The Bull Hunters Guide

Over the last several entries in this blog, our topic of focus has been short selling. We’ve covered what short selling is, when it might be useful to you as an investor, how to conduct the transaction. We also discussed what risks are involved in the trade, and the lengths that some individuals go to in order to use short selling in a dastardly and destructive manner that goes a long way towards earning it a terrible reputation. In this entry, we’re going to do a brief review of what we’ve discussed in order to put a capstone on the short selling subject once and for all before we move on to a new topic next time.

Summing Up Short Selling

To reiterate, short selling is when one investor sells shares that he or she does not actually own, on the agreement that he or she will actually buy the shares at a later date. They make money on the transaction if the value of the stock falls in the interim, enabling them to buy it at a lower price than they sold it for. Of course, when the shorted share actually increases in value, the short seller loses money.

That means that short selling is a very high-risk transaction. On the one hand, the value of a stock can’t go below zero, so the amount that you stand to earn is limited, but there is no ceiling to how high the value of the stock can rise, so the amount you could lose on the transaction is theoretically limitless.

Many people consider short selling to be a dishonest or unethical approach to investing because of the necessity of “voting against the home team” that comes with it. Despite the criticisms, however, short selling is definitely here to stay, so it pays to know all that you can about it. In doing so, you can add it to your stable of strategies and use it in a responsible way that brings value to your portfolio.

Thank you for joining me for Short Selling you next time when we begin an all new discussion.

See you next week for part 1 of Investment Scams.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Lately, we’ve been talking a lot about short selling in this blog. In particular, we’ve been talking about the pros and cons of short selling, and last time I mentioned that there was a distinct dark side to the practice that causes many to cringe when they even hear the term. This time, we’re going to talk about exactly that.

Short and Distort

Short selling is a somewhat cryptic process that is rarely understood all that well by the amateur investor. Because of this, it creates a ripe opportunity for unscrupulous traders to take advantage of short selling and twist it into a market-harming “money making machine” that doesn’t respect the true meaning of free commerce and investing.

When this happens, investors resort to using a tactics known as the “short and distort”. The way it works is this. Imagine that you have a bear market. The prices of stocks are almost universally down, and prospects all around aren’t so great. Traders might take this opportunity to buy a bunch of short options in a stock. Of course, that in itself is perfectly normal and ethical. However, what makes the “short and distort” such a terrible practice is that the investors then go on to spread slander and lies about the businesses that they’ve bought shorts in.

Slander Is Believable

Obviously, in a bull market, everyone is already nervous and pessimistic. Slander is thus easily believed, and it’s easy for investors to cripple a company through these means. When that happens, they walk away from the smoking wreckage with a handy profit, purchased at the cost of their integrity as real business people.

Of course short selling has its dark side. So do all forms of investing. It’s the ease with which short selling can be exploited however that makes it a particular target for scepticism.

See you next week for part 8 of Short Selling.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Hi again. Recently in this blog, we’ve been covering the topic of short selling and all that it implies. We’ve gone over exactly what short selling is, who does it, what they hope to gain by doing so, and perhaps most importantly, what they stand to lose. Yet, apart from all of these concerns, short selling carries its own unique set of questions that don’t tend to come up in other discussions regarding the market.

Questions Of An Ethical Concern

Despite the degree to which short selling has become an accepted and standardized aspect of trading on the free market, it’s no secret that short sellers themselves aren’t really seen in such a positive light. The reason for this is that short selling itself is an inherently pessimistic process. You only stand to make a profit from short selling when the securities that you invest in do poorly.

Of course, if you only take part in short selling, it’s easy to see why others would regard you as someone who is hoping for the worst. Because most people have at least some investments that stand to profit from upwards movements in the market, you become some of their antithesis – when one of you makes a profit, the other one has to suffer. In other words, short sellers often find themselves set apart from the crowd when it comes to investing.

Bringing The Market Down

However, perhaps more importantly than this emotional impression of short selling, is the argument that short selling can actually have a detrimental effect on the overall status of the market. More than just being a practice founded in betting against one’s neighbour, it is often said that short selling actively works to bring down the market as a motivated force in itself. Next time around, we’re going to take a look at these accusations and see just what truth there is to them, if any.

See you next week for part 6 of Short Selling.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Last time in this blog, we introduced the concept of short selling, something that we’re going to be discussing over the next few entries. It’s a pretty simple technique that quite a lot of people are involved in, but like any aspect of trading, it involves its own unique set of risks and opportunities. As such, it warrants a closer look than you might have given it in the past.

What Exactly Is Short Selling?

Like we said last time, it’s a way to profit off of a bear market. You invest in a stock, but you profit when the value of the stock decreases rather than increases. Here’s how it works.

When you short sell a stock, you’re essentially selling a stock that you do not own. If that sounds weird to you, well… that’s because it’s a weird situation, and hard for many to understand. When you short sell, your broker is entering an agreement with you that they’re paying you for the selling of a stock today and that you’ll actually buy that stock at a later date, in order to restore balance to the transaction.

One typically engages in short selling when they expect that the value of a stock is about to fall soon. Say that you short sell on a stock that is worth $1000. You do this and the broker gives you that $1000. Then, before the time period expires in which you have to actually buy the stock in question, the stock collapses and is worth only $500. You’ve just made $500 off the decline of a stock!

Of course, there are risks to be had here. For example, if the value of the stock rises, then you’re still obligated to make the purchase. You might well find yourself having to shell out significantly more than you sold for in the first place. Next time, we’re going to take a closer look at what goes on in a short sell transaction.

See you next week for part 3 of Short Selling.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Lately in this blog, we’ve been talking a lot about stock picking strategies. When you get right down to it, the whole essence of investing in the stock market boils down to being able to pick the right stocks at the right time. This is largely a matter based on “luck”, but that doesn’t stop people from trying to devise systems to make it more comprehensible and certain. And some of those systems, as we’ve seen, actually do make a lot of sense.

Handling Your Investments

Starting with this entry, though, we’re going to shift gears a little bit. We’re going to begin taking a more in-depth look at topics related to how to handle your investments once you’ve actually identified the stocks that you care to put your hard-earned money into.

The first of these techniques that we’re going to explore is known as short-selling. If you’ve been investing for a while, then there were probably a few occasions on which you just knew that a stock was about to collapse under its own weight. Maybe you wondered if it was possible to profit off of a situation like that, increasing the value of your portfolio substantially, even during a bear market?

Short Selling Is The Answer

Well, it’s entirely possible. What’s more, it’s something that is done every single day on the market by confident traders who know how to make the most of a “bad” situation. What makes it possible is short-selling.

Short selling works almost the complete opposite of a typical investment. When most people buy stocks, they try to buy at a low price, and then hold onto their investments as their value grows over a period of time. Once the value has risen, they sell their investments (hopefully for a profit). Short selling, however, is when your purchased stock earns you money only when its value goes DOWN!

How does it all work? We’ll take an in-depth look next time.

See you next week for part 2 of Short Selling.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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