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In this month’s issue, we address a topic that has been on my list of article ideas for a while: short selling. A short sale involves selling shares you don’t own and then buying the same stock at a future point in time, ideally at a lower price. It’s the opposite of how most investors transact, which is buying a stock and then selling it, ideally at a higher price.

Most of you reading this probably will never sell a stock short. It’s generally not wise to do so. Short selling has limited upside and unlimited downside. A stock can only fall to $0. Thus, the maximum profit you can earn on an absolute basis is the difference between the price at which you shorted a stock and $0. (In reality, the maximum profit will be something less, since it’s best to close out a short position before a stock stops trading.) On the other hand, there is no ceiling on how far a stock can rise. With a short position, your losses rise until you buy the shares to close out your position.

Oh, did I mention margin? Individual investors wanting to short a stock must do so on margin, which means taking a collateralized loan from the broker. The brokers want to ensure they’ll be repaid and there are regulatory limits on how much you can borrow relative to your account’s assets, so as your loss on a short position mounts, the odds of your broker asking you to deposit more funds into your margin account increase. A short sale gone bad can turn the hole you dug into a crater.

Given the risks, prudence must be used when deciding when to short. This is why the topic has been on my list of article ideas. Short sellers are only going to target those stocks they view as having a good probability of falling in price in the near future. Long investors (the majority of us who buy stocks with the intent of selling them at a higher price) want to avoid the riskiest stocks. As such, both groups have similar goals: identifying stocks whose downside risks have increased substantially.

Greg Swenson of the Grizzly Short Fund (GRZZX) discusses what he looks for in a short candidate here. Even if you never have any intention of shorting a stock, his suggestions can help you set guidelines for when to sell stocks you are long on (meaning own) or at least what to avoid. Those of you who use contra funds may also be interested in seeing Swenson’s observations about the role his particular fund plays in an overall portfolio.

Also in this issue is a new interview with Vanguard founder John “Jack” Bogle. We recognized Jack’s lifelong contributions at our Investor Conference in November by honoring him with the Cloonan Award for Excellence in Investment Education. Individual investors everywhere have benefited from Jack’s steadfast focus on keeping costs low and encouraging a long-term approach to investing, among other things.

He was unable to join us at the conference, but graciously recorded two videos for us. The first was aired at our conference. For the second, we sent Jack six questions about investing. His answers are insightful. My two favorite are his insights on avoiding the most common mistakes he’s seen individual investors make and his suggestions on how to get grandchildren (or children) interested in investing. The interview appears here, where you can watch both videos.

Jack also reiterated his advice that you shouldn’t look at your brokerage statements until the day you retire. Given the temper tantrum Mr. Market has thrown during the first six weeks of 2016, following this advice can seem tough to do. But if you focus instead on the process of managing your investments and your finances, you’ll be happier with the long-term outcome.

Wishing you prosperity,