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Strategies & Market Trends : The Canine Corner(Shorters Paradise) -- Ignore unavailable to you. Want to Upgrade?

To: Gail Morgan who wrote (2)	8/2/1998 3:35:00 PM
From: DJRoss	Respond to of 45

No problem Gail. Shorting a stock is simply borrowing a stock that you don't already own to sell, and then buying back at a lower price. The borrowed shares are returned to the lender, and the difference is left in your account as an increase. Example: I think XYZ is going to drop in value. Maybe a law suit is pending which will hurt the company. Or maybe they can't keep up with the competition and are getting squeezed out of the market they are in.( There are countless reasons for a stock too drop in price). Anyways, I contact my broker, and say that I would like to short XYZ. My broker checks to see if XYZ is on their list of what is called "marginable stocks" to see if it is ok to short through them. Broker sees that he can let you short XYZ, and he puts your order in. Let us assume that you were able to short(sell) XYZ for $20 a share, and you sold 100 shares. This means that the money value($2000) from the sale goes directly into your account. Now lets us assume that the law suit goes through, and the judgement is against the company to pay damages or whatever. Investors start to sell their shares and price drops to $14 a share. Now you decide to buy back the shares that you sold for $14, and doing so means that you made a profit of 600$ minus fees. So you give back only $1400 of the $2000 you received, and the borrowed shares go back to the brokerage. Many feel uncomfortable about investing this way, as they feel that it is immoral to succeed off of the failures of others. My personal feelings are that shorting is a perfectly legitimate way to put your dollars to work. There are many companies out there that feed off of the greed of investors who want to get rich quick. They abuse the market system to make millions of dollars, without regard to the investors. Those of us who short recognize this, and we have decided to put our markers on the other side of the table. I enjoy it when I discover a company that is bogus, and that is cheating investors, because I can go in and short their stock, and when the crooks get found out, I get to watch the price of the stock drop from its lofty heights. Shorting also evens the playing field. It keeps alot of companies who might want to slide on regulations honest, since they know that a large short interest in their stock makes for bad publicity. It is up to you to decide. Remember this. When your broker takes your dollars to buy stock, he or she doesn't care if you make money or not, they only care if you are turning it over often enough so they can make it on commissions. They also want you to buy their recommendations, because they have already stocked up on shares, and when you buy them at inflated prices, they are the ones selling them to you. So it is good to be able to play both ways, so you have a chance to make in increase when the markets are up and strong as well as when they are down and weak. Good luck on your first short. Dug