Short selling is when you borrow stock from a broker and then sell it. It’s also pure speculation—with the potential for unlimited losses.
However, you eventually have to buy back the stock on the market, to return it to its owner. If the stock falls in price while you are “short”, you can buy it back at a lower price. You have then made a profit. But if the stock rises in price, then you must buy it back at a higher price than you sold it, and you lose money.
Short selling is pure speculation. It’s what a mathematician calls a “negative sum game”, since the winners have to outguess the losers by a large enough factor to pay associated costs. It doesn’t enjoy any of the advantages of conservative investing. Then too, the returns are upside down. When you buy stocks, gains are theoretically unlimited and the most you can lose is 100%. When you sell short, your maximum gain is 100% (if the stock you’ve shorted goes to zero). But a short seller’s potential losses are limitless.
Profitable short selling requires superhuman timing, and the inevitable mistakes can be super expensive for investors.
As a general rule, we advise against short selling much as we advise against options trading, leverage, currency speculation and bond trading. In all these activities, it’s a rare investor who makes enough profit to compensate for the risk involved.
To maximize your stock market returns, we recommend using our three-part Successful Investor philosophy:
Invest mainly in well-established companies;
Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
Downplay or avoid stocks in the broker/media limelight.
With all the TSX ETF investments available, it’s not too difficult to diversify your portfolio. Here’s how.
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You can develop an aggressive ETF portfolio model to add to your conservative profits—but we recommend you follow these tips
We still feel that investors will profit the most with a well-balanced portfolio of high-quality individual stocks, but ETFs can also play a role in a.. Read More
Discover five facts about investing in stocks that will help you make better investment decisions over the long term. Learn more in this article now.
To succeed as an investor, you need to keep matters in perspective. Despite wars, recessions and market setbacks, stock prices generally… Read More
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We still feel that investors will profit the most with a well-balanced portfolio of high-quality individual stocks, but ETFs can also play a.. Read More
The answer to the question “what is short selling stock” is that profitable short selling requires superhuman timing—and the inevitable mistakes can be super expensive for investors.
What is short selling stock? Short selling is when you borrow stock through your broker and then sell it… Read More
A: Wayfair Inc., $306.22, symbol W on New York (Shares outstanding: 68.4 million; Market cap: $28.3 billion; www.wayfair.com), operates one of the world’s largest online retailers (www.wayfair.com) of furniture and home furnishings. The company offers its products to consumers in the U.S., Canada, the U.K…. Read More
Discover the best ways you can add ETFs to your portfolio
ETFs are one of the most popular and most benign investing innovations of our time—and the best ETF investments can be great low-fee ways to hold shares in multiple companies with a single investment… Read More
You will have better opportunities for success with ETF investing when you follow our tips
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Our key ETF definitions will help you better understand ETF investing
The simplicity of investing in ETFs holds a lot of appeal for many investors. We’ve compiled a list of ETF definitions so you can determine if ETFs are right for your portfolio.
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