Do Historical Patters Favor the Long Side?
One can argue that a key difference in risk is that the long purchaser has the historical upward trend of the market on his or her side. For the long purchase, if his research is correct, even if he buys at the worst possible time and finds himself initially at a large loss, historical odds say his long purchase may work out over time. While this may be true, it opens up the question of how much time it will take; there are no guarantees that stocks that decline in a bear phase will ever regain their previous bull-market levels.
In regards to time, it is important to note that short sellers do not initiate trades with the intent of long-term sell and hold. The intent of short selling is to hold the short position until the perceived balance returns. We have enough historical data to state without a doubt that the markets are cyclical. If a short seller has done her homework and has indeed identified a grossly overvalued company, even if she turns out to be early in her short sale, she may be proved correct in the next down cycle. Of course, a short seller should never hold a short position that is moving against her beyond a predetermined risk-tolerance level, just as a long purchaser should never hold a losing long position that has moved against him beyond his own risk-tolerance level. (For further reading, check out Survival Tips For A Stormy Market.)
If practiced properly, short selling is no more risky than long stock purchases. More research is likely still needed, but one day researchers may conclude what many already believe: short selling is a much needed, effective method of regulating the markets. If more people were educated on short selling, there would be less fear surrounding it, which in turn could lead to a more balanced market over the long term.
Why don't you do your own research using the dictionary on Investopedia for stocks. (or Long Position) Mean?
1. The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value.
2. In the context of options, the buying of an options contract.
Opposite of "short" (or short position).
I have shorted occasionally but it's scarier than being long. Shorters can lose more than 100% of their investment. Shorters are also responsible to pay the dividends if held on the ex-date.
I believe it's the longs who always dictate the price. Shorts cannot set market demand. In a case like SAY, where the fraud resulted in a 90% decline I don't see where shorting made any difference.
Most believe it adds to market liquidity and obviously is a money maker for the brokers.
It is the buddies of the politicos trying to scare the public before they pass that horrendous thing they call a stimulus plan.
Notice how O has gone from hope to making claims of a dire outcome if it is not passed immediately. It is how they play the game, scare the people and they won't lynch you when you misuse their money.
Exactly how they played TARP. And that caused major problems in the market following the passage of TARP.
Makes sense Inlet. Thanks. Now I'm serious and maybe naive here and I know that people will attack me...but WHY IN THE HELL IS SHORTING ALLOWED??? What good does it do? It makes money for those people who bet against a company...but does it do anyone or anything else any good?? It needs to go away. It's just not ethical in my mind.