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Strategies & Market Trends : SHorting Stocks: Education/strategies/techniques
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To: Early Bird who wrote (73)5/15/1997 12:27:00 PM
From: Sturgeon   of 99
 
Michael,

The problem I have with shorting is I think that the brokerage companies are basically ripping us off. When I sell a stock short the proceeds of the sale are locked up. I can't invest that money and I don't even earn any interest on it. What I have done is give the broker an interest free loan. This is an opportunity cost to me that continues to grow over time. Of course, if the short sale is covered within a few weeks the forgone interest is immaterial. But I and many people I know do not like to make short term bets. If I short a stock its because I believe over the next several years it will badly underperform.

As an example, I could short XYZ at $50 a share. If in one year XYZ is still trading at $50 most people would say that I was right about the stock yet the fact is I make NO money. The only one who made money was the broker with the interest free loan I gave him. It seems that I am stacking the odds dramatically against myself when I enter into a transaction where I can be right and yet make no money.

It would seem that the lock up of the short proceeds makes holding a short position for more than several months uneconomic. This forces me to trade with a short term perspective which is the anti-thesis of what value investing is all about.

This line of reasoning is one that I have been wanting to discuss with someone knowledgable for quite some time. Thanks for starting this thread and giving me the opportunity.
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