Angrist noted that rising rates were one of the unsung causes of the 2008-2009 global financial crisis—as rates rose, adjustable rate mortgages increased above levels that consumers could afford, “and then the dominoes fell.”

ETFs, which have proliferated across global equity markets over the past 20 years, could exacerbate the fall since they are commonly used by do-it-yourself investors who often lack the support of a financial advisor and the discipline of more professional investors, said Motamed. Any sign of profound weakness in the equity markets could cause many of these investors to sell simultaneously.

The argument, then, is that investors should be wary of focusing on long-only equities, said Motamed.

He warned that many long-short managers concentrate on creating alpha through stock selection on the long side of their portfolios while merely shorting an index like the S&P 500 on the short side of their strategies.

“I think it’s a shame,” said Motamed. “I’ve been doing this for 15 years and we’ve been able to make money on the short book, even while the S&P 500 has been going up on average. At the end of the day, if you’re paying someone a higher fee, you should want them working for that higher fee on both sides of their strategy.”

Angrist agreed, noting that short selling can give managers insight into the weakness of certain companies.

“You’re paying the manager to truly generate alpha, but anyone can short an ETF,” said Angrist. “Shorting is the hardest part of what I do—everyone in the world is trying to pick the best long stocks, but when you short you learn that there’s a big steam engine coming right at you in certain areas of the markets.”

Darlings Demystified

Angrist noted that short sellers uncover highly valued but fundamentally unsound companies, holding out Netflix as an example. While some analysts believe that higher valuations for companies like Netflix are justified because of the value of the data they collect, Angrist notes that the company is not really profitable and could struggle from subscriber attrition if it raised prices or started to implement commercials, which would likely lead to bankruptcy.

Motamed noted that Apple, a darling of the tech stocks for value investors, may turn out to be not as good an opportunity as it seems when competitors from China and other emerging markets begin to rise.