Short Selling Is Making a Comeback

The public loves to hate short sellers, the investors who profit from declining securities’ values. Their bad reputation is mostly undeserved. In reality, many provide a valuable service, taking the other side of frauds and bubbles, and generally helping drive prices toward a semblance of fair value. What’s more, they do this despite inherently poor odds: Statistically speaking, the market goes up more than it goes down. A healthy market needs short sellers, and in recent years they have gone missing.

Fortunately, there are early signs that’s changing. “The lost art of short selling has come back, and it’s absolutely critical this year,” Third Point LLC Chief Executive Officer Dan Loeb said last week at the iConnections Global Alts hedge fund conference in Miami Beach.