shorts and longs

[conception_native_0123]

anyone ever done this with regard to the stock markets? this was a trending search today on google:

Google Search

I've never understood shorting and longing of stocks. The only thing I know is that short sellers are basically those people who sell before they should and the long players are those who hold longer than they should. Is there even a happy medium? Can someone educate me on stock market issuances, reverts and all the like, and why they are all so important or unimportant? i'm so lost...

 

[Isaac]

short sellers are basically those people who sell before they should

No

 

[conception_native_0123]

No

is that all?

 

[The_Doc_Man]

"Selling short" is the name used for making a promise to sell stock on a certain date for a certain amount. But the bet is that the certain stock will go down in price before that date, so you can buy the stock that day for less than your original sales price, then turn around and execute the promised sale at the promised price. The difference in the purchase price vs. the sale price is your profit. IF on the other hand, the stock price goes UP then to keep from losing your shirt, YOU have to buy up the stock and absorb the loss of selling it for the promised (lower) price. It's all betting on both tangibles and intangibles, so it is heavily speculative.

See the movie "Trading Places" which exhibits some of the insanity of the stock market sales practices. (It's a really fun comedy movie with Eddie Murphy, Dan Aykroyd, Jamie Lee Curtis, and Don Ameche.)

 

[NauticalGent]

A good movie to watch is The Big Short. Based on real life events around the huge housing financial crises in 2007-2008. I learned more about the stock market in 2 hours then the rest of my years on earth combined.

 

[conception_native_0123]

See the movie "Trading Places" which exhibits some of the insanity of the stock market sales practices. (It's a really fun comedy movie with Eddie Murphy, Dan Aykroyd, Jamie Lee Curtis, and Don Ameche.)

are you talking about the closing scene where the older men lose their shirts?

 

[Cronk]

To sell long is to sell stock you own. To sell short means that you borrow stock, usually from big instos and pension companies and sell it on the expectation that the price will fall and you can buy it back at a lower price, thereby making a profit. The stock borrower is under the loan agreement to pay to the lender a time based fee and to make good with any dividends paid during the period of the loan.

To sell long, you know at the time of sale what your profit/loss is. To sell short, profit/loss is unknown. If you own stock, your risk is the value of that stock. If you sell short, your risk is unlimited. For example, there should be a take over offer for a particular company with any offer substantially over the market price, stock on offer for sale may dry up and in a bid to get out of their short position, shorters will have to pay substantially more to buy the stock.

Initially, my question was why anyone would lend shares to sell which could have the impact of driving down the value of stock in which they had invested. The answer to this is that they have judged over a long time, that they make more in the fees they charge. That is it's overall a mug's game to be a shorter - some shorters may win but overall it's a loss game for shorters.

You can search for the shorted position of any company. Currently Apple is 0.6% shorted ie 94.8 million shares have been sold short representing that percentage of the total stock issued.

Most punters will look to options to achieve the same effect but options are a completely different ball game with different rules.

Why do I know all this? Because I'm a long time investor and studied these matters. However risks involved are beyond my acceptability. In this regard, Warren Buffet shares my sentiments.

 

[The_Doc_Man]

are you talking about the closing scene where the older men lose their shirts?

Yes, that's the movie. The young guys are on a yacht in the Caribbean (from the looks of it) sipping tropical concoctions.

 

[conception_native_0123]

The young guys are on a yacht in the Caribbean (from the looks of it) sipping tropical concoctions.

I still don't know how they shorted themselves to victory. maybe I should become an investor to find out.

 

[Cronk]

The brief answer is that the young guys realized just prior to the onset of the GFC, that CDOs based on NINJA (no income, no job, no assets) mortgage loans were worthless, borrowed a mass of them, sold them at the then going rate and bought them back at pennies and made a fortune.

 

[Isaac]

Regarding the mortgage-induced financial crisis of 2008:

I often reflect that, personally, I still think the United States method of FICO score works pretty well. i.e., if you are a person who generally pays things as promised, and has proven themselves to manage some amount of credit for a reasonable length of time without major hiccups, your credit score will be stronger - and if not, it will be weaker, until you do. That simple score (using a not-so-simple methodology) works pretty well as an indicator of what type of credit recipient you are, or have most recently been.

