Investors should remember that just because hedge funds bet against a stock, doesn't mean it will actually tumble. Just ask Bill Ackman.
Ackman's firm lost hundreds of millions of dollars on his short bet against Herbalife (HLF) when the stock almost doubled -- confounding his calls for it to go to zero. (Ackman's losses have since eased thanks to Herbalife's recent slide).
"Hedge funds have caught a lot of colds over the last few years by shorting stocks they shouldn't have," said Smith.
Short selling can be pretty risky so it's not a strategy for everyday investors.
Losses on a bullish, or "long" bet, are limited by the fact that a stock can't go below zero. However, a short seller faces virtually unlimited losses if a stock continues to rise.
In other words, it's not for the faint of heart.
