Short Selling - How To Make Money Investing In Bad Stocks

By Thomas Sutton

Falling markets always cause investors grief. The media reports any selling in a mortally serious tone, while bullish cheerleaders comfort the masses with promises of better days ahead. Negative sentiment usually intensifies right along with the selling, and desperate prayers are offered to the heavens as everyone nervously holds their breath.

Well, not everyone. In fact, more folks are starting to take advantage of the normal rising and falling of the market tides by learning to sell stocks short. For example, Investor's Business Daily newspaper founder William J. O'Neil's latest book is titled "How To Make Money Selling Stocks Short."

Selling stocks short is a simple way to make money when stocks drop. To "sell short" you simply borrow the stock from your broker, sell it, and then buy it back when the price drops. You then return it to the broker you borrowed it from and keep the profit. Yes, it's perfectly legal!

Imagine that. A conservative well heeled senior investor such as Mr. O'Neil advocating that investors learn how to sell short. As surprising as it may seem, you only have to look back to when Bill began his investing career to see why he is willing to take this "odd" position.

In the early sixties O'Neil was a young stockbroker for a major New York Stock Exchange member firm. Based on his research he decided to close out all of his stock positions in the market by the spring of 1962. Then he started selling short. By the end of the year he had made a sizable profit while almost everyone else was getting crushed in one of the worst bear markets of that era. A year later he bought a seat on the NYSE and started his own firm.

After more than four decades studying the markets, Bill believes there are two main reasons why most investors "can't sell." First is the obvious lack of knowledge about the subject. Most folks have never even heard of selling short. The second reason is the psychological resistance most investors have against selling short. After all, investors aren't supposed to make money when stocks go down ... right?

Beyond the educational, emotional, and mental programming required to get our heads in gear, a big part of our job as active investors is to find the dominant market trend and profit from it - even when it's down.

Normal investors might scoff at the notion of shorting, but highly successful investors and stock traders aren't normal. While accepting the fact that the stock market will go in whatever direction it pleases, the latest generation of market players knows how to take advantage of the opportunities offered by the down-side of repetitive market cycles. Maybe it's time for you to consider short selling too.

It's very important to get a good stock trading and investing education before you put money in the market. Take your time and carefully choose an online stock trading service that will successfully guide you along the way.

Note: Thomas Sutton has been trading stocks online over a decade. He is the author of "Five Secrets You Must Know To Make Money In Stocks" and the current editor of The RightLine Report for active traders.

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