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Strategies & Market Trends : Anthony @ Equity Investigations, Dear Anthony,
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To: HairBall who wrote (47311)12/5/1999 11:41:00 AM
From: Louis Cornell  Read Replies (2) of 122088
 
LG, I think everyone knows that long positions CAN be much more profitable than shorts. Your argument is why so few people short. But no one here yet has clearly addressed return on actual capital invested shorting. Yes, potential loss is unlimited without the use of stops, but when you short, there is a 50% margin requirement, so you don't put up the full $20K for the 2K shares in your example (see below). Rather you put up $10K for the 2K shares, which means the $38K profit in your example is actually a 280% ROI on your $10K investment, not 90%. Although it's not as good as 900%, chances are the 280% will be made much faster than the 900% - why? Because stocks fall much faster than they rise. This improves your annualized return to a higher degree than long trading positions. If you find 900% long positions that are made as fast or faster than my 280% short positions, please let us know when they are $1. How many $1 stocks rise 900%? That is much much harder than finding hyped crap that has already gone up 900% and will soon be $1 again.

Your example: Let's say you have 20K allocated for a trade in stock ABC.

If you buy $20K at $1 you get 20K shares and if you sell those 20K
shares at 10 you now have $200K before commissions and taxes.

Now if you short $20K at $10 dollars you get 2K shares and you cover
those 2K shares at 1 you now have $38K before commissions and
taxes.
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