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To: Glenn D. Rudolph who wrote (115232)	1/14/2001 12:43:51 PM
From: H James Morris	Respond to of 164684

Glenn, from the clowns over at TMF. >The Fool School The Short Story WE' VE OFTEN BEEN TAUGHT that investing is simply a matter of buying low and selling high. You can actually profit by reversing that order, though, by selling high and then buying low. This is called "shorting." Imagine that the Acme Ballot Co. (ticker: CHADS) -- famous for its butterfly, corkscrew and fireworks ballots -- has gone public. Despite much media hoopla, you have little faith in it and expect the stock to sink. You call your brokerage and say that you want to short CHADS. The brokerage will "borrow" shares from an Acme Ballot shareholder' s account and proceed to sell them for you. Then, assuming the share price does drop, you' ll "cover" your short, buying shares on the market at a lower price to replace the ones you borrowed. If you shorted CHADS at $85 and covered when it fell to $60, you made $25 per share (less commissions). This technique sounds weird, but it' s perfectly acceptable and done often. Shorting can be beneficial because: With shorts in your portfolio, you might profit from both rising and falling stocks. If you see a stinker, you can profit by betting against it. Shorting can bolster a portfolio. If the market takes a big drop, your shorts should boost your portfolio' s performance. Shorting has its downsides, too: If the stock price rises, you lose. With shorts, you can earn only up to 100 percent, since a stock price can' t fall lower than zero. But if your short keeps rising, your downside is theoretically unlimited. Since you can actually lose more than 100 percent of your money, you need to keep a very close eye on any shorted stocks. Sometimes companies you' re sure are overvalued just keep going up anyway. It' s based on short-term expectations, and Fools generally prefer to focus on the long term. It bucks the overall long-term upward trend of the market. If you short a company, you' ll have its management working against you to make the company succeed, perhaps with new financing, partnerships or products. Shorting can be effective, but it' s only for seasoned investors. Even if you' re experienced, you may want to avoid it.