There is a reason why there are plenty of billionaires who made their fortune by going long and why there are none who have made a fortune by going short or against the market. Of course you will find a lot of investors and traders who have made many millions going short but there are definitively in the minority. There are a number of risks when you go short the market. I will illustrate them in this article with descriptive examples.
The first risk when going short is that you can be ousted out of a position without your permission. What this means is that initially your broker may have released some shares for example for shorting Apple. You short Apple with 100 shares but unfortunately your trade goes against you and you find yourself 5% down in a matter of days as your stock pick has rallied. To add insult to injury, your broker takes back the shares from you and says that this needed to be done as the person who loaned you the shares now wants them back. This is one of the big risks with shorting. You never have full ownership of your position and your position can be exited at a moments notice.
The second risk with shorting is that there is unlimited loss potential if you don´t use stop losses. For example, you could buy a stock at $40 or sell short a stock at $40. By buying at $40, the maximum you can lose on your investment is what you invested. So if the company goes bankrupt, you will lose your entire investment. On the other hand, if the stock rises above $80, you are now losing more than what you have invested. This is why brokers will always make sure that you have a margin account or extra funds in your account.
Here is the final disadvantage of selling short as opposed to going long some stock or index. When going short, it is very difficult to know when to exit. Based on the fear factor of the 2 reasons above, one nearly always exits early out of trade involving a short sell. Shorting for me is always time dependent. Long is not. For example, you could have been long gold for the last 10 years and it is still the right trade now 10 years later. Billionaires are never made going short. There is too much risk attached to the trade. Shorting is usually only good for time dependent trades. Always remember this in your investing career.
