Why Holding on to Growth Stocks is Key for Long Term Success. One approach we strongly advocate against is shorting growth stocks, particularly those represented by the QQQ ETF, which comprises major tech giants. The rationale behind this stance is rooted in both risk management and the nature of growth stocks.
The Risks Outweigh the Rewards
Our portfolio strategy is long-only, emphasizing purchases based on precise signals from our algorithms. When a sell alert surfaces, our response is strategic patience: we wait for a reversal rather than engaging in short-selling. The fundamental reason behind this approach is the asymmetry in risk and reward associated with shorting growth stocks.
The Limitations of Short-Selling
Consider the nature of short-selling: while the maximum gain on a short position is capped (since a stock can only drop to zero), the potential loss is theoretically unlimited, as a stock's price can rise indefinitely. To achieve an 80% gain from shorting, a stock would need to plummet to just 20% of its initial value. How frequently does such a drastic decline occur, especially among robust growth stocks?
The Case of Long-Term Growth
Take, for instance, stalwarts like Microsoft and Apple Inc. Their trajectories exemplify long-term growth and resilience. Shorting such companies not only involves immense risk but also goes against the fundamental principle of investing in growth. These firms have consistently demonstrated their ability to innovate, expand, and increase their market value over time.
Conclusion: Embracing Growth, Avoiding Shorts
In summary, our investment philosophy is anchored in recognizing and leveraging the upward potential of growth stocks. The decision to refrain from shorting is a conscious choice to mitigate undue risk and align with the long-term upward trend of the market's leading companies. It’s not just a strategy; it’s a commitment to prudent, forward-looking investment practices. Here are some great examples