The only thing missing seems to be income. If there was a reliable way to score current, verified income and that score was available to lenders right next to the FICO type score, it seems to me that a whole plethora of newly minted underwriting requirements of the past 10-15 years could have been mostly avoided. Allowing citizens the option of automatically sharing their IRS data into the credit bureaus' information might be one mechanism, for those who might choose to do so and avoid the now-painful, weeks-long process of a mortgage underwriter wanting to know what you had for breakfast this morning and what your shoe size is.

 

[AccessBlaster]

Regarding the mortgage-induced financial crisis of 2008:

In 2007-2008 the federal government thought it was a good idea to relax the requirements on underqualified/unsecured real estate transactions. They used to refer to these types of loans as "Creative Financing" or "OPM Other People's Money". The result of this type of SJW interference was a record amount of defaults on mortgages. As word got out about all the bad paper floating around they re-packaged the loans and resold the bad paper until the house of cards finally collapsed.

 

[Isaac]

In 2007-2008 the federal government thought it was a good idea to relax the requirements on underqualified/unsecured real estate transactions. They used to refer to these types of loans as "Creative Financing" or "OPM Other People's Money". The result of this type of SJW interference was a record amount of defaults on mortgages. As word got out about all the bad paper floating around they re-packaged the loans and resold the bad paper until the house of cards finally collapsed.

As the liberals attempt to frame things like math, capabilities, income qualifications, credit scores, and reality as "inequities", they may begin to put pressure on lenders to "just approve the loan" regardless of the individual's record--of personal choices and outcomes. If that happens, I can see a chance that 2008 happens again. Although it's less likely, since if lenders were to forego their deference to mathematical probabilities in the name of equity......some Federal program would probably subsidize or otherwise bailout its poor results.

 

[conception_native_0123]

house of cards

you ever seen that show with Kevin Spacey?

 

[Steve R.]

As the liberals attempt to frame things like math, capabilities, income qualifications, credit scores, and reality as "inequities", they may begin to put pressure on lenders to "just approve the loan" regardless of the individual's record--of personal choices and outcomes. If that happens, I can see a chance that 2008 happens again. Although it's less likely, since if lenders were to forego their deference to mathematical probabilities in the name of equity......some Federal program would probably subsidize or otherwise bailout its poor results.

That has already happened and is probably continuing. It is actually worse than the summary provided by @AccessBlaster. AccessBlaster is being too polite.

Since posting, I remembered that one of the proposals of the Biden administration is to give BLACK farmers loans @120%. White farmers excluded. I'm unclear as to the implications of a 120% loan, but on the surface it is a grant (free money) that will not have to be repaid. A form of "reparations"???????

 

[Isaac]

Remember when the liberal media outlets tried to paint Trump as crazy and talking about Democrats wanting to end the suburbs?? Totally crazy, they said, no such thing.

I now find out much is, in fact, being done to do just that. Apparently single family zoning, on which sits a single family detached home, which is an opportunity available to anybody who puts in the work, is now "racist" !

How these people even come up with this junk, I have no idea.

 

[conception_native_0123]

Apparently single family zoning, on which sits a single family detached home, which is an opportunity available to anybody who puts in the work, is now "racist" !

WHAT!? you got an example of that? never heard of such a thing! my goodness.

 

[Steve R.]

WHAT!? you got an example of that? never heard of such a thing! my goodness.

You need to start reading (unbiased) news. This has been perculating up for several years now.

 

[conception_native_0123]

You need to start reading (unbiased) news

such as?

 

[Isaac]

It's part of federal directives, they are tying money that they are giving to states and cities in exchange for those states and cities agreeing to change their zoning laws and essentially eliminate or reduce single families zoning and replace it with a mixture that will allow low income apartments. Supposedly this will get us equity..
"If I can't afford to live in a nice quiet suburb, then nobody can!".... (Said a liberal 3-year-old toddler somewhere).