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Blokland’s daily sketch

Blokland’s daily sketch

26-01-2021 | Daily sketch

Shorting stocks is a risky investment strategy

  • Jeroen Blokland
    Jeroen
    Blokland
    Portfolio Manager

As equities tend to trend higher most of the time, selling stocks to profit from falling prices requires above all impeccable timing. And it’s become a severe loss-making strategy. As today’s chart from Deutsche Bank shows, stocks with the highest short interest (the number of stocks investors have sold short but are not covered or repurchased) have massively outperformed the overall market. There are two things I would like to add here. First, being a perma-bear or extremely bearish is always a risky investment strategy. While overly downbeat stories make good headlines they often do not make healthy returns. Quite the contrary and today’s chart is just another example of this. Second, when you dig deeper you’ll see that some irrational exuberance is becoming visible in markets, but that these are mostly concentrated within the technology sector. Other sectors and regions show fewer signs of buoyancy. However, the popping of the Internet bubble in 2000 is a vivid reminder that one sector is perfectly capable of causing a market downturn.

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As a senior portfolio manager I use charts to illustrate financial issues every day. I tweet my favorites as @jsblokland and was named 'one of the 50 most important people for investors to follow in 2018' by MarketWatch.
Previous editions of the daily sketch can be found on my personal financial markets blog. All graphics provided are collected from Bloomberg data and public websites. They do not always reflect my personal opinion and may also not necessarily reflect the opinion of Robeco. Please cite all references or quote the original source if replicating content.

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