Tuesday, September 20, 2011

Art of short selling

How to make money in falling markets?
9 out of 10 people don’t know how to short the markets.
Almost any investment technique will work well in a bull market – but they collapse when the markets turn treacherous… like they have recently.
The short selling strategy is one part "contrarian investing," one part "short-term profiteering," and one part "capitalizing on the biggest financial conspiracy since the breakup of Standard Oil nearly a century ago."

It is a radically different approach to investing… one that can earn big short-term profits using a simple technique.
Bottom Line: When you need to know which stocks are troubled and headed down, experts are mute. Like we said before, it's a silent conspiracy. And the people they're conspiring against are you and every other investor out there. Here's what they don't want you to know…
Short selling is a tool that can be valuable in a number of ways.
For instance, you may want to speculate that a stock is likely to decline. There could be any number of reasons. You may feel that its sales have topped out, that earnings will fall short of expectations, that the company has too much debt or too many successful competitors, that its industry is in a slump, or simply that the shares are overpriced. Short selling allows you to take advantage of these situations without resorting to using options or other derivatives.
While options can give you leverage that a short sale cannot, they have one very serious drawback: their time premium. That means when you buy a put option, unless the stock falls fairly substantially and within the relatively short time period defined by the premium, you may miss out on the profit if the stock falls after the expiration of your option.
But the past two years have been outlandishly profitable for investors who used the short selling technique.

 Warm Regards

Atul Sikrai
Sr Vice President & Head Equity
wiTdom investment advisory.

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