SELLING LOW-PRICED STOCKS SHORT Always remember that every time somebody buys, some one else sells, and vice versa. Do not forget this fact — that there is just as much stock when prices are low as when they are high, and somebody always owns the existing capital stock of a company. For example: U.S. Steel. — When Steel sold at the lowest price in its history, 8 5/8 in May, 1904, there were five million shares. Again, when it sold at the highest price in its history, 136 5/8, in May, 1917, there were still five million shares. Somebody owned the five million shares when prices were the lowest, and somebody owned the five million shares when they were at the highest. It was the insiders who owned the stock at the bottom, and the outsiders who bought it at the top, be cause it was paying 17 per cent dividend. While it was paying no dividend, it sold at the lowest. A large percentage of the public buy low-priced stocks for the reason that they think they will go down less and hope that because they are low, they can go up high. This, of course, is a false impression and not based on any sound fundamental principle. Most of the time, when stocks sell at low prices, they are not worth any more, probably less than they are selling for. When they sell at high prices they are worth what they are selling for or there is some reason or cause for the high level of quoted value. Certain low-priced stocks always become favorites of the public and they buy them, which enables the pools and insiders to sell them out. Then, of course, they go down, because there is no support. The public having bought to capacity, can not buy any more. Prices decline, and finally the public, becoming disgusted, sell out near the bottom. You can always make big profits by selling short low-priced stocks that are favorites and in which there is a big long interest. For example: Southern Railway. — Was a great favorite with traders throughout the South from 1901 to 1920. Every time this stock advanced above 30, they would become very bullish, hoping and expecting that it would advance to 50 or higher. A chart of it will show you that it was a good short sale every time the public bought it heavily. Erie is another stock that the public have always bought on hope and there have often been big opportunities for sell ing it short at comparatively low levels, as it has always declined until the public became disgusted and sold near the bottom. The percentage of declines in low-priced stocks is often greater than the declines in high-priced issues. Therefore, the medium low-priced stocks are safer short sales because they rally less. trade stock online ~ forex strategies |