My younger brother, Scott, was hired at the beginning of 2008 to beef up his employer's international operations. But when the global economic slump hit, he ended up downsizing their offices from Istanbul to Moscow.

Since his employer happened to be one of the bigger global 43″ target=”_blank”>hedge funds, Scott had a front row seat to economies and markets shrinking all over the world.

He did what he could to prevent losses at his hedge fund. He beefed up the fund's bets on falling assets and equities and wound down their long bets. His company's profits were basically flat last year. He and his boss were more than happy with those results. Many other hedge funds did a lot worse.

But one did a lot better. It was the hedge fund run by billionaire John Paulson. If you haven't heard of this "other" Paulson, it's about time you learned about him. He's the most successful investor out there, bar none. He dwarfs what Soros makes. In 2007, one of his funds gained 590 percent and another 353 percent. His own paycheck in 2007 came to $3.7 billion.

His biggest hits came on trades that he structured to profit from the fall of mortgage-backed securities, based on subprime loans. He also bet big on the demise of banks like Lehman Bros. And his most recent mega-profit came by placing a "short" bet on the Royal Bank of Scotland. Last September 19, he held a short position on 0.87 percent of RBS (that's 144 million shares). From September 19 to January 23, RBS fell 94 percent.

Paulson made at least $420 million on that bet.

Nobody in their right mind would blame Paulson for RBS's problems. Yet, somehow, borrowing a company's shares to sell and buy back later at hopefully lower prices strikes many people as ethically questionable or just plain wrong.

Commenting on Paulson's RBS bet, a London-based analyst (who has a "reduce" rating on RBS!) said, "It does appear to anyone from the outside looking in a bit distasteful."

CEOs in particular often blame short-sellers for their company's falling prices. CEO Dick Fuld of Lehman Brothers testified before Congress that "The shorts and rumormongers succeeded in bringing down Bear Stearns."

And Alan Schwartz, former CEO of Bear Stearns gave similar testimony when he appeared before the Senate Banking Committee last April, saying that, "market forces continued to drive and accelerate our precipitous liquidity decline."

Banking Committee chairman Christopher Dodd, who doesn't have an independent thought in his pea-brained head, chimed in that "this goes beyond rumors. This is about collusion."

Now, back to my brother Scott…

Given what he knew was going on in the world, he invested heavily in John Paulson's hedge fund. And he made out very well. Even though his personal bank account was growing fat from the very same things that were stripping profits from his company, he had no problem with it.

He asked me last summer while I was visiting him at his house in the Hamptons if I thought it represented some sort of conflict. I told him absolutely not. I added that not to invest according to what he observed and knew was the unethical thing to do.

Besides, we both knew that shorting adds to the liquidity of the market. It allows investors to hedge and to invest "long" with less risk. And shorters (and those who bought puts lock in their profits) often provide a floor under a company's stock price, allowing it to bounce back up.

As long as you're not doing anything illegal like financing the drug trade, you should never feel guilty about making money from your investments.

It's also critical that you remain true to your own sense of the market. These are the three essential truths I draw from the market…

Analysts have consistently underestimated the seriousness of our current economic problems. Weren't we supposed to have a turnaround the second half of last year? And now it's the second half of this year… All the fundamental numbers are still worsening. Jobs, factory orders, housing, bank writedowns, economic growth and so on.Most of those who are predicting an imminent turnaround are doing so on the basis of the government's bailout plans. But government actions so far have failed dismally. "Government as the answer" doesn't do it for me.

As you see, I am bearish on the market. And as a bear I have no problem running a "shorting" trade service (called the Red Flag Insider).

And I make no apology for making my readers a 101 percent profit in their last trade and 148.48 percent in the one before that.

Never apologize for being on the winning side of an investment. You should invest as you should lead you life – according to the conviction of your beliefs.

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