Selling stocks short can be an effective method to diversify and hedge against losses in your equity portfolio. But it is a technique that carries great danger, and investors should exercise extreme caution before deploying it. “Short selling is appropriate for any investor, as long as you know what you’re doing and how it works,” says Chris Litchfield, a former hedge fund manager in Greenwich, Conn., who has shorted stocks for 35 years. “When you do it right, it’s a good way to reduce your risk, but in the wrong hands, it can be a real serious problem.” Short selling [...]