Why Short Selling is Dumb

Link to join StockHub free investing discord server: –~–

Today i’m gonna explain to you guys why shorting stocks is literally dumb it’s one of the worst moves you can make in the stock market generally speaking if you believe a stocks gonna go down or the entire markets gonna go down shorting stocks is still not even your best bet and i will share exactly what is your best bet in a situation where you think of particular

Stocks going down or you think the markets in general or going down i’m going to share with what the best option is and it’s not shorting stocks even in those situations by the way if you’re a little confused on what shorting stocks even is it’s basically betting that a stock price is going to go down okay most people when they buy into a company they invest they

Go long so they believe a company is going to go up they believe the shares are gonna go up a short seller believes those shares are gonna go down for whatever reason though the market in general is gonna go down okay and it’s fine that’s fine okay but it is a horrible horrible decision because where do the markets in general go over time they go up okay we know

The stock market goes up and up and up does it have some rough patches here and there absolutely but generally over time where does it go is up okay so more and more money is always being flooded into the stock market it goes up and up in value and that’s what happens okay particular stocks may go down here and they’re fine but there’s still not even the best way

Of shorting a company all right so if you short a company what’s your best case scenario usually best case scenario for someone that shortened a stock is like you know 30 to 50 percent return okay they make like a 30 to 50 percent return now the best best best case the absolute best case scenario is that a stock goes down 100% it literally goes bankrupt and that

Is your best possible return your best possible return is to make a hundred percent on an investment okay to make it a hundred percent and sometimes it can take several years to make that a hundred percent okay so you really believe this company is going down going downhill right you place a short position a lot of times guys it takes several years for that stock

To actually even go out of business if that’s what happens and a lot of times what happens is a company you know gets cheaper and cheaper right the valuation on that company goes down and down and you know maybe it goes down 50% 60% and then a lot of times what happens is a bigger company will just go ahead and pick up those shares was it buy them out you know

Because they think they can acquire them and make some money off that and flip the business or something like that maybe a private equity fund so a lot of times you don’t even get down to a place where that company literally goes bankrupt but if worst case scenario happens in that that company literally goes bankrupt you’re gonna make a hundred percent on your money

Which is phenomenal okay you shorted the position you made a hundred percent now all the time like i hear like people think like short sellers are smarter like i just watch this documentary with a friend who you know you brought over his netflix and whatnot and we watch this documentary on netflix and it’s about this lady that short sold a pharmaceutical company

See also  The 5 Most B.S. Things About Valentine's Day | The Financial Diet

Okay which was kind of doing like the same type of pricing stuff is that martin shkreli guy that’s now in jail was doing where you basically buy a prescription yeah you know a certain drug and then just raise the price i didn’t seen the amount and she basically short of these shares and as of right now she’s up something like 92 percent on her position okay she’s

Up huge on it well she’s had that short position for like i think three years now okay so it’s taken her three years to get 92 percent return which isn’t anything to sneeze at but keep in mind she’s paying interest okay when you short stocks you pay interest so she might be paying i don’t know three percent a year on that she might be paying five percent so that

Knocked some of her gains out right there if she’s been in this for three years and she’s paying maybe three percent five percent maybe more than that i don’t know we don’t know exactly what she’s paying but in interest on that like obviously you know the returns less okay so maybe she’s making eighty percent that’s still pretty good that’s still pretty good you

Know three-year returns say she’s making eat let’s just say she’s making 92 percent forget the interest she made ninety two percent three years is that really that great i don’t know guys i’d like let’s just look here okay there so there’s some simple companies in the past year not even in three years just looking some simple companies in the past year facebook not

A hard company i understand like one of the biggest companies in the world it’s about 32 percent in the past year apple okay the biggest company in the world biggest tech company in the world it’s got 26% in the last one year google almost 34 percent in the last one year we got nvidia up a hundred and forty-one percent in the last year okay that kills her return

And this is just in the past year right nothing complicated about that netflix up a hundred and twenty percent in the last year okay so when you’re thinking about this you’re thinking about shorting shares what for what for it’s not your best situation so maybe maybe you’re gonna make you know 50 percent or so maybe worst case scenario and you get up to that place

Where you make 90 percent or a hundred percent of that company somehow it goes bankrupt and you usually have to hold that for several years if you were nvidia stock last year you made 141 percent in a one year span in a one year span going long shares right and a company like nvidia is up what a thousand percent in the past three years so when you’re shorting

