a thread 1/It is not inconsistent to say “I love shorting stocks” but “hate managing a short book”. Let me explain.

2/Shorting means going to a PB like GS and borrowing stock in a co. you don’t own for the purpose of selling that stock. GS makes a lot of $ lending stock. Big liquid companies “cost to borrow” are a few bps but illiquid hard to borrow shorts can cost 50-90pct per year to borrow

3/All "hard to borrow" shorts IMO need to have a liquidity event in the thesis to make it worth the risk. Sometimes borrow can be recalled causing a squeeze and sometimes the cost of borrow can rise dramatically. And sometimes you can get a massive short squeeze.

4/For ex, in the middle of the GFC, Porsche engineered a short squeeze on Volkswagen stock using options. IN THE MIDDLE OF THE GFC WITH STOCKS DOWN 8-10 daily, VOLKSWAGEN WAS UP 30-50 a day, which is a good place pivot back to the risk of short ideas v short books.

5/Individual shorts involve individual idiosyncratic risk. Short books involve collective systemic risk.
A single stock can ruin a day, week, month, quarter or year. A short book can put you out of business.