Arnold Van Den Berg: The Psychology Of Short-Sellers

In this presentation with the VVI Q&A Speaker Series at Brown University, Arnold Van Den Berg discussed the psychology of short-sellers. Here’s an excerpt from the presentation:

My opinion about short selling is not that it’s wrong or immoral, it’s only wrong for the individual.

Actually short sellers play a very important role in balancing the market, so I’m not against short selling I’m just against the individual doing it for himself not for the market.

Now here’s an understanding just to give you an insight in what short sellers really are, Alan Abelson, I read them for 30 to 35 years, he was a great reporter and forbearance and he said something to me that really capsulized the short zone he said, I never heard of a short seller who had a happy childhood.

That kind of gives you the explanation of their mentality. Short sellers are a different breed, they’re skeptical, cynical, and tend to be negative however they are unusually knowledgeable, no more than long players at the very field and the reason is they have to be even more careful because if you buy a stock at 10 it could go to 20, 30, and 40.

If I buy stock it can go to zero and that’s it, so I can lose 100% of my money but the short seller can lose three, four, five and who knows 10 times, and so it’s important for short sellers to know that they’re right, to know that there’s no surprises.

But what most short sellers get hurt at is what Benjamin Graham said, it’s a lot easier to tell whether a stock is cheap or whether it’s so overvalued that it should be sold, because we’ve seen things in the tech bubble that just went to… things that nobody in their right mind would believe but they went there.

So the short seller has to fight not only the logic of deciding what is overvalued but to understand the psychology, and in manias, that could be very very painful as I’m sure it has been in this last market.

You catch the entire discussion here: