There are 4 stocks in the world, A, B, and C, and D, all trading at $25. I invest $100, buying $25 in each.

Now lets say that I know for sure that stock D will go down because I'm going to whack the CEO. So I sell my $25 of D, and put it in A, B and C (A stake of $33.33 in each - let's assume fractional shares are ok.) If Stock D goes to 0, while the others all double. I have a net gain of $100 - $75 from the stocks I already held, but $25 from the new investment, and I've avoided $25 as well.

Let's say you lived in a world where shorting was ok. If instead you invested $25 in A, B and C, and shorted $25 on D, you would gain $75 in A, B and C, and $25 on your short of D. In essence it's the same $100 profit.

Now this only works if A, B and C are also going up.

Let's say that D does move on the event, but A, B and C don't. If you do buy back D after the event, you ultimately are in the same position in both cases. In the shorting case, you have $100 in securities ($75 original, plus $25 of D bought near 0) and in the "sell now buy later" you sell back $25 of A, B and C to buy at the bottom.

Net - you create the effect of shorting.

This falls apart if you want a very concentrated bet, but it's a way that long-only professional money managers who compete against indexes find a way to effectively short.

Think of it this way - in both cases you're selling today, and buying later. The only difference is the "hold the whole market first" strategy requires more capital. (There are market technical differences too, but for short time periods these aren't as significant)

That's not the only difference. It's not even the biggest difference. The major difference is that in your scenario you have a big unhedged exposure to the market (your p&l depends on the performance of A,B,C) and in the case of just shorting D you don't (doesn't matter what happens to A,B,C). That's a pretty big difference.