The Wallace miner. [volume] (Wallace, Idaho) 1907-current, 1919-01-30
BEARS N STOCK MARKET
ARE A NECESSARY EVIL
aaokER GIVES AN INTERESTING
EXPLANATION OF "SHoRT"
OPERATIONS.

rBy H. B. Kingsbury, manager brok-
erage department of o. A. Olin Co }
Brokers and professional traders
who sell the market short and then
work and hope for a fall in the price
of the securities they have sold short
are called bears" The bears of the
market can operate only in one way.
They depend on a decline in stocks to
make their profit, for it is obvious that
no one could make profit by buying
in its value. The public as rule does
not speculate on the short side of a
market or buy on falling market, so
the brokers and professional traders
are more frequently the bears" The
methods by which the bears" operate
is known as selling short" The rules
OF most exchanges prohibit man
from selling stock which he does not
possess, nevertheless this practice is
carried on very extensively.
A Short Sale.
In order to understand a short sale
let me give you an illustration. Sup
pose a man believes that he has inside
information that certain stock will
not pay dividend that has been an
nounced. He argues that as soon as
this information reaches the public
the market value of the stock will
tt,Nv lot n1N Ia al 1yvA
that the market is very quick to learn
of every favorable or unfavorabe
news. So this broker, we will say
sells 10000 shares of this companys
stock short.
When he goes on the open market
to sell this stock he knows that he
does not own or even have 1t in his
possession, so he either makes ar
rangements with the purchaser to
wait until future date for the deliv-
cry, which is called a seller contract"
or else, which is the most common
way, he borrows the stock.
Profit in Leaning Stock.
There are firms connected or uncon-
nected with all exchanges who make
a business of loaning stocks to brok-
ers who desire to put through short
Sales For example, in the New York
stock exchange, these firms who Dor
row and loan stock have a trading
post on the floor of the exchange,
around which brokers desiring to loan
stock or to borrow it can gather and
effect their transactions. 1t probably
seems strange that anyone should
loan his stock, especially when he
knows it is to be thrown on the mar
ket, which tends to lessen its value
vet such transaction Is not without
it's advantages. The borrower Of the
stock must deposit with the lender a
sum of money equal to the market
value of the stock at that time and II
the market advances after that
the borrower is obliged to put up more
money in keeping with the advances
the stock may make. The lender also
in most cases, unless he is in need OF
money, charges the borrower Of the
stock interest based on the stock:
market value. In other words. the
lender charges the borrower interest
on the money left with him as secur'
ity for the return of the stock. Now
If the lender was in need Of money ant
instead of loaning the stock had tt
take it to the bank as collateral or
his loan, instead Of receiving its full
market value, he would perhaps re-
ceive about 80 per cent OF this amour
on which he would have to pay inter
est instead of receiving interest a.
when he loans the stock. 1t Is TO
these reasons that short" broke
can usually find a large number o
stock lenders in the market. On tn
other hand, if the bear had mad
his sale on a seller contract, ne i
obliged to deposit money with the pur
chaser equal to any advances the stocl
might make over his selling price,
i Practical Operation.
Now we are down to where tn
! bear" is short 10000 shares of Ger
tain stock; or in other words he ha
sold 5000 shares of stock he does nc
own. but which he hopes to buy at
later date at a lower price. If his ex
pectations come true and the compan
does not pay a dividend in accordanc
with his forecast the value or IN
stock declines, and he is now in pc
sition to profit by his perspicacity an
the risk he has taken, for he can
into the open market and purcnas
the 10000 shares at a lower price ina
that at which he sold it. AS soon
he secures delivery Of the lo,o'
shares, which he now buys, he taxi
II to the lender of the stock and r.
ceives a check for the amount
money originally deposited, ana u
difference between his purchase pri
and his original selling price Is
profit, less any interest he has paid
Local Example.
A good example Of the above :"
worked on the Hecla stock a sho
time ago. A number OF brokers
New York and locally gave out repof
that the Hecla was going to pay
cent dividend for Christmas and I