Dangers of Going Long, Dangers of Going Short

Gengulphus raised an interesting point regarding going long/short and things to bare in mind when doing so.  To paraphrase:

Dangers of going short:

• the big danger is having the stock loan recalled (ie being forced to buy back when you may not want to)

Dangers of going long:

• If they’ve geared up, being forced to sell by margin calls.
• Being driven psychologically to sell by price falls.

He reccomends you size your position small enough that you won’t mind how far the price falls, and make up your mind at the outset that it is a “however long it takes” investment, there’s no reason why you should ever feel you’re forced to sell…

Should you find your share being targeted by shorters, you should make sure you can outwait the shorters by making certain that you can wait forever.