Why Warren Buffett Avoids Short Selling

Warren Buffett (CEO of Berkshire Hathaway) says short selling can ruin people, and in recent weeks we have seen major hedge funds lose billions of dollars shorting Gamestop stock. So what's the deal? Why does Warren Buffett believe people should avoid short selling? And why do so many people lose money trying?

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DISCLAIMER:
Neither New Money or Brandon van der Kolk are financial advisers. The information provided in this video is for general information only and should not be taken as professional advice. There are risks involved with stock market investing and consumers should not act upon the content or information found here without first seeking advice from an accountant, financial planner, lawyer or other professional. Consumers should always research companies individually and define a strategy before making decisions. Brandon van der Kolk and New Money are not liable for any loss incurred, arising from the use of, or reliance on, the information provided by this video.

[SelfMadeWealth]

Nobody buys a farm based on whether they think it's going to rain next year, They buy it because they think it's a good investment over 10 or 20 years. - Warren Buffett

[j.mney]

Short selling comes with a lot of risk. At least if you buy a stock the worst you can do is lose the entire position. However, with short selling you can lose a lot more.

[joejoey]

every investor avoids short selling, gamblers on the other hand ...

[jasonkanokaroke]

I only short stocks for a day trade. I have heard the "unlimited loss" thing over and over so I do not hold them overnight. If I have to cover my short at the end of the day and lose money, I do so. The stock is usually not going to flush up unlimited as you sit there and watch it like a hawk. Jumping in on some end of the day profit taking is a much better plan than jumping in on a pump and dump.

[MillionaireMindsetClub]

The average trader is naturally a chronic bull. It is human nature to prefer optimism to pessimism.

[davidjames]

Unlimited losses is very misleading. Someone could put a stop loss buy order at +10% for example, so if they short sell 1 share at $100, as soon as it climbs to $110, an order gets created to buy it back to cover their short position. 10% is not "unlimited losses". Also, sometimes losing money is a good thing with stocks. If a stock in a long position is falling, it is better to sell it for a small loss, then buy it back when it is lower (such as during the slide in Feb and March of 2020). That eliminates some of the downside losses and helps you to reach the break even point sooner. For example, you buy a stock for $100, then it starts a long slow slide down so you get out at $90 for a $10 loss. When it hits $70, you buy back. Then your break even price would be $80 instead of $100. Why would WB advocate holding thru something like a 20% to 30% dip when you can simple sell early and buy back cheaper? You don't even have to catch the new bottom, just buy back 5% cheaper for example. In the $100 to $70 example, sell at $90 and buy back at $85, then your break even would be at $95 instead of $100. For one share that is only a $5 difference, but for 1 million shares (WB for example), that is $5 million difference.

[RichardServello]

Being short is WAY too stressful!!! Not worth it.

[siddharthabiswas]

Short selling is the worst, hedge funds actually try to sabotage the companies they short, how is something like that even legal ?

[parthasarathyvenkatadri]

When someone is lending the shares to be short sold by another person ... The lender also has a downside risk ... He can't sell the shares that he lent ... So if the share price goes down ... Then they could lose money

[LeagueOLegend]

i only short sell stocks i know are gonna go down for sure. Once i seen GME hit 400$ i knew would be a perfect time to short sale it. at 60$ now easy money.

[leobaucells_trading]

Short selling works intraday, selling the Pound when brexit happened, that was nice. Long term I did bad for these reasons explained in the video.

[finalfanta]

I think when it comes to shorting, buying put options is the way to go. You can buy a leap put option which will give you a lot of time for the company's stock to sink for little time cost, but I think the greatest advantage to put buying over short selling is that it eliminates the problem of unlimited risk. You're risk is simply the capital you spend on the put option.

[awesomeblossom]

I love Warren Buffet. Honesty and integrity is so hard to come by nowadays.

[RobCollins]

The bit I dont quite understand is how a stock like GME can be shorted by over 100%. How can you borrow something you sell by over 100%?

[swoodtek]

Short selling is a necessary part of market making mostly for the sake of liquidity. Anyone saying people who short are evil or should go to jail don’t understand how it works. I think as a retail short seller it’s wise to cover your short by market close.

Not every share you buy on the market is being sold by a shareholder selling it to you. The market maker can either arrange the trade between a seller and buyer or short the shares themselves.

Another form of short selling, which is considered illegal on paper, is naked short selling, or the market maker selling shares that aren’t available. There’s a lot of ways for the MM to get away with it, but they have a certain amount of time to cover this short or it becomes a “fail-to-deliver” and the SEC will get involved.

Last year my thesis was to track securities that were one the SHO threshold list for MMs at risk of failing-to-deliver on their naked shorts. I found patterns that were both great setups on the long and short side this way.

[teencred]

The first half PERFECTLY sums up “The Big Short”, especially the artificial price spiking!

[hunter-innd]

Short sellers are an important part of the stock market. If done correctly they expose fraudulent companies.

[ryugurena]

I wouldn't really want to short sell. I want to see companies succeed. Betting against it is betting against peoples hopes and dreams, as well as their futures.

[Lisamiles]

I’ve been learning so much recently with the gamestop incident about short selling! I literally had never heard of it until 2 weeks ago. Either way I have no intention of ever doing it! Thanks for adding to my knowledge!

[yoursubconscious]

I think, really, I mean it, no pun intended; you subconsciously have had me avoiding the "noise" of so many Youtubers talking about the investment game and began to listen to Warren Buffet. Thankfully I have yet to invest in my journey of two months of "deeper" research and have been able to better iron out my "wants" and "needs" in all thanks to others, sure, but mainly; your videos. Your content has helped me iron out many questions. Listen to the best. Keep up the great effort.