Crossroads Capital Letter: Shorts and Ladders – How We Think About Short Selling

Crossroads Capital's letter to partners for the month of October 2024, discussing what we think about short selling.

Ask any fund manager: Shorting is hard. Many elements make it hard to generate a positive return on shorts.  After all, in the long run most stocks go up. Even worse, when your shorts move against you, they become larger as a percent of NAV, not smaller – compounding the pain of your mistakes. So why do it? And how do we at Crossroads avoid the common pitfalls? Below is a quick primer on our approach, and an example that fits our criteria.

Our shorting framework

First is the why? At Crossroads, we are dedicated to identifying undervalued businesses and strategically positioning our hard-earned...