The Indianapolis times., 1932-04-30
SHORT SALE is
EXPLAINED IN
EASY LANGUAGE
Methods of Operation and
Effects Shown by
New Book.
BY JOHN 7. HAWKINS
Times Financial Editor
Short selling"

Short selling"
What do the words imply to you?
Do you picture a wild. ruthless in
dividual trying to take away from
you your job. striving to beat down
the value Of those ten shares Of
stock in your trunk? Or do you see
another picture: The highly organ
lied security and commodity ex-
change, where short selling is a
needed procedure, vital necessity
70. the stabilization of prices, the
one thing that stands between you
and the man who could depress
prices TO the vanishing point?
Between these two extremes lies
great expanse Of thoughtful ter
ritory. Neither convey a true de-
scription of the short sale or its
effects.
The short selling bogey is one
that always is with us, sometimes
dormant, as when prices are rising
and business flourishing, but always
there ready TO spring out at the
first sign of declining prices.
All Details Explained
With the wide spread public in
terest now aroused in short selling
on the New York Stock Exchange as
the incentive, the one man capable
of giving true picture of the cause
and effect of the short sale has
written a thorough and detailed an
alysis of the subject.
j. Edward Meeker, economist to
the New York Stock Exchange, in
his book, Short Selling" published
by Harper and Brothers, explains
in popular language every detail Of
this necessary operation in the pur-
chase and sale of securities.
Publication of this book is well
coined by The Times in that it
provides the answer to a series run
in this paper on the i'll effects of
short selling Tine book will be used
as the basis of short series show
ing the benefits to be derived from
the use of the short sale.
First we will take up the definition
of short sale.
Sale Is Credit Operation
A short sale is nothing but sale
which creates a debt in terms of
goods. 1t is, in reality, a credit
operation.
In almost all lines of business it
is customary to contract for the de-
livery of goods not Immediately
available to the seller. This is the
principle of short selling. Automo-
bileS regularly are sold to consum-
ers before they are delivered. The
United States treasury apartment
often has sold its interest bearing
notes in anticipation OF future reve-
nue. receipts from the federal in
come tax.
On American stock exchanges a
short sale is made in the following
manner: The short seller authorizes
the broker to sell 100 shares of stock
short. The broker finds a buyer and
sells him 100 shares of stock, deliv-
cry TO be made the following day.
Actual Stock Delivered
The broker then borrows 100
shares of stock from some one who
will lend it. The broker then de-
livers the stock to the buyer and in
return receives the full amount of
the purchase price.
This money then is turned over to
the man who loaned the stock, he
paying the short seller interest on
the money as the money rightfully
belongs to the seller. The lender
therefor gets the use of the money
representing the value of his stock
without having to sell his stock, for
the reason that the short seller has
to some time buy 100 shares of stock
to replace that which he borrowed
from the lender. In return the
lender will give him back the money
he used while the stock was loaned
out.
In the next of this series we will
take up the reasons for the short
sale.