Those Who Short Stocks Are Terrible People

I generally try to avoid stereotyping people with generalizations, but I’m pretty much at my boiling point and have come to the realization that I can’t stand people who focus their investing on shorting stocks.

What Is Short Selling?

Shorting a stock is basically the opposite of purchasing a stock.  You short if you believe that a stock is going to go down.  You basically ‘sell’ a stock at the price it is today, and then later on close the position by ‘buying’ it at what the price is at that point.  So, if you have a stock that’s worth $10 today and you short 1,000 shares, then close your position when it’s $9, you’ll pocket $1,000, or $1 per share.

Obviously, there’s risk involved with it, in that if the stock goes up in value, you’ll lose money since you’ll have to close your position at a higher price.

Why Do I Dislike Short Sellers?

I do a little trading in stocks now and then.  As such, I follow the stocks in which I have positions or am interested in potentially opening a position.  I follow message boards and forums, and it’s between what I’ve observed here as well as a general understanding of the practice that has led me to the conclusion that short sellers are terrible people.

Disclaimer: I want to make a distinction here. Although I’ve never shorted a stock, I have thought about it in instances where I believe that I think a stock is overpriced.  I’ve never acted on it, but if someone opens a short position here and there, I could place them outside the generalization.  Maybe.

  1. They are the meanest people on message boards – I don’t take message boards and their content as very much weight when making potential investment decisions, but I do read them to get an idea of sentiment. And, if there’s a stock that has a high level of short interest, they are outright mean.  It’s one thing if you want to make money for yourself, but people who short stocks actively wish for and express happiness for those who lose money.  It’s disgusting.
  2. Short selling is, by itself, negative – Movies and books finish off with a happy ending most of the time, because that’s what people like.  Short selling is akin to an unhappy ending in a movie.  A person shorting a stock is hoping that it goes down.  This generally ties to the underlying company doing poorly.  While not always, a poorly performing company is often losing money, laying people off, and such.
  3. The perception of corruptness – If you open a trading account and want to short a stock, your broker is supposed to have the corresponding shares available that you’re shorting, generally in the portfolio of another investor.  After all, you can’t simply create shares out of thin air.  This would be ‘naked short selling’ and while this is illegal, you’ll find that there are few out there that don’t believe it doesn’t happen.  And, we’re not talking retail investors, we’re talking that there are hedge funds out there opening short positions that they can’t cover, but because the SEC effectively enforces nothing, who’s to stop them?  Nobody.

Regulation Is Needed In The Practice Of Short Selling

I think that three things need to happen to control the short selling that I believe has gotten out of control.

  1. Monitor naked short selling – Spot checking should be done to match up short positions with available shares to ‘buy’.  If they don’t match, then there is naked short selling occurring and this should be punished.
  2. Identify and punish short manipulation – It’s generally believed that hedge funds that have large short mb-201312billscoinspositions will often open and close small positions to drive down the price.  This works in periods of low volume.  In a simple example, if you’ve got three investors each with 100,000 shares short, and there is no volume, then they could start trading 100 share blocks between themselves, pushing the stock down with each trade.  What reason would someone holding 100,000 shares short have to buy and sell 100 share lots in a low volume day?
  3. Re-implement the uptick rule – For awhile, there was a rule that a short trade could not be executed until the stock went up.  If a stock was trading and went from $10.00 -> $9.95 -> $9.90 -> $9.85, then a short transaction would not be filled.  Only when it went back up to $9.86 would it be filled.  This was designed to prevent shorts from accelerating a declining priced stock.  But, that rule was ‘suspended’ and now it’s easy to jump in and short a stock that is already lowering in price.  This has the snowball effect of pushing the price further down, not to mention that it keeps potential buyers on the sideline who know that it’s being attacked, which ends up hurting the price even more!

As you can tell, I have no love for those who short stocks.  I don’t believe that the market always needs to go up, because that’s unreasonable and that’s how bubbles happen.  But, I equate shorts with vultures, in that they’re simply opportunistic and greedy and take a bad situation and make it worse.  Why in the world do we advocate that?

Readers, do you have any knowledge or opinion on short selling stocks? What do you think?

Copyright 2015 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Things I’ve Heard Said About Forex

There are many different ways to invest, trade, make, and lose money out there, and just about all of them are available in some fashion on the Internet.  One of the big buzz words that I’ve heard over the past couple of years has to do with Forex trading.  I thought I would do a little digging on my own to find a little bit more information about forex and find out whether the things I’ve heard said or have wondered about are true, false, or somewhere in between.

