Why Markets Need Short Sellers

One of the most misunderstood concepts of investing is why markets need short sellers.

 Here’s a brief description:

A “short” position is generally the sale of a stock you do not own.

Investors who sell short believe the price of the stock will decrease in value.

And if the price drops, you can buy the stock back at the lower price and make a profit.

Being ‘long’ means you own a stock.

Being ‘short’ means you don’t own it but you have ‘borrowed’ it and sold it.

Simple enough?

And when markets crash, everyone (especially politicians) wants to blame the “Short Sellers.”

But what most people don’t realize is that when everyone is long – and some event causes some to begin to take profit – the majority try to sell.

And when that happens, there is NO BID! (i.e., no buyers)

That is when the markets crash.

And that’s when greedy politicians blame short sellers and want to pass laws outlawing short selling.

But the flaw in their thinking overlooks a very important point.

Because the ONLY person with the courage to buy during a crash is the short seller.

Markets Need Short Sellers

We’re pointing this out because there will be some hiccups in the markets in the near future.

As a result, we’ll see panic cycles and finger pointing at the “evil short sellers” being the cause of panic.

And if politicians are successful in eliminating short sellers, we’ll end up with a dead market just like what took place in Japan after 1989. *

(* Instead of the crash being over in 2 to 3 years, it was prolonged for 19 years. Everyone who was long was just waiting for a rally to sell that never came because there were no fresh buyers.)

BTW the Nikkei (Japanese index) was nearing 39,000 in 1989 and bottomed in 2009 at 8,100.

It has since rallied up to today’s level of 29,250…waaaayyy below the 38,915 level in 1989.

So, continuing our ongoing theme of still being in The Most Hated Bull Market in History, we encourage you to not demonize the short sellers when the markets take a dive.

Instead, look at it as another opportunity to do what the 1% does when the 99% ends up being wrong…again.

And take advantage of the list of stocks we believe will outperform the markets in our May edition of “…In Plain English” (HERE).

Share this with a friend…even if they don’t know what a ‘short seller’ is.

They’ll thank YOU later.

Remember:

We’re Not Just About Finance

But we use finance to give you hope.

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