Perth Amboy evening news., 1923-05-19
BdbSOn Gives Warning
To Sp GATORS About
ShOrl Selling Dangers

WELLESLEY HILLS, Mass, May
10: The recent bear raids in the stock
market have led a large number Of
small spectators to believe that good
stock market days r yer Popu-
lar fancy in this quarter is turning
to short selling. Since the techni-
undermined by this move, Roger W.
Babson's warning against this prac-
tice issued today is particularly
timely.
81 do not pretend to be able to
forecast the short swings of the stock
market" says Mr.. Babson, but ]
do know that the short interest de-
veloped since the recen bear raids
probably the largest in recent
years-has reached a point where it
is very dangerous. This is largely
due to the fact that spectators all
over the country have been carried
away by the prevailing bearish pro-
paganda and have gone short Just
as they buy stocks when surface
conditions look optimistic. II looks
as easy to sell as to buy and 1t Is nay
guess that the majority of these
spectators do not understand the
position that short selling places
them in.
Let us see what happens. II you
gave your broker ar order to sell
100 shares of some stock, he actually
borrows the stock from one of his
other customers who owns it, or
from some other broker. He actually
sells this borrowed stock for you.
You put up the cash to guarantee
its present value or a margin de-
post to protect your broker. If the
stock happens to go up, you are
called on for ore margin. II you
can't v 1t, the broker buys the
stock at the market and returns 1t
to the original owner. You stand the
loss. So far short selling presents
only the dangers attending ordinary
marginal buying-a few points in
the wrong direction and you are
wiped out.
ut must also be borne in mind,
however, that you borrowed the took
and that you did not borrow 1t for
any given time. The owner can call
on o at any time for 1t and you
must return 1t, If your broker car
borrow some more for you some
where else. all right; but If he can't,
you must buy the stock in the open
market and return it no matter how
high its price nor how much cash
you have to protect your margins.
Moreover, If these 100 shares pay a
dividend which you are short of,
then you must also pay that.
Multiply your own short position
by several thousand and the greatest
danger of the practice Is apparent.
The short interest is very soon larg-
or than the number OF shares of the
given stock that are for sale. Prices
advance two or three points and a
few of h shorts cannot put up
the increased margins. Brokers go
into the market to buy the stock to
return 1t. The demand raises prices
a bit. then there are more shorts
that are forced to cover. The mar
ket strengthens and brokers rush
in to get the securities they must
rsturn--behold, there are no more
for sale. Prices skyrocket and the
who were short are wiped
out. 1t Is interesting to note here
that there Is no limit to your losses
On a short sale. II you buy a stock
at SO you cannot possibly lose more
short at SO it may go to 100 o 500
or eve to 1000 and you must cover
and stand the loss.
Inc SHOFL interests, LOT
wero caught in Stutz in April 1920.
The stock had been selling. between
100 and 146, The moment the short
sales exceeded the floating or avail
able supply prices started to climb
and went to TIA. The N. Y. Stock
Exchange then stepped in but the
short interest had to settle at the
rate Of $3.50 a share. The same
stock may be had today around 20.
More recently the corner in Pig
gly Wiggly has illustrated once more
the extremely weak position of the
~speculator who is short. This stock
had been trading between 40 and "a.
The majority of the short interest
probably sold 1t around so. When
the stock was called for there was
none to be had. Prices scared and 1t
was taken off the exchange. Settle
ment vas finally made at the rate
of 500 a share.
"These spectacular cases illus
trate u point but do not represent
the great losses resulting from short
selling. Millions of dollars are en-
dangered today on the short side of
the present market, a growing ac-
emulation that gets shaker as it
piles higher. A rise of three to five
points would start the drive that
would practically wipe this interest
out. Moreover, fundamental condi-