That’s the job.
So if I take a short position and I’m right — if the stock falls, people get laid off, or the company goes bankrupt — that’s unfortunate for them, but irrelevant to me.
My responsibility is to my portfolio, my family, my clients, and my LPs. The consequences of a company’s failure are not my problem. That’s someone else’s mess to clean up.
And let’s be honest: It’s not my fault a stock goes down. My only job is to profit when it does.
Also, beware any CEO who blames short sellers for their falling stock price. That’s a confession, not an explanation. Short sellers aren’t the problem — they’re a feature.
Short sellers are guaranteed future buyers. They create liquidity, expose weak leadership, and force accountability.
If I were a CEO, I’d welcome them. Watching margin clerks blow out shorts while I’m raising shareholder value? Sign me up.
Short sellers provide a service to the market — a real one. They’re better at finding fraud and accounting shenanigans than government lawyers because they’re incentivized by something far more powerful than ideology: profit.
So here’s a sincere thank-you to the short sellers out there. Right or wrong, win or lose, you make American markets stronger.
And if you don’t like what short sellers are doing to your stock?
There’s an easy fix. Run a better company.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs