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Re: 2094: "Short Selling"

Posted: Wed Jan 09, 2019 5:26 pm UTC
by orthogon
aljohnso wrote:My favorite description of short selling is inverted Wimpy - "I will gladly pay you today for a hamburger on Thursday".

Huh? I thought I knew pretty much what short-selling was, but I'm having a lot of trouble understanding how this describes the same thing. It sounds more like a futures contract, but with the full price (of the hamburger) paid at the time of the contract (today) rather than at the delivery date (Thursday).

Re: 2094: "Short Selling"

Posted: Wed Jan 09, 2019 7:18 pm UTC
by Quizatzhaderac
I'm not really sure what Aljohnso is getting at (may their favorite bad description), but his inverse Wimpy analogy is pretty terrible. You are definitely buying the hamburger today (and immediately selling it) and paying for it Thursday (at Thursday's price).

The inverse Wimpy would be a futures contract.

I'd say in general, explaining short selling by analogy is a lousy idea. It is a little complicated, but it's not so complicated (like the formalism of relativity) that you can despair explaining it in one conversation. Plus as something that the common person can actually do, it's worthwhile to have an accurate understanding of what's going on.

Re: 2094: "Short Selling"

Posted: Wed Jan 09, 2019 8:04 pm UTC
by ucim
Quizatzhaderac wrote:but it's not so complicated (like the formalism of relativity) that you can despair explaining it in one conversation.
The key idea is that you are borrowing stock (and then selling that borrowed stock to somebody else). Once you get your head around the idea of borrowing stock (it's more like borrowing money than borrowing a car), the rest is easy.

Jose

Re: 2094: "Short Selling"

Posted: Thu Jan 10, 2019 1:05 am UTC
by Archgeek
orthogon wrote:
aljohnso wrote:My favorite description of short selling is inverted Wimpy - "I will gladly pay you today for a hamburger on Thursday".

Huh? I thought I knew pretty much what short-selling was, but I'm having a lot of trouble understanding how this describes the same thing. It sounds more like a futures contract, but with the full price (of the hamburger) paid at the time of the contract (today) rather than at the delivery date (Thursday).

Yeah, a burger-related short sell would be more like "Permit me to borrow a hamburger today, and I'll repay a hamburger Thursday with an extra pickle slice.", but Wimpy's immediately selling the burger on the street, and is counting on a sale Thursday to leave him with a net gain in his strange sandwich arbitrage scheme.

Re: 2094: "Short Selling"

Posted: Thu Jan 10, 2019 9:25 am UTC
by Soupspoon
Archgeek wrote:strange sandwich arbitrage scheme.

That's going to be the name of my band's first album…