Aarman4 wrote: My apologies for the title, as you will see, it is misleading.
I fell that with the activity going on lately in regards to HPQ(among others) share price, and Stockhouse bullboard behavior, I wanted to share some information and my feelings, so grab a pillow and a hot chocolate, and curl up next to me for a bit.....
I think shorters are fantastic! Seriously, I do!
Why? Although we refer to them as shorters, the reality of it is that they are buyers and sellers. When I want to purchase a share, shorty usually has no problem selling to me! When I want to sell a share, shorty likely isn't driving the price down at the same time.
HOW SHORTING WORKS(in basic form):
The shorter borrows shares at $10(example price) from a vendor and sells them instantly. They pay money to the vendor in the form of interest, and promise to return the shares in the future. If the share price drops to $8, and shorty buys the shares back, and returns them to the vendor, then shorty makes a profit of $2 per share minus the borrowing and transaction fees.Good for them! If the price goes up, shorty has to buy back the shares at more than $10, and loses money on the transaction. Poor Shorty!
Now, this is the opposite of how us "longs" do our investing. We purchase at a price that is lower than we feel the future price of the share will be. At this point, we hold steady.....wait, hold, wait, hold........And when the company's share price reaches the levels we want to take profit at, we sell and make profit. Good for us! If we were wrong, and the future share price never materializes how we thought, we could lose money. Poor longs!
Now, lets assume that a million shares have been borrowed and "shorted". What this means is that they have been sold, and shorty is now in debt to whomever lent them the shares.SHORTY MUST BUY BACK A MILLION SHARES ON THE MARKET, and return them to whom they borrowed them from. This produces a demand for a million shares that didn't exist. Every single shorty is a future buyer of shares. GUARANTEED share buyers! SUPPLY AND DEMAND! This is really good for share prices, as it tends to drive them upward due to more demand.
Here is the trick, and why I love the shorts........ I do my due diligence. I absorb everything, and then, when I make my investment, I kiss every last cent goodbye forever. I do this because I know it might never come back to me. HOWEVER, I believe in myself....I do EXCELLENT due diligence.....I never overinflate projections........and I always stick to my guns, my convictions. I write out a page about why I purchased the company's stock, and read it any time I feel down on the share price.I hold that stock as long as management looks like it is executing on the plans that made me want to own it in the first place.
When shorty messes about, and drops that share price, I grab more shares.... Buying opportunity!
The negative effect is that often longs are "scared" into selling when shorty's activity forces the prices to swing. I would argue that those are not longs, they are emotional investors that have no business messing about in this 'game', in my very humble opinion. They are cut from the same sad and poor material that the shorter who doesn't do their due diligence is made from.
Now, I'm hoping we can all come to the same conclusion, and that is that shorty is our friend, our partner, our neighbour, just trying to make a buck, while having a differing opinion than us longs..... Remember, if nobody sells, we can never buy. Shorty is the yin to our yang, the buy to our sell!
HOWEVER:
BASHING, and MANIPULATING, is not only ILLEGAL, but in very bad taste. Anybody who falsifies information, or attempts to negatively impact other's opinions in order to have them sell, or induce baseless doubt, gives shorting the unfortunate bad reputation it carries around. Together, we should call them out, and hold them accountable.
However, let's appreciate the shorts for who they are......People of differing opinions who are willing to put their money behind their convictions, just like you and me.
Late night thoughts from a lover of all,
Cheers!
Excellent post Aarman4. Totally agree with everything you said. Just need to underline and capitalize "Due Dilligence" that's the key to making your play an investment vs. a gamble.