You are Short Seller – let me prove it!

Short Selling a Stock

Short Selling a Stock

Met a friend and we started talking about shorting in stock market. His first expression was – never Sell Short. It is risky and difficult to understand.

I told him that we sell short almost everything, almost everyday. You are already living a career which is in to Short Selling and you don’t even know about it.

Let me give an example. If you do something similar in life – You already are a Short Seller.

Carpenter bhai:
last year we called one of our favorite carpenter to make a Dressing table. He understood  what we wanted, took measurements, explained us our options. We have taken his help in past and we know he does good job. Next we started talking about Price. He said – 2000 rupees. We said – 2000 is too much – make it 1500. He said there is no way he can do 1500. Finally we fixed 1800 rupees. “Give me weeks time and I will get your Dressing Table ready”.

He took 1800 rupees and left.

Next Seven days:

What do you think carpenter is doing? He tries to search inside his workshop to find some good but leftover wood or any other material he can re-use. He goes to Plywood store, bargains and tries to get wood for discounted price. Month back, he got a big lot of nails, screws, fevicol etc at wholesale price (cheaper price). He is skilled and knows that he has to spends just 2 days and table will be ready. For polishing, he asks one of his assistant to do the job.

Week gets over and he hands-over Dressing table.

What do you think Carpenter did in weeks time?

First he took 1800 rupees.
Secondly, he tried to produce table for minimum price.

Lesser the cost to produce table, bigger the profit. From his experience he was confident that he will be able to produce table in weeks time for cost less than 1800 rupees. Let’s say the cost of material came down to 600 rupees and cost of man power is 600, total cost of producing table = 1200 rupees.

On delivery Carpenter made 1800 – 1200 = 600 rupees.

This is Shorting!

We do this all the time. We promise to sell/produce some product/service for certain [market price] and then go back to our workplace to produce that item for less than market price.

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