Learning From Bill Ackman

The name Bill Ackman is not an unheard of one in trading circles. He is a hedge fund manager, a billionaire, and one of the most well known names when it comes to day traders. He recently has made some comments about selling assets short, and his viewpoint is that it’s not easy to be successful at. This is contrary to what a lot of experts tell beginning traders, and it’s not something that anyone that trades regularly wants to hear. If Bill Ackman, one of the most successful hedge fund managers ever, has trouble with selling short, what are we all missing out on?

Ackman is famous for betting $1 billion against Herbalife by going short on it, a bet that hasn’t yet paid off for him. He’s on the record for saying that he would have to think long and hard before doing something so drastic so publicly ever again. In his words, “it isn’t worth the brain damage.”

Other funds, managed by other people, are attempting to make long only funds in order to counteract the short selling focus that some hedge funds have taken on. With the market hitting high water mark after high water mark, selling short is not popular like it was several years ago. Most people lose money on it, and many hedge funds have too. Even those run by some of the top traders in the world.

That’s the key takeaway right now. Selling short doesn’t work right now because upward trends all over the markets are upward. This is an important principle whether you are trading binary options short term or day trading stocks, or even position trading stocks or commodities. Going against a prevailing trend is not easy, and often results in failure. Option traders have a small advantage if they go with the ultra short trades and look at minute by minute technical indicators to get a good feel of what is coming next over the course of five minutes or less, but this is a small edge at best. Trading against the prevailing trend can be dangerous, even if you are a pro. Most of the time, you will lose money.

And then, of course, there are examples where selling short in a six year long and counting bull market pays off. One hedge fund manager has very publicly sold shares of Lumber Liquidators short. This company is down about 80 percent since the trade was announced, resulting in huge profits. In other words, if you are going to be selling short in a bull market, you can still make money. You just have to be careful about the asset that you choose and your timing. Most stocks will be going up, but not all of them. This is just how bull markets work. And it’ why some traders lose money even if they have a good idea of what they are doing. They just haven’t refined their skills enough to choose the right thing at the right time.

Unlike you and me, hedge fund managers and those that they represent can afford to love a few million dollars here and there. We need to be more careful with how we trade, but we need to do our part to study the markets, learn what we can from these pros and others, and then make the smartest decisions we can with our limited resources. Trading is not easy, not even for the very best out there, and when we are able to learn from their mistakes, we can turn that into profits for ourselves–even if they aren’t worth billions of dollars.

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