Warren Buffett’s Core Views on Shorting Stocks

Warren Buffett’s Core Views on Shorting

Warren Buffett has been very clear — he doesn’t like shorting stocks and almost never does it. His reasons are practical and deeply tied to his philosophy of long-term compounding. Here’s the breakdown of his views:

1. Unlimited Risk, Limited Reward

In long positions, your downside is capped (you can only lose what you put in), but upside is theoretically unlimited.

In shorts, it’s the opposite — your upside is capped at 100% (if the stock goes to zero), but your downside is infinite.

Buffett has said this asymmetry makes shorting a poor use of capital compared to finding undervalued businesses.

“If you’re short, there’s theoretically unlimited risk and very limited profit.” – Warren Buffett

 

2. Timing is Brutal

Buffett acknowledges that some businesses are destined to fail, but being early on a short can be financially fatal.

As he’s put it: “Being right too soon is indistinguishable from being wrong.”

Stocks can remain overvalued or manipulated far longer than a short seller can remain solvent.

3. Psychological Toll

Buffett has noted that shorting is stressful because the losses are visible and painful while gains are slow.

He has said short sellers often spend their lives “hoping for something bad to happen,” which doesn’t align with his temperament or optimism.

4. Rare Exceptions

Berkshire Hathaway has done some hedging (e.g., long-dated index puts during the financial crisis), but Buffett described those as insurance-like positions, not speculative shorts.

Charlie Munger once said that while they understood why some smart investors short, “it’s just too difficult” and not worth the mental strain.

Buffett’s Advice to Investors

Focus on buying great companies at fair prices and let compounding do the work.
Avoid leverage and speculation — shorting often combines both.
If tempted to short, Buffett suggests simply not owning the stock instead.

✅ Key Takeaway for Traders: Buffett views shorting as an unnecessary gamble with skewed risk/reward. For him, the opportunity cost of tying up capital in shorts is worse than just waiting for the next undervalued long idea.