Structural shorts: the unicorns of the financial services industry
"If you want a guarantee, buy a toaster."
– Clint Eastwood
Once market participants have been burned a few times trying to melt the wings of Icarus stocks, they change approach. They crave certainty. They look for stocks that already tick all the "bad" boxes: Bad company in bad industry with bad products, bad management, bad valuations, bad news flow, bad ratings, and so on. They go on a hunt for structural shorts. Fortunately, there are a lot more companies traveling down the boulevard of failure than up the narrow path of success.
The problem is timing. Every bit of information has a price tag attached to it. This gets discounted in the share price. By the time short sellers accumulate enough evidence to conclude beyond the shadow of a doubt that they have encountered a structural short, institutional long holders have already left the building. The only shareholders...