>> (a) the borrowing cost plus (b) the unlimited downside risk combined with (c) the limited potential for gain
a) For non-heavily shorted stocks, borrowing cost is zero or indignificant
b) The unlimited downside risk is a mirage. Market caps just don't go to infinity. Basically risk of being short is about the same as being long.
c) If you keep the size of your position constant (by shorting more if the stock goes down), you have just as much potential for gain as being long.
Now being in crowded shorts is admittedly difficult. It's easy for your position to get called away, so the timing is not under your control.
Personally, I short mostly as a hedge against my long positions. But I tend to do it only in larger-cap stocks (mostly outside biotech) and not in crowded shorts.
Peter
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