305- The Role of Shorting in the Market
b"\\u201cThere\\u2019s nothing evil, per se, about selling things short. Short sellers\\u2014the situations in which there have been huge short interests very often\\u2014very often have been later revealed to be frauds or semi-frauds.\\u201d \\u2014 Warren Buffett\\n\\nShort selling, or shorting, plays an important role in public markets as it improves prices, rational capital allocation, prevents bubbles, and shines a light on fraud.\\n\\xa0\\nIf investors think a stock's price is dropping, they can short the stock. They borrow shares and sell them with hopes of buying them back at lower prices. However, stocks can theoretically keep rising, which could cause losses. So the investors that short the stock will either have to put more money up to secure their position or close their positions.\\n\\xa0\\nEssentially, short selling exposes which companies' stock prices are too high. In their search for overvalued firms, short-sellers can discover inconsistencies or other questionable practices before the entire market does. Short sellers can almost be regarded as the \\u201cwatchdogs\\u201d of the market.\\n\\xa0\\nA recent example of this is the Gamestop event which caused many investors to either gain or lose money, as shorting isn\\u2019t ideal for all investors. This is why it\\u2019s important to invest with your values\\u2014so you can invest with confidence and reduce your risk of making bad investing decisions.\\xa0\\n\\xa0\\nWhen looking for companies to purchase, always consider the Four Ms: meaning, moat, management, and margin of safety. This is the first step you need to take when building your watchlist of companies you are interested in.\\n\\xa0\\nIn today\\u2019s podcast, Phil and Danielle discuss the important role short sellers play in our market and why it\\u2019s important to invest with your values.\\n\\xa0\\nLearn about the Four Ms and how they can help you invest in the right businesses at the right time with this FREE guide I've created for you: http://bit.ly/3btAqhM\\nLearn more about your ad choices. Visit megaphone.fm/adchoices"