Pros such as Tim Knight, William O’Neil, and Bart DiLiddo all use fairly tight stops when shorting. So, in practice — although their potential loss on a short position might be “infinite” in theory — in reality, they’re more likely to take a loss of 10% or less on a short that goes against them. On the contrary, some long-only value investors will hold a long position (or continue to add to it) after it drops 50% or more.

I think the bigger reason many investors eschew shorting isn’t so much their perceptions of its risk (though that may be a part of it) as their fear of going against the herd. After all, we all risk 100% losses every time we buy stock, but since almost everyone else is doing it, most investors tend not to dwell on that risk too much. But shorting feels scarier because you’re often standing alone.

Another point to bear in mind is that while shorting alone may be risky, it can be less risky to combine shorting and long investing. A market-neutral portfolio constructed of long positions paired with short positions in the same industries can cancel out most market and industry risk.

And of course another way to limit risk when betting against stocks is to buy puts on them (which I assume you were planning to cover in your next post). Buying puts also gives you the opportunity of generating returns greater than 100%, but it has some additional challenges. E.g., you have to take into account volatility, time decay, spreads (which can be pretty wide on thinly-traded options), etc.