The Short Sale

     There is a way to profit from a stock if you know that it is going to fall in price by using a technique called a short sale. The premise is simple, borrow shares and sell them. If you are right and the stock falls, you simply buy back the shares and replace them to the rightful owner. The difference between the sale price and the purchase price is profit. BUT what if you are wrong and the stock goes up instead of down? Your losses are only limited by how high the stock can go. How high can it go? Unlimited! While you suffer from losses while the stock rises, you have to pay the lender any dividends that come due and the brokerage firm where you borrowed the shares gives you what is called a margin call. That means that you have to put-up more assets as collateral in case the sold shares keep appreciating. Can you see why I don't sell short? Its best to let the pros play this game. Instead I will keep with my "buy long" strategy, where I buy shares and hope and pray they go up. My next post will be about some strategies I know about and what I think about them.