I posted on Friday about a great “prophecy!” It actually wasn’t anything special really… the stock market dropped because of “Brexit.” However to profit on an event like that you would need to short sell a stock.
Sometimes when I write about the stock market I assume a lot and come to find out MOST people don’t actually know what a stock short sell actually is, so I will explain it.
In layman’s terms to short sell a stock, you basically sell a stock you don’t have.
So in essence, you are getting credit for selling a stock you don’t have. Think of it like selling your neighbor’s car.
So you sell 100 shares of stock for $10 and make $1,000. Or you sell your neighbor’s car for $1,000.
Then when the stock drops you buy the stock for the lower amount… and profit!
This is like selling that neighbor’s car to someone else for the original $1,000 however, you actually only gave your neighbor $800 for his car.
Wrong end of the short sell
What happens if you are on the wrong end of the short sell?
For example, you sell a stock for $1,000 and the value goes up to $1,100. Well, it is just like our example above… If you sell your neighbor’s car for $1,000 and he wanted $1,100 for it, who gets the bill? That is right you lose $100.
The elephant in the room
Only short sell when it is a sure thing. Obviously, nothing in life is a sure thing. My advice appears to be a sure thing, but that isn’t always the case.
When uncertainty equals certainty
There are obvious times when you would want to sell short, then turn around and buy to get the swing up. 100% of these events are tragic, and I almost seem morbid for even suggesting this is a good time to profit. Here is the amazing thing about it though, this is when the rich gets richer.
- Global Acts of Terrorism
- Tragedies involving company “big-wigs”
- Massive Uncertainty in the National Economy
- Massive leadership flops
- Huge changes in power (liberals are just as rich as conservatives, rich people invest in the moderate ticket)
I will discuss later on how to ride the waves of consumerism, but that is reserved for a later post.
Thanks for Reading