Selling Short in Your 401(k)

The Wall Street Journal today has an article on mutual funds that are attempting to mimic hedge funds investments strategies, which include selling short.  At issue is whether such mutual funds should be marketed as an investment options for 401(k) retirement plans.  Many, no doubt, will be horrified at the prospect of retirement funds selling short, hence the title of the article.  I am not.  I have long believed that the limits on short selling favor privileged investors (who could do it) and create a class of investors who must be long in shares to make money -- to the benefit of Main Street and Wall Street both.  There is a bias in the market for making money on the long side that comes at the expense of small, individual investors.  It is not the investment strategy of selling short that is inherently bad it is how is it used.  Good retirement funds could prudently use the strategy of selling short to make money for beneficiaries.