All About Short Selling reveals what you need to excel in this exciting form of trading―without making the classic “beginner’s” mistakes. An expert in the field, Tom Taulli provides a comprehensive game plan for playing―and winning―the short-selling game.
Short selling is pervasive throughout the world’s stock markets. To get a sense of the activity, look at the short interest activity on the New York Stock Exchange (NYSE) in mid-June of 2010. The volume was 18 billion shares, which represented about 4.75 percent of the stock outstanding. Yet even though short selling is a big part of the markets, the fact is that many investors still have only a vague idea of how the process works.
Perhaps the main reason is that it sounds counterintuitive. How is it possible to make money when a stock’s value falls? This is actually possible because short selling reverses the process that people buy stock. That is, you sell the stock first and then you sell it later—hopefully at a lower price. If so, you will make a profit on the trade.
Short selling can help to dampen asset bubbles. In fact, if it was easier to short sell real estate, the impact of the real estate bubble may have been less severe. Although, some savvy investors, like John Paulson, were able to use sophisticated financial instruments—called derivatives—to essentially short the subprime real estate mortgage market.
By doing this, Paulson generated billions in profits. Interestingly enough, some short sellers, like David Einhorn and William Ackman, uncovered companies committing fraud. Examples included Boston Chicken, Crazy Eddie, Sunbeam, and Enron.
- What Is Short Selling and How Can It Help Your Investing?
- Characteristics of Short Selling
- Risks and Costs of Short Selling
- Fundamental Analysis
- Basic Accounting for Short Sellers
- Analyzing the Balance Sheet
- The Income Statement
- Statement of Cash Flows
- Technical Analysis
- Detecting Bear Markets
- Trading Strategies
- Shorting with Options
- Shorting Commodities
- Shorting with Mutual Funds, Hedge Funds, and Inverted ETFs
- Special Situation Shorts
- Risk Management