  1. I’m not sure what Forex means? Forex is an abbreviation for foreign currency exchange.  Basically, you can trade based on how one currency (e.g. the American dollar) will trade against another.
  2. Is forex legal? Yes, forex is very much legal.
  3. Is forex regulated? That’s where it gets complicated.  Every currency is its own independent ‘thing’, and there’s not one body in the world that oversees all regulation.  So, forex trading may be regulated within certain countries, but the fact that currency exists in so many different forms makes it impossible to regulate whether trades regarding currency exchanges can take place, and how they can be worked.
  4. Is there a forex market?  Not really.  Most market exchanges like the Nasdaq or NYSE are open for a certain period of time.  Since currencies are trading 24 hours a day, forex trades can really be made 24×7.
  5. Can I trade forex with my brokerage? Simply put, no.  I use TD Ameritrade for my non-retirement brokerage needs, and I’m allowed to trade various investment instruments such as stocks, ETFs, mutual funds, bonds, options, as well as many others.  Forex is not an option, and it ties back to the reason in my last point, in that it does not have regulations around it, and most brokerages can’t or won’t trade in instruments which do not have regulations.
  6. Then how does one trade forex? If one is interested in trading forex, it is possible.  There are many reputable sites available where you can participate in this type of trading.
  7. Is it risky?  Sure.  Since these sites are not regulated or backed by the government, you don’t have protection.  Forex trading definitely amps up your level of risk, but there are many investors who are risk tolerant, and live by the rule that higher risk can lead to higher reward.
  8. Does Money Beagle trade forex?  Nope.  While I certainly appreciate those willing to take high level risks in their pursuit of making money, I do not have anywhere near that level of risk.  Still, as someone interested in how the markets and investments work, I’m always interested to watch others.
  9. What’s this about manipulation?  Recently, there was a settlement by hedge funds who were accused of manipulating the forex markets.  There’s definitely a risk here.  If a party has the money and gumption to make currency trades that could actually impact the price, that is, at its simplest, a form of manipulation.  The markets are supposed to move on their own, and forex trading is meant to trade against those movements, not drive them.  I would speculate that one way a forex trader could eliminate this risk would be to trade within currencies that have high volumes, where a staggering amount of capital would actually be needed to move the exchange.

There’s a lot to learn about this forex, and as it is a fast growing, ever evolving market, it will be interesting to see how things develop in the future.

Copyright 2015 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

My Forex Plus500 Review

There are many forex sites out there that let you trade currency. As with most things in life, all are not equal. Some are better than others, some are just average, and some are really bad. One of the better ones that I have come across is Plus500. This forex broker has got its act together and offers a lot of great things for investors. Here is my detailed Plus500 review.

My Plus500 Review

Overall, Plus500 is a great option for those looking to start trading. They are regulated by various agencies, including the London Stock Exchange, which should put you at ease when considering opening an account and trading with them.

When it comes to actual trading, you have various tools at your disposal to help you control some of the risk associated with trading. These tools include:

  • Account Leverage
  • Close at Profit
  • Close at Loss
  • Guaranteed Stop
  • Price Alerts
  • Trailing Stops

By using these tools correctly, you can limit your losses and enhance your gains when trading.

Continuing on with the actual trading, you need to have an easy to understand trading platform where you can find what you need and not have a lot of useless information. Plus500 does a great job at making sure its trading platform is top-notch, providing you everything you need and eliminating everything you don’t. The result is a clean interface that allows you to focus on what is most important to you.

Advantages

The advantages include:

Demo Account: I love this feature because no matter how great of a trader you think you are, nothing prepares you for the real thing. By having a demo account, you can get real-world experience without losing any of your money. And let’s face it, when first starting out, you are at the greatest risk of losing money.

Instruments To Trade: You have the ability to trade a lot of different instruments when you open an account with Plus500. In fact, you can trade just about everything, with the one exception being exchange traded funds (ETFs).

Mobile Trading: Not at your computer? No worries as you can trade via your mobile device. (Not many Plus 500 reviews point this out.)

Low Initial Investment: To get started trading, you only need a small amount of money. Some firms expect you deposit thousands in your account.

Trade Bonus: They offer trade bonuses all of the time, and even bonuses to new customers. Be sure to read up on any current bonuses when you sign up.

