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So, Ya Wanna Buy Thisus Or Ya Wanna Buy Thatun?

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All arbitrarily narrow mandates can lead to opportunity costs, but one that is particularly costly is the "long-only" nature of some investment funds.

When someone is able to buy or short investment opportunities, he can first be analytical - gathering relevant facts, measuring value, and examining events that are likely to unlock or reveal that value. One need not be a fan, only an analyst. Regardless of whether or not you like what you are looking at, there is something to do either way. One can buy, one can short, one can ignore. One does not need to prejudge before reaching a conclusion informed by the relevant premises.

Long only managers tend to take on many of the characteristics of the sell side. It is hard to avoid becoming promoters first and analysts only to a limited degree. Once they are given a particular stock to consider, the question is implicitly, "do you like it or do you love it?" because there is little way to improve your compensation, performance, or reputation by appropriate skepticism.

It goes without saying that investors who are good at shorting securities can make that a lucrative part of their work. But besides making money on the short side, working on short ideas can make a substantial improvement to the long side of one's portfolio. Is a stock expensive? Is the management honest? Is the accountant legitimate? Are the customers real? Is this a fraud? A promotion? A fad? Going through checklists typical of short sellers and failing to find the issues that can make for lucrative shorts can help protect and build confidence in one's longs.

Man muss immer umkehren.