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Speaker 1: Welcome to Ask Fear and Greed, where we answer questions

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Speaker 1: about business, investing, economics, politics, and more. I'm Michael Thompson.

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Speaker 1: Than Hello, Sean Ale.

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Speaker 2: I'm Michael.

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Speaker 1: Good question today. You look apprehensive already.

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Speaker 2: I know what the question is. It's not an easy

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Speaker 2: one to explain.

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Speaker 1: Go on, Okay, well maybe I'm going to make it

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Speaker 1: really hard and put you on a time limit. We'll

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Speaker 1: just kind of turn it into a game. Sean, how

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Speaker 1: do short sellers make money? End? Why do some people

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Speaker 1: hate them so much?

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Speaker 2: So? The aim of short selling is to make a

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Speaker 2: profit on an asset. So let's talk about a stock.

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Speaker 1: Yep.

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Speaker 2: When the price decreases, so basically you think about buying

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Speaker 2: a stock, price goes up, you make a profit. So

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Speaker 2: this is a method of making money on a stock

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Speaker 2: when it falls. To enter what they call a short

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Speaker 2: sell position. You literally borrow a stock from someone else's

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Speaker 2: has it. You then sell that to someone else with

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Speaker 2: the intention, with the agreement that you'll buy it back

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Speaker 2: at some point in the future. The hope is that

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Speaker 2: you sell it. Stocks are you're borrowing it? Yep, you're

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Speaker 2: selling it for ten bucks. It's going to go down

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Speaker 2: to nine bucks. So you buy it back for nine bucks,

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Speaker 2: you've made the dollar. Now there's also borrowing costs, so

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Speaker 2: maybe you've done in made ninety cents in it. It

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Speaker 2: isn't for the fainthearted. Short selling and that you know,

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Speaker 2: sort of being short basically means that you are going

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Speaker 2: to benefit when the price of the stock or whatever

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Speaker 2: asse that we're talking about falls. It's the opposite of

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Speaker 2: a long position. So many of our super funds they

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Speaker 2: go long, they invest in common Wealth Bank and they

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Speaker 2: hold on to it forever. This is really the opposite

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Speaker 2: of that. If you want to get more technical, which

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Speaker 2: probably don't, there's naked short selling, which isn't allowed in Australia,

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Speaker 2: which are when naked.

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Speaker 1: Honestly, that sounds I only something in very very erotic.

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Speaker 1: You really should have led with.

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Speaker 2: That, yes, So I mean what we do, what I've

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Speaker 2: talked about is something called covered short selling. So there's

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Speaker 2: always very brutish there's always an agreement that you've borrowed

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Speaker 2: the asset or the stock and then you've sold it

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Speaker 2: with an agreement that at some point in the future

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Speaker 2: you're going to buy it back. It's a legitimate practice,

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Speaker 2: that's what that is why people dislike it is because

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Speaker 2: investors argue that short sellers manipulate the market. So there

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Speaker 2: are companies at the moment are like the uranium stocks

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Speaker 2: Boss Energy, Deep Yellow, Parle and Energy Deep Yellow your

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Speaker 2: favorite named stock.

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Speaker 1: I just it's one of those companies, right, It's just

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Speaker 1: it's a very evocative.

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Speaker 2: Name, Deep Yellow. There are all the uranium stocks they've

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Speaker 2: been short at big time. So there's a bunch of

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Speaker 2: people out there who actually believe that those stocks will

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Speaker 2: fall and they've taken a position on that. IDP Education

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Speaker 2: used to be Market Darling, that's another very short shorted stock.

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Speaker 2: What investors don't like about it is that they're kind

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Speaker 2: of manipulating that share price not based on Ernix.

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Speaker 1: So it is. It's certainly not something for your mum

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Speaker 1: and dad investor to really.

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Speaker 2: I wouldn't necessarily recommend it until unless you really know

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Speaker 2: what you're doing.

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Speaker 1: Yeah, and of course we are not an investing podcast.

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Speaker 1: You really must seek professional advice before making investment decisions.

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Speaker 2: And short selling's basically done by institutions, and not even

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Speaker 2: not all institutions do it. Just some big investors think

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Speaker 2: that's a good way of making money. Naked the other part,

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Speaker 2: I'll don't give it serious. So that's how they want

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Speaker 2: to make money. But if it's ten bucks, you've borrowed

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Speaker 2: the stock, you've sold it for ten, you want to

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Speaker 2: buy it back for nine. What happens if it goes

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Speaker 2: to eleven? You're totally out. So you've actually got to

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Speaker 2: pay out more money because you've bacstually got to buy

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Speaker 2: it back for eleven even though you sold it for ten,

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Speaker 2: and you're in an agreement to do that. Risk. It's

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Speaker 2: high risk.

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Speaker 1: Absolutely, Okay, all right, learned some things there, Sean.

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Speaker 2: You look surprised or do you can think of his

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Speaker 2: naked Yeah?

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Speaker 1: Absolutely, and I don't think I'm alone there. Thank you, Sean,

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Speaker 1: Thank you, Michael. Remember, if you've got something that you

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Speaker 1: would like to know, then please send me a question

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Speaker 1: on LinkedIn, Instagram, Facebook, or at peerangreed dot com dot au.

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Speaker 1: I'm Michael Thompson The Needs to Ask Peer and Greed