Discovering the GameStop saga rekindled interest in short-sellers and their impact on financial markets. The narrative of “Main Street Takes Revenge on Wall Street” painted short-sellers as the villains, leading to consensus buying that squeezed their positions.
However, my focus here goes beyond GameStop. I want to talk about the importance of short positions and representative benchmarks for private market investments.
Cash is King
Initially, I had reservations about naked short positions, but I came to understand their role in the market. Short sellers make informed decisions and stand by them, waiting patiently for the right time to close their positions profitably. Cash settled in transactions is the ultimate truth. The rest is just opinions.
Short sellers are a unique breed, borrowing shares and selling based on conviction. They play a crucial role in the market, contributing to price discovery. Value may be subjective, but transactional price is an objective reality. Cash is king.
Talk is Cheap
Short selling ties back to indices, providing a natural hedge and helping maintain a diversified portfolio. Investable indices must capture the essence of an asset class, allowing investors to express their views through long or short positions. A benchmark that truly represents an asset class is invaluable for strategic adjustments.
What sets a benchmark apart is its ability to meet specific criteria, including investability, accountability, and unambiguous composition. Benchmarks serve as reference points in a market, guiding investment decisions and strategy.
Money talks.
All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