Various Funding Options: You can fund your account through a bank transfer, credit card, PayPal or Skrill.

Disadvantages

No Plus500 review would be complete without talking about the negatives. Here are a few disadvantages which include:

No US Accounts: If you are in the US, you are out of luck when it comes to trading here. Currently only UK investors can open an account.

Mobile Alerts: While the ability to trade on your mobile device is great, what is a problem is that you cannot get mobile alerts. This has an impact if you are placing time-sensitive trades and won’t be at your desk.

Overall Thoughts

While Plus500 does have some shortcomings, overall I feel this option is a great choice for those looking to get into the forex arena. This is only increased when you take into account the fact that you can open up a free demo account to dip your toes in and get some practice trading.

When a firm has the end user in mind, you know you found a good company. It is clear after looking into Plus500 that they are a good company. This is seen by all of the great tools they have and the smaller touches all around that makes them stand out from the crowd.

Copyright 2015 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Good Old Uncle Sam Will Be Getting Our Money This Year

The e-mail arrived this past week from our CPA (and family friend), and it started “Welcome to the world of No Tax Refunds.”  I knew it was coming as I had done a back-of-the-envelope calculation before turning our stuff over, but hearing the confirmation still was not something I really wanted to hear.

Our Normal Two-Part Refund

We typically get a refund from Uncle Sam.  For simple years, we have the proper amount taken out of my paycheck that would normally lead to a balanced return, but things like itemized deductions (mortgage interest, etc.), credits for having children, and other various components usually push us to get a refund.mb-money201308

On top of it, we always have a ‘refund’ fund running in our savings account.  Whenever we make any side income, we put a percentage aside.  In addition, if we sell stocks, or do other things that we know will be counted as income, we’ll put a percentage aside.

Typically, the two of these together makes for a nice chunk of change, though usually it just goes toward savings goals, having funded our new roof, built our ‘one day new’ car fund, car repairs, vacation funds, and things like that.

This Year, We Technically Still Get A Refund

Looking at the two part method above, this year we have our savings, and it more than exceeds what we will have to pay, as we’ve faithfully set aside money at every turn.  So, in the end we will still have money ‘left over’.  In all respects, it’s probably better that we did it this way as we basically took a loan from Uncle Sam and earned (paltry as it is) some interest, as opposed to the usual method which gives them an interest free loan until we’d get our refund back.

Still, the net size is smaller, so it’s still a bit less exciting!

One Other Gotcha

Since we had to pay this year, we’re now on the hook to make sure that we don’t underpay again for a second year.  As such, our guy advised that I bump up our contributions from each paycheck to make sure we hit the required amount so that we would avoid the possibility of an underpayment penalty when next year rolls around.

Why We Had To Pay This Year

A few things happened this year that were outside of our normal tax related activity.

  • Savings Bonds – I had some savings bonds that had been purchased years ago that had fully matured.  They were cashed out and re-invested, but the interest earned over the years was taxable income.
  • HSA Deductions – The plan that had previously allowed me to contribute to a health savings account was no longer offered.  The HSA contributions in the past were able to reduce our stated income, but we didn’t have that benefit last year.
  • Stock Market Gains – We have a small trading account that did well for a majority of the year, allowing for some capital gains.
  • Wash Sale Losses – Although we came out positive for the year, we had some losses as well that reduced our income, but because of silly (I could use a stronger word, but will refrain) rules, we couldn’t claim the losses.  Eventually we will once we close out the positions, but effectively, the IRS defers allowing you to claim losses regardless if you actually suffered the loss.  This is effectively what made us end up with a lesser net amount when adding together what we owe and what I had saved, as I did not ‘pay ourselves’ the tax on the losses, though in essence, not being able to claim the losses raised what the IRS sees as income.

What 2015 Holds

We should have a much easier 2015.  I don’t foresee us having to cash in bonds this year.  We’re back to contributing to an HSA plan, though that should really be negligable as my employer coordinates the deductions, thus capturing the effect on our tax rate.  And, as far as our investments, assuming I clear out the ‘wash sale’ stock, we’ll be able to capture all or least a portion of the effect of our deferred loss.  Combine that with the fact that we’re contributing even more via payroll deduction, and we could end up with a hefty return a year from now.

Readers, how did your 2015 tax return shape up?  If you got a refund, what are your plans?

Copyright 2015 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.