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Regular investing in the stock market is when you buy some stock, believing it will go up, so you can sell it at a profit at a later date. If you believe the p

Regular investing in the stock market is when you buy some stock, believing it will go up, so you can sell it at a profit at a later date. If you believe the price of a stock will go down, then you can short it. This involves the opposite of regular investing, selling high first, then buying low later. To do this, you borrow the stock of someone else, with an agreement to pay them the stock back at a later date. You sell it straight away, then when the time comes to return the stock to the lender, when hopefully the stock price has gone down, you buy it back form the stock market, and give it back to the lender. The lender of the stock usually gets some fee for lending it to you. They benefit, since they are just holding onto stock for the long term anyway. Naked short selling is when you don't make an agreement to borrow the stock in the first place. The losses you can receive from shorting stock can be huge, is the stock you sold goes up by a lot.

lrm242 16y ago
The losses you can receive from buying a stock can be huge. The stock you bought could go to 0.
- mseebach 16y ago
  The upper bound on what you can loose from a long strategy is the money you invested. No such bound exists on a short strategy. If you sell short at $1, and the next day something happens and the stock jumps to $5, or you end up in a short squeeze, you could bankrupt yourself.
cynicalkane 16y ago
Regular investing in the stock market is when you buy some stock, believing it will go up, so you can sell it at a profit at a later date That's speculation, not investing. I think it's important people understand the difference.
- charliepark 16y ago
  That's only speculation to the extent that any investment is speculative. I don't play the market ... I buy mutual funds for my Roth IRA, and I sit on them. And sit on them. And sit on them. But if you were to reduce my actions down to the bare basics, it would sound just like the initial comment: "you buy some stock, believing it will go up, so you can sell it at a profit at a later date". Just because my window is 30 years, and not 30 days, it doesn't change the basic mechanics or principles.
- lrm242 16y ago
  Really? Given the statement above, which boils down to: "buy low and sell high", what's the difference? Generally, market microstructure tells us there are speculators and value investors, both serving a due purpose in the functioning of a market. Value investors are most adequately described as those who buy an asset below market value, rather than at or above market value. Both types of market participants are in it to make a profit.
  - cynicalkane 16y ago
    The difference is, for the value investor, the selling part is optional. A company can repay its investors with dividends, liquidation (rare), being bought out... Often value investors end up selling to the market, but you have to break away from the mentality that buy low sell high is the point of "investing". If it is that way, then it's a zero-sum game, so why's it an important part of capitalism again?
    - lrm242 16y ago
      Ignoring liquidation and acquisition, because they are rarely the goal of a value investor... Dividends do repay investors, but the price always adjusts ex-dividend. A value investor is not happy owning a declining asset even if the dividend pays at regular intervals. They always look for capital appreciation and will, whenever they deem appropriate, convert unrealized gains into realized. You seem to be referring to buy & hold. Taking the Dow as a market proxy, if you bought BEFORE June 1999, you are currently at break even... over 10 years later. Congratulations, you're strategy is working out perrrrfectly.
      - cynicalkane 16y ago
        A value investor would not have bought a broad market index in 1999, where the P/E-10 was, IIRC, somewhere around 40! I have to say I'm not particularly interested in discussing this with someone who thinks the classic value investing paradigm is comparable to buying and holding an index at the worst possible time.

lrm242 16y ago

The losses you can receive from buying a stock can be huge. The stock you bought could go to 0.

mseebach 16y ago
The upper bound on what you can loose from a long strategy is the money you invested. No such bound exists on a short strategy. If you sell short at $1, and the next day something happens and the stock jumps to $5, or you end up in a short squeeze, you could bankrupt yourself.

cynicalkane 16y ago

Regular investing in the stock market is when you buy some stock, believing it will go up, so you can sell it at a profit at a later date That's speculation, not investing. I think it's important people understand the difference.

charliepark 16y ago
That's only speculation to the extent that any investment is speculative. I don't play the market ... I buy mutual funds for my Roth IRA, and I sit on them. And sit on them. And sit on them. But if you were to reduce my actions down to the bare basics, it would sound just like the initial comment: "you buy some stock, believing it will go up, so you can sell it at a profit at a later date". Just because my window is 30 years, and not 30 days, it doesn't change the basic mechanics or principles.
lrm242 16y ago
Really? Given the statement above, which boils down to: "buy low and sell high", what's the difference? Generally, market microstructure tells us there are speculators and value investors, both serving a due purpose in the functioning of a market. Value investors are most adequately described as those who buy an asset below market value, rather than at or above market value. Both types of market participants are in it to make a profit.
- cynicalkane 16y ago
  The difference is, for the value investor, the selling part is optional. A company can repay its investors with dividends, liquidation (rare), being bought out... Often value investors end up selling to the market, but you have to break away from the mentality that buy low sell high is the point of "investing". If it is that way, then it's a zero-sum game, so why's it an important part of capitalism again?
  - lrm242 16y ago
    Ignoring liquidation and acquisition, because they are rarely the goal of a value investor... Dividends do repay investors, but the price always adjusts ex-dividend. A value investor is not happy owning a declining asset even if the dividend pays at regular intervals. They always look for capital appreciation and will, whenever they deem appropriate, convert unrealized gains into realized. You seem to be referring to buy & hold. Taking the Dow as a market proxy, if you bought BEFORE June 1999, you are currently at break even... over 10 years later. Congratulations, you're strategy is working out perrrrfectly.
    - cynicalkane 16y ago
      A value investor would not have bought a broad market index in 1999, where the P/E-10 was, IIRC, somewhere around 40! I have to say I'm not particularly interested in discussing this with someone who thinks the classic value investing paradigm is comparable to buying and holding an index at the worst possible time.