Stocks you’re limiting yourself and such a big scale you’re hoping that company goes out of business and and if it does yeah you absolutely make money but i’m just saying like going long companies and finding ones that will you know explode to the upside and our multi baggers there’s way more potential out there for you and you don’t even have to pay interest on

See also  The Consequences of China's Slowdown

Unless you’re taking out a marginal loan or something like that you don’t even have to pay interest on it right no also people say well what if the markets going south or or let’s say you know fitbit let’s talk about fitbit for a second right fitbit that was a stock that was like $50 a share and then about a year and a half later it was $5 okay about a year and

A half later is five dollars so obviously if you were short shares you made you know 90 what 7% return on investment in about a year and a half spin that’s good that’s absolutely good once again we can you know talk about you could have been you know going long some companies you could have done far better than that but let’s say that that’s a great situation it

Still wasn’t even your best bet you what you would have been the way smarter doing is going put options okay buying put options if you bought put options oh my goodness you could have made so much money when this stock was up here $50 okay and you buy put options you could have bought a strike price of tralee somewhere around $20 you’ve got a lot of a strike price

Of around $20 and you wouldn’t baby had to spend five cents for ten cents or contract guys maybe five cents or ten cents you know each that return-on-investment do the calculation on that it’s a lot bigger than a ninety seven percent return it’s in the thousands of percent i can almost guarantee you guys if not more than that it might be in the ten thousands of

Percent return if you would have bought put options on fitbit when it was fifty dollars instead of going and buying you know because you’ve got a dog ones out a year-and-a-half out usually you can get put options or call options up to like two years in advance okay sometimes even a little longer than two years in advance so you could have got ones that are year and

A half off right and you would have absolutely made it killing on it guys and absolute killing on it too you pay ten cents for a contract you know and you add a twenty dollars strike and then it goes down to five dollars the percent return on that is insane so even in a situation where them you think the markets gonna go very south you think particular stocks are

Gonna go really south it still makes set more sense to usually buy put options and a lot of times with options you get way bigger upside which you would have had with a sock like fitbit that went down massively right you would have had way more upside if you would have just bought put options rather than shorter the shares also you could put in way less capital

To potentially make way more money right if you want a short shares again you need to put in as much capital as possible so you can get the bigger the game as possible with put something like buying put options you might be able to put up a tenth of that money a tenth of that money and probably still get a chance to make bigger gains if that stock really drops

See also  How to get rich fast

Dramatically guys so even in a situation where a stock do you think is going to go south it generally even then makes more sense to buy put options on it rather than just shorting shares straight up okay and never mind that right never mind that when you go long shares what’s the most amount of money you can lose the most amount of money you can lose if you go if

You go long shares if you go long shares you buy a abc company because you think abc company is gonna go up and that company goes down the most you can lose is a hundred percent of your money okay that’s the most you had a hundred dollars in it it went to zero dollars and you lost 100 percent your money in a short position when you have a short position on you got

To lose literally unlimited amounts of money because that stock could just keep going up and going up and going up and finally you’re gonna have to get to a point where you have to cover your shares right and you could have lost 200% 300% a thousand percent who knows it depends on whenever you decided to finally cover right that’s the type of situation you put

Yourself in if you’re shorting shares so if you get anything how this video like like shorting shares is literally dumb it’s a bad decision as far as an investing philosophy it’s just bad in general it doesn’t it doesn’t work nearly as well as going along shares and – it’s not even the best option as far as if you’re gonna you know bet on stocks going down usually

That’s buying good options that’s usually actually the best way as far as putting up the least amount of money in making the most money if it really goes down a substantial way like you know stocks like fitbit did for example here so i hope you guys really enjoy this hope you got a lot of value out of it i get questions all the time for people you know if i speak

Negative about the company because they’re you know losing or competition here they’re and i don’t believe in them for the long term people will say things to me well why don’t you short those shares if you believe you then all that stocks can go down over the next three five ten years makes no sense because what am i gonna make maybe i make thirty percent fifty

Percent maybe a hundred percent over a five-year span well guess what i could have been in some shares hopefully that did wait wind resorts one of my biggest investments last year how much did wynn resorts go up in just the last few years you know since that one was my investment of i don’t know – three years ago how much they it went from what $50 $60 a share –

Now it’s 180 or whatever in a two three-year span why would i short shares literally why would a short shares it makes no sense if i didn’t believe in a company i’m buying put options it’s gonna make me way more money i’m gonna have to put up less capital and guys so anyways hope you enjoy this thank you for watching as always and have a great day

Transcribed from video
Why Short Selling is Dumb By Financial Education

Scroll to top