How to Pick a Loser: A hedge-fund manager explains what most traders get wrong about short selling and when to go long on a diamond in the rough.

In more than thirty years in the financial services industry, hedge fund manager Scott Fearon has developed a unique take on investing. Fearon is the president at Crown Advisors Management, a Kellogg alumnus, a member of Kellogg's Asset Management Practicum advisory council, and the author of Dead Companies Walking: How a Hedge Fund Manager Finds Opportunity in Unexpected Places. "His approach combines quantitative screening with fundamental analysis and in-depth analysis of the quality of management teams," says Bob Korajczyk, a professor of finance at Kellogg. And despite taking plenty of long positions -- that is, purchasing financial instruments in the hopes that their value will increase--Fearon is perhaps best known for going short. Short-sellers profit when shares decrease in value: they borrow shares and immediately sell them, betting that they can purchase them in the future at a lower price and keep the difference. With short-selling in particular, Korajczyk explains, taking a different approach from other investors--seeing what other investors can't or don't want to see--is critical. So Korajczyk recently sat down with Fearon to learn more about what makes his philosophy so different. The pair also discussed what many investors (and managers) get wrong about short-selling, and how financial regulations have been a boon for the casual investor.