WTF is Short Selling?
When The Going Gets Hot, The Shorts Get Going

Finance is fashion’s first cousin—the stock market is sizzling and the whole block is “short selling” stocks.
Hmm, short selling… didn’t Old Navy try that all summer?
Check Investopedia and you’ll see this wackness:
Short selling is the sale of a security that is not owned by the seller or that the seller has borrowed. Short selling is motivated by the belief that a security’s price will decline, enabling it to be bought back at a lower price to make a profit.
Translated to English, this means short sellers benefit from downward spirals. Let’s consider this real life case study.
A short seller:
- Sees that you and your Hinge match are now Instagram official
- Does not like the photo (on purpose, duh)
- Tells your friends y’all won’t last half a semester
Imagine a casino where the only game was the outcome of this relationship. After speeding inside, this hater (the short seller) would bet hella stacks that you’ll be fork-deep into a gallon of Cherry Garcia next week!
Um, ok. How does it work with stocks tho?
You buy stocks you like. You short stocks you don’t. When you buy shares, you do exactly as you do on Amazon: select and submit. The seller gives you a piece
When you short tho, things get freaky. A short sale has three pieces:
- You borrow (instead of buy) shares from someone
- You hit a U-turn and sell those shares to somebody else for cash
- You wait (and pray) for the stock price to drop
Like iPhone chargers, you gotta return these shares to their owners before they start crying for their lawyer. If the share price goes:
- Down: YAAAS, you can buy back the cheaper shares, return-to-sender and keep the difference in $
- Up: MAJOR L ALERT. You’re losing the difference between the new (higher) share price and the original cost
Like snorting rocks, shorting stocks is risky af so you need to understand when to short and when to abort.
When should I short a stock?
Because shorters make stacks when the stock go south, they stalk three signals:
1. Dat Hype
- Also known by Wall Streeters as ‘overvalued companies’ or ‘particularly aggressive valuations’
- When everyone’s drinking the Kool Aid (e.g. brainwashed by corporate management) and believes a company or industry will grow at Usain Bolt pace every year when in reality, there’s a better chance of Tupac walking into Whole Foods
2. Dat Fraud
- Sometimes, old white people (non-whites also, but statistically speaking, old white men) finesse the streets by spreading fake AF financial figures (RIP Enron and Worldcom)
- Like leopards, these are difficult to spot in the wild, but once seen they can’t be unseen. If you study a company for a long time, real will recognize real and you’ll make serious stacks by shorting
3. Dat Hedge
- Ladies, let’s say you’re going steady w/ your mans. If you know this a forever thing and not a fling, you’re what portfolio managers call ‘long-only’
- NOW, let’s say you like him but you’re not really sure if this flight will make it to the final destination (marriage, civil union, whatever). If you start getting DMs from other eligible bachelors, will you ‘Block User’ or nah?
- If you chose ‘nah’, you’re hedging. If things with your mans go sour, you’ll take the benchwarmers off ‘seen’ and ask if they free for tacos
Short selling works the same way. Pimps (ladies is pimps, too) who have serious stacks invested in the market may wanna get insurance in case real things start happening. When markets start crashing, your short positions become your airbags.
Aite, I get it — but HOW do I short?
HIT THE BRAKES. Who is you? Depending on your profile, here’s what you should do:
1. FIRST TIMER
- Don’t do it. Unless you got bags on bags and don’t mind donating a few to the streets, keep a simple, long-term wealth building strategy. Shorting is for thugs who keep that poker face during Russian Roulette because you’ll go dead broke if this goes wrong (vs. only losing what you invest if you ‘go long’).
2. BEEN AROUND DA BLOCK
If you’re about that ‘margin account’ life, this might be for you. If you’re not familiar, a margin account is necessary for short sales because brokers need to to see stacks in case the short sale goes sour.
You should:
- Research: Treat the company you wanna short like you treat future bae’s Instagram — stalk every 15 minutes. Unlike future bae’s IG tho, with public companies, you can double-tap, like and DM all you want. All public companies have filings and Investor Relations goons — ask questions, read information and be up on game
- Calculate: What’s your broke AF point? Calculate much you’ll bleed if the stock goes up 5%, 10%, 15%... and proceed with caution
- Mattress: One side effect of shorting stocks is night terrors. Since your potential losses are unlimited (the stock could keep going up forever), you might start seeing your stock double everytime your eyes close. If you’re gonna short a hot stock, buy a cool mattress.
3. CERTIFIED OG
- If you OG status then you probably already good in the hood. In addition to shorting there are other ways to profit off of companies that are over-hyped. Look into derivatives — you can buy ‘put options’ or ‘sell call options’ to get stacks from failing companies.
I see — but why the media hate short sellers? Will all my friends unfollow me if they discover I’ve been out here shorting stocks?
The media hates short selling because they don’t understand it (unlike you). Shorting companies in the USA (or anywhere, really) is as legal as doing your dishes. Shorting a company doesn’t change it’s price the same way roasting your friends doesn’t actually change their behavior. You’re not manipulating the market — instead, you’re making a bet that a pile of gold is actually a pile of trash.
Aite, I’m woke — what’s next?
- WTF Is Short Selling part 2 — Advanced Strategies for These Streets
- Mergers and Acquisitions — Huh? Is this like love and marriage?
- Dividends — Rick Ross talks about grabbing divideeends often. What are they and how can they help you join his tax bracket?
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