The Wallace miner. [volume] (Wallace, Idaho) 1907-current, 1914-07-16
SHORT SELLING STOCK
|s|T RIGHT OR WRONG?
EXPLANATION OF SYSTEM AMI
ARGUMENTS ADVANCED.
PRO AND CON.

certain verN common transactions in
the stock exchanges of the country.
The following analysis of the system
by A. w. Atwood published in re-
cent bulletin issued by Baruch 4 Co.,
of New York, will be found instruct
i've, although not necessarily convinc-
ing from the writer's standpoint;
For more than 100 years one of the
most hotly debated financial subjects
has been the short sale Of securities
and commodities. In several coun-
tries. and states of the union laws
have been passed against The prac-
tce, only to be repealed or to become
a dead letter. White heat discussion
Of the subject as regards cotton and
grain never lets up, but | do not pro-
pose in this article No consider that
phase. OF late, the extended hearings
before the United States senate COM
mittee on banking and currency rela-
tive to proposed regulation of the
stock exchange have brought out
many facts concerning short selling,
As relatively few persons understand
it, my purpose in this article is to
make plain the principles involved.
Sell Borrowed Stock.
In essence, short selling is the sale
of borrowed stock. Those who think
the market is going down sell as If
they owned the stock. BY the rules
of the exchange, delivery does not
take place until 2:15 p. m. Of the day
following the sal.. In the interval the
broker making the sale borrows an
equal amount of stock, which he de-
lvers to the buyer at the regular
time The buyer Of course, does not
know whether he is receiving short
stock or the other kind. The borrow
er gives the lender certified check
for the then market price of the shares
borrowed In the course Of few days
weeks or months. the price declines
the original selling broker goes into
the market, buys an equal amount o
stock, hands it over to the lender from
whom he borrowed, receives back hi
money and gives his customer tn
difference in price, which Is profit; O..
|if the prices go up, then loss must b.
met.
"rhe explanation just given ma,
not be clear to the novice. The prac
tee is one which is absolutely incap
able of being made clear In a. fey
words, except by saying that 1t is tn
sale of borrowed stock which on
hopes to replace at a profit later wit
an equal amount bought in at low
er price.
"Why it is possible to borrow stoc
need not be gone into here. Suffice
to say that there are many broker
: who for various reasons are glad
lend such shares as are actively trat
ed in. To sell any other kind of stoc
short is ffoolhardy in the extreme.
Two Points Of View.
"The important points to cOnsid'
are whether short selling is wron
and harmful. AS we gradually clea
up these points we will see more eN
, actly just what the practice is. III
t main criticism directed against sho
: selling. are both, in my opinion, falla
cies. They are:
: Il. 1t Is not ethical to sell some
thing which one does not own.
"2. Short selling of stock does M
differ from contracts in the busine!
world to deliver goods not yet create
like a years subscription to a Mage
zine.
2 ."The objection to short selling bas
= ed on the idea that it IS wrong to sc
something which one does not oW
. but expects to borrow later, Is a me-
f assertion, based on no arguments
f facts.
\ but it is a poor defense of sho
p selling to say that it does not diff
s from ordinary trade contracts for II
: ture delivery The magazine pu
fisher and the building contractor a
v tually create the articles that thu
agree to deliver. The short seller
stocks does not create stocks. ]
. does not benefit from issuing stool
= He only benefits from a depreciati'
in the price of stocks. Perhaps !
service in stabilizing markets Is
great as that Of the builder in pu
ting up a house, but that Is who
different question Now for the re;
n ly serious arguments against and
e short selling.
e. Argument for and Against.
,e 81. 1t serves to depress prices.
lie go. There is temptation to Ike
NJ on selling short after prices ma
re- fallen. 1t may be used to disorgan
lie an already dangerous and panic
market.
80 49, Professional spectators,
l., only ones who sell short, do not
cessarily confine their efforts to stot
as which should sell lower, but alta
n, two or three active securities, tf
tending to upset the whole market
Is, 81. No human being can underts
~ to say whether short selling tends
n. more to advance or lower prices in
9 long run Every short seller m
buy. The man who buys sells la
70 The man who sells short must |