Business

Short Selling A Stock Is A Lot Like “Mean Girls”

Makes sense since high school and Wall Street are pretty much the same.

So you’ve decided to short a stock.

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First, choose a stock that you think will underperform – one that’s going to go down in value soon.

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In essence, you’re selecting one of the less promising stocks on the market.

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Deciding which stock to short is not always obvious.

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You could just watch the markets or listen to an analyst.

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Don’t go for the companies whose stock is clearly rising.

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Go for the ones you’ve been hearing bad things about.

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From the company’s perspective, being shorted isn’t great. They generally don’t want to appear less than desirable.

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Once you’ve selected a company to short, you ask a broker to lend you shares of the underperforming stock.

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At this point, the shares you’re borrowing are sold and the proceeds go to your account.

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Over the course of the loan, you better hope everyone continues to hate on your stock, driving the share value down.

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Because at some point you’ll have to close on your short and buy your shares back.

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If the share value has gone up, you’ll have to buy back your investment at a higher price…

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In addition to having to pay the lender any dividends or rights over the course of the deal.

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Thus losing you money on your investment.

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But if you were really smart…

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And the stock went down in price…

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You can buy back your shares at a lower price.

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And make a lot of money in the process.

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Now do it all over again next time.

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Mariah Summers is a business reporter for BuzzFeed News and is based in New York. Summers reports on private equity and hedge funds.
Contact this reporter at mariah.summers@buzzfeed.com
Katie Notopoulos is a senior editor for BuzzFeed News and is based in New York. Notopoulos writes about the intersection of tech and web culture.
Contact this reporter at katie@buzzfeed.com
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