Betting Against Stocks— Profitably

is Well,youby high calledThe Here’sto reversing GroverCleveland.can buy and yes, way“shorting.”also howlow then butto that—makeand makeit sellingmany works:sell money money buyingdon’tcom low. high, Imagine( It’s realizein ticker:in right? stocks stocks GROVY)others company,and to your expect may brokerageyouhas thebe gone excitedhave stock and public.littleto aboutput sink. faithin Whilethe Youan in orderit go to “shareholder’sborrow”short GROVY.shares account from The and a brokerage GROVYsell them will for does you. drop, Later, you’llif the“cover” share your price short, which involves buying shares on the market ( at a lower price) to replace the ones you borrowed. If you shorted GROVY at $ 90 and covered when it fell to $ 70, you made $ 20 per share ( less commissions). This process may seem crazy, but it’s legal and commonly done. in any kind of market. If the market fall, You plunges, boostingcan Even make your your in moneyshorts portfolio’sa strong will with market,likely shortingperformance. poorlyoften fall performingin value, rewarding companies thosewill who bet against them. There’s a big downside to shorting, though. If the stock price rises and then you sell, you’ll lose money. It gets worse: With shorted stocks, you can gain only up to 100 percent, since a stock price can’t fall lower than zero. But if your shorted stock keeps rising, your downside is theoretically unlimited. Since you can actually lose more than 100 percent of your money, you need to keep a very close eye on your shorts. Shorting stocks also involves working against the overall longterm upward trend of the market. Companies you’re sure are overvalued can just remain overvalued or keep rising. And if you short a company, you’ll have its management working against you to make the company succeed. Shorting can be effective, but it’s only for seasoned investors. Many experienced investors do very well without it.