You really don't need to say it twice. I think many people are fully aware shorting carries unlimited loss potential. This is investing 101.techcrium wrote: ↑That's because going short is not the exact inverse of going long due to the fact that when a company bankrupts, the stock goes to 0. Stock values don't go to negatives.
When you are shorting, you create a situation where your loss is unlimited and your gain is limited. By that logic, you are forced to "time the market".
When you are going long, you create a situation where your loss is limited and your gain is unlimited. By that logic, you don't have to time the market.
Let's say you long BRK at $1200 for 1 share and I subsequently short it. BRK drops to $600. Ok you are down $600 and I am up $600. BRK keeps on not making money and eventually debt catches up to assets. BRK goes to 0. You are down $1200 and I am up $1200.
You lose your initial $1200 investment.
What about the other way around? What if BRK goes to $2400? Ok what if BRK goes to $5000?
My $1200 short is now liable of a part of my other portfolio. Eventually, after enough years, that single BRK short put my entire portfolio to 0.
Meaning, going long doesn't necessarily equal market timing and going short does equal market timing.
When you are shorting something, no matter what your time horizon may be, you are betting the price should go down. You call that timing the market. When you are long something, again no matter your time horizon, you are betting the stock price goes up or the accumulation of dividends provide a positive return. This involves a level of market timing also. When something is expensive, you will not be buying it. It makes no sense if you can get it cheaper later, or if the price falls immediately after you buy something.
Either way, you are betting on something. You picked your time of entering your trade. Investing always involves speculation, even though so called 'index long term investors' like to use that as a disparaging statement against 'short term traders'. Investing also involves a degree of market timing when you throw new money in, with possibly the exception for people doing DRIPs where buy ins are not timed on their own merit per se.
So, someone choosing to long a stock hopes the price goes up and chooses an entry that they 'think' is likely a good level wherein the price begins to rise because there is more 'upside'. A short, does the opposite by betting against it hoping the price is near highs and falls lower. Speculation and market timing is in both cases. What you are talking about is the risk profile and the theoretical losses. That is a separate discussion in itself.