Dear Nancy,
I'm 18 years old and my experience in the world of investing is limited to articles and comments that I read online. My goal is to make a lot of money...fast. I just have no idea where to start. I also do not have a lot of money, either. I've heard to make money quickly you should open up a margin account and short sell a stock. I wanted to know how true this is, and if you have the time, could you provide a little bit more information on how it is done? Thanks, Jullian
Dear Jullian,
My first word of wisdom for you is that there is no assured way of making money "fast." If there were, we would all be sitting on beaches somewhere sipping margaritas.
You have to be very careful if you are going to short sell a stock. You have to have sufficient assets to allow you the margin (collateral to borrow against) to short sell.
There is a much higher risk to short selling as opposed to owning a stock outright. If you buy a stock and it goes down your loss is limited to the amount that you originally invested. If you short sell a stock (sell a stock that you don't already own) and it rises in price rather than go down, your loss is virtually unlimited. The strategy is that you can buy it back at a lower price than what you sold it for. An additional thing you need to be aware of is, if the stock you choose to short pays a dividend, you are obligated to pay the dividend amount.
I suggest you artificially try out your theory by trading with a virtual portfolio online. You will see it is not a sure thing.
You need to change your way of thinking from that of a gambler to that of an investor.
Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment advisor with RBC Dominion Securities Inc. To ask her a question, send an e-mail to asknancy@rbc.com
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