Why I Don't Short an Expensive Market

I recently got asked a question on my YouTube channel that talks about if I truly believe that a crash is coming, why don’t I just short the market?

I'm not shorting it, and I don't plan to. Let me start with a few examples on the reality of shorting in the past and how it has impacted some of the best investors.

On December 5, 1996, the chairman of the Federal Reserve, Alan Greenspan, stood up at a dinner in Washington and asked, out loud, whether “irrational exuberance” had pushed asset prices too high. The S&P 500 closed that day at 744.

He was right about the bubble. He was just very early. The S&P returned 33% in 1997, 28% in 1998 and 21% in 1999. It more than doubled after the warning and didn't peak until March 24, 2000, at 1,527.

Then the crash came, exactly the way the bears said it would. By October 9, 2002, the S&P had lost about half its value and closed at 777.

Look at that number again. 777 is still higher than 744. Say you had shorted the market on the night of the warning and held through the entire dot-com crash. At the very bottom, nearly six years later, you would still have been underwater. That's before the costs of holding a short.

Right about the bubble. Right about the crash. Still lost money.

Most people think shorting is just buying in reverse. It isn't. Three things make it a completely different bet.

The math is lopsided. Buy a stock at $100 and the most you can lose is $100. Short it at $100 and the most you can make is $100. What you can lose has no limit, because there's no limit on how high a price can go.

Someone else can decide when you're done. If the price moves against you, your broker can demand more cash, which is called a margin call. If you run a fund, your investors can ask for their money back. Being right eventually doesn't help if you're forced out first.

Michael Burry is the famous proof. He started betting against subprime mortgage bonds in May 2005, the trade that later made his investors about $725 million. But while the housing bubble kept inflating, his own investors revolted and tried to pull their money. He was right, and nearly didn't last long enough to get paid.

Or Melvin Capital, a hedge fund betting against GameStop. The stock went from under $10 in October 2020 to $325 by the end of January 2021. Melvin lost 53% that month and needed close to $3 billion in emergency money from two other firms.

So the way I think about it is simple. A short needs you to be right about what happens and when. Cash only needs you to be right about what happens, eventually.

None of this changes my read. We're about 14 years into the 18.6-year land cycle, the late stage the research I follow calls the Winner's Curse, when prices are richest and borrowing peaks. My view hasn't moved: 2026 is the peak zone, and the break in stocks most likely comes in 2027.

But “most likely 2027” is a year, not a date, and a short needs a date. Being off by a year, which is really what that comment in June was about, is survivable when you're holding cash. It can wipe you out when you're short.

I track the readings behind this view in Smart X Terminal. As of September 28, its asset-price gauge sits at 84 out of 100, near the top of its range. Its credit-spread gauge sits at 19, and here a low number is the warning, not the comfort. Riskier companies pay only about 2.8 percentage points more than the government to borrow, so lenders still aren't pricing much risk. Rich prices and relaxed lenders can keep running longer than looks sensible.

I might be early again. That's the honest answer, and it's the whole reason I won't short.

In the gold issue a few weeks ago, I said a position should be big enough to matter if I'm right, and small enough to survive if my timing is off by two years. That's the test I now run on any bet against the market:

If I'm right about the direction but two years early, does this position survive?

Run a short through it and it usually fails: two years after the 1996 warning, a short on the S&P was down more than half. Run cash through it and it passes. Two early years in cash means you earned interest and missed some upside. Annoying, not fatal.

It's also why the small slice of stocks I still own isn't a bet that the market keeps rising. It's a hedge in case this top runs longer than I expect, which is the exact opposite of a short.

Quick note: the readings and figures here are as of September 28, 2026, when I wrote this. Markets move, so for the live picture I keep Smart X Terminal updated in real time.

Below the line: how my own money is split right now, and the cheap “crash insurance” a value investor I follow floated in September that I passed on. Plus the three readings that would make me start spending my reserves.

Not a paid reader yet? The same cycle and credit readings are live in Smart X Terminal. Check them the next time a headline tempts you to bet against the market.