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Holding short positions in a few stocks is a great way to hedge a portfolio. I take shorting even more seriously than I do going long a stock, because I'm betting against the market's long-term positive expectation for stocks. The companies I choose really have to be in trouble for me to get interested.

I've examined the bull and bear cases on St. Joe Company (NYSE:JOE), as presented by warring hedge fund managers David Einhorn and Bruce Berkowitz, a war going on for two years, and I'm coming down on the side of Mr. Einhorn. This real estate holding company held some 1 million acres of land in rural Florida, and the majority of its revenue came from sales of this land. Development of this land, according to Mr. Einhorn, has been a colossal failure and should result in massive write-downs the company has not taken. The best land has been sold, and further development will destroy value. St. Joe has stopped developing as a result, and hopes that a new airport would bring tons of people to de-factor ghost towns have been dashed. I think Mr. Einhorn is dead on. If you examine the above-linked presentation, St. Joe really is nothing more than a rural land company. I once believed that real estate of any kind is valuable, and that given enough time, its value can be realized. I think this is a perfect example of why that thesis is wrong. The land is literally in the middle of nowhere. It serves no purpose. Development on the prime portions of St. Joe's land has already failed, so why would it work in rural sections?

It will take some time, but shorting St. Joe will pay off, and is a short here at $15. If it's real estate you really want to buy, it's hard to do better than Vornado Realty Trust (NYSE:VNO). It's got a solid dividend history, with a present yield of 3.3%, and remains some 30% off its pre-financial crisis highs.

Louisana-Pacific (NYSE:LPX) is another timber-related play that I am bearish on. The company provides structural panel products, such as plywood, including roof decking, sidewall sheathing, and floor underlayment; siding and trim products, and engineered wood products; and decorative molding, cellulose insulation, and timber and timberlands. The housing market has really impacted the company, which has lost money every year going back to at least 2008, the same year it suspended its dividend (and it's a REIT, no less). Free cash flow [FCF] was negative to the tune of some $67 million in FY2011, and already in Q1, FCF is that same amount. The company has $715 million in debt costing it about 8% in annual debt service, which means it is paying that interest out of its dwindling cash reserve of $340 million. Insiders are selling in droves. When you contrast this with Weyerhauser (NYSE:WY), which is growing earnings and generating positive FCF, it is obvious why Louisana is a short.

Source: 2 Must-Short Stocks To Hedge Your Portfolio