I'm posting this to @Stock Picking Discussion because it's informative but woefully wrong due to omissions in reporting about what #Shorting #Stocks is all about. They are #Mathematically correct when they talk about having no theoretical maximum amount you can lose if things go the wrong way. They are terribly wrong in reporting as if there isn't a responsible reason for shorting securities. If you only listen to the embedded podcast below, you would wrongly assume that shorting is just gambling and dangerous gambling at that. That can be true but is not normally the case.
The #Long Buy of securities is simple, you hand somebody money and they give you a proportional right of ownership in a specific company. A Long Sale is merely the opposite.
A #Short Sale is when you sell shares that you don't own; this is possible if the finance company you trade through has a set of their own shares of the company you want to short. On the books, your account gets credited the cash from the sale to do with what you like, but your account is debited the quantity of shares you borrowed for the short-sale. You can't return the cash to settle the account, you must return the shares in their full quantity to cover the account.
As a metaphor, imagine your nearest neighbor owns a Ford Fiesta. Imagine you also think that something is going to cause the prices of all Ford Fiesta's to go down in the future. You short-sell their Ford Fiesta now and collect $10,000.00 then tomorrow you look on Craigslist or eBay Automotive or some newspaper want ad's and find one with the same color, options, condition, and mileage as the one you shorted for the price of $9,826.00. That one is what you will Short Buy to cover the borrowed one from your neighbor's house. You profited $174.00 on the decision. The reason the metaphor works is all shares of a specific class for a company are identical.
In that example, suppose you were wrong about the price going down. Suppose some news made them the best car to own on Earth! You might think, I'll wait it out. True, you will only lose money if you buy it back while it's high. While you were waiting, a lot of collectors start buying them and the pricing bids up by the minute. Do you wait even longer? What if the price got to $500,000.00? At what time do you give up hope and take the "L" on the trade? This is why there is no upper bound to how much you can lose on a short-sale. Obviously there's a slim chance that prices will run away like that, or that you wouldn't be able to wait till things got better, but if you have looked at enough stock charts, you will see steep cliffs that have happened in their history; violent price shifts are not rare in the market. They accurately point out that the long-run trend of the market is upwards. They were wrong to not state that most businesses do not last and their long term value goes to zero, although more new entrants appear than go out of business. That's all I want to say about speculative short trades.
If you know something about M.P.T., which in short is building a #LowRisk #HighReturn #Portfolio of stocks and bonds, you would know that you have to buy shares based on a specific set of proportions in order to have the ups-and-downs of your total investment smooth out. Sometimes the calculation to set the proportions tells you to short securities that you want in your portfolio. This is not speculation, it's #RiskManagement. Many money managers talk about #BuyAndHold versus #ActiveManagement. The way you short-sell in #MPT is a type of short-and-wait; it's a long-term short-sale akin to buy-and-hold. The reason this happens is the calculation takes into account the way every pair of securities in your set correlates over time. The #Statistics have determined that to reduce the ups-and-downs in your overall value the shorted security will act as a shock absorber to the total investment.
Yes #WTF! The #Trump has decided to eliminate the #Right to #Privacy in the #USA. I can see the short-sightedness of his base of support being in favor of this because they think if it happens they will be in power forever.
So this is what #America's #GOP types have decided they wanted to defend. #Politics are heading to a new low in this world and that's a really low bar. It's like they all read the script for the #Tabooshow and thought, 'Remember the good old days of the Dutch East India company?' #Republican's seem to have no soul.
What's this #taboo reference? After watching #MeetThePress this morning it was pretty obvious that they just want to throw the #racist accusation out over and over again instead of talking about the economy, Iran, or #patriotism.
(This post looks best when viewed directly on #Friendica) This is another great #Podcast for the @Stock Picking Discussion forum. The detail I caught in the story making it worth mentioning is one that might go past people who don't think about #Finance. It won't take you long to listen to this show, but here's the... spoiler/rant alert:
The Financial Industry wanders from one type of thing to another with their big-money the way a grain farmer goes out to reap the crops, except the financial industry doesn't plant the crops, it just kills the farmer and takes the crops. The pattern is the money-hawks will look for where the middle-class stores or spends their cash, then they plot the attack, and you'll see them swoop in to monopolize things, pervert #Free #Market #Capitalism so that you're "over a barrel", then they will take it all till the middle-class is on the edge of becoming lower-class again. Based on the podcast, notice the way there was no death-business, then there was a business contrived for it, then the Wall Street types noticed it, swooped in and started making people pay for their hole in the ground decades ahead of time so they could get rich by investing your promise to be buried in the dirt. Right now they are doing schemes with #Residential #Housing and other #RealEstate a little different than they did earlier this decade. In the last decades, they were raiding retirement funds; even the Mafia made good on pensions. In the '80s & '90s, it was churn & burn the accounts because the youth of the day didn't believe their grandparents' stories of how Stock Brokers screwed them in the '20s & '30s. Almost every generation has had untold wealth extracted from its masses and funneled into the accounts of these industry giants and some to their minions.
The main point of all this is to beware of what the owners of & workers on #WallStreet decide to make a run at. You don't have to get #Screwed by them. Innoculate yourself. If you know they are trying to do it (hint: they always are), and what they are trying to do it with, you're well on your way to preventing them from getting over on you. Your common sense will do most of the rest.
July 8, 2019Play EpisodeA family-owned business fights a billion-dollar, multinational company. And wins.You can follow Spectacular Failures on Twitter and Facebook using @failureshow. We're @failure_show on Instagram. Follow Lauren Ober on Twitter and Instagram at @oberandout.BizWiz Link:Building Relationships and Improving Opportunities!�...
Holy shit! We thought #Americans were shit to #Muslims. Wait till you get a load of what #China's doing! I think they are planning on a #Genocide of the #Uighurs. As an #Atheist, I'm not a person who thinks #Islam should be given respect, but I do think people should no matter what.
China is building a high-tech surveillance state to capture minorities' every move and word. We go inside it and find that some Americans are involved. Subscribe to our weekly newsletter npr.org/planetmoneynewsletter
The show is produced by the National Public Radio here and it's a Financial podcast most of the time, but this episode is off their normal material. They are really good about being human with their perspective, aka: not greed-driven.