Short-Selling Is Now for the Stodgy --- Pension Funds Join Others Using Tactic
NEW YORK -- Short-selling, among the riskiest of all stock market strategies, is starting to win converts among the most conservative of all investors -- pension funds.</br></br>Unlike ordinary investors, short-sellers make money when a stock goes down, not up. They do this by borrowing shares from a broker and selling them -- betting that the stock will fall in value and that they can replace the borrowed shares later at a lower price.</br></br>Because short-sellers thrive on corporate disasters and financial foul-ups, they are often reviled by companies whose shares they short and are accused of spreading lies to send stocks plunging. "There's this feeling that it's un-American, and that you shouldn't be dumping on other people," says short-seller Russ Faucett of Los Angeles-based Barrington Partners.</br></br>Some pension funds and other institutional investors have expanded their use of sophisticated short-sale techniques to hedge against price drops hurting their stock holdings. But most funds have shunned short-selling as a money-making strategy in its own right.</br></br>Now that's changing. "We're seeing more institutional money on the short side of the market, and much more is interested in pursuing" the strategy, says Michael Minikes, managing director of Bear, Stearns & Co., which lends stock to short-sellers and handles many short-sale trades. Institutional short-selling activity is tiny so far, but this "is just the beginning," he says.