The company picnic was a drag.

Lily Roman's cheeks were beginning to cramp from the strain of smiling sweetly and falsely. The timer whirred and the pool lights blazed on; she looked up just in time to see Charles Deatherage, wearing beer antlers and holding a pineapple with a pink crazy straw worming out the top, belly-flop off the end of the board. Lily shuddered and headed back toward the house. The Bug in a bathing suit was more than she could bear.

Her father, Bill Roman, partner in Roman, Wise, & Pecunia, was standing at the window, his back to the door, as Lily walked into the study.

"It's a freak show out there and I'm tired of being nice," she said.

Her father turned, covered the mouthpiece of the cordless and smiled. "Who's your pick for the limbo contest?" he asked in a mock-serious whisper.

"Your new Golden Boy aced the tennis and everything else, so I'll bet he's your choice," answered Lily.

"Your father's shorting me this time," came the smooth deep voice behind her. "He's counting on The Bug's low center of gravity to limbo him to victory."

"Shorting? Pardon?" She turned around slowly, feigning a casualness she did not feel, and looked evenly at the new rising star of Roman, Wise and Pecunia. She knew the type: posterboy for the brokerage. Handsome, ruthless and stupid. She suppressed her first real smile of the day.

"I'm Lily," she said, "And what do you mean he's 'shorting' you?" She put down her champagne and extended her hand for the introduction, but his reply was lost in the sudden roar of motorcycles from the gravelled courtyard.

What is 'shorting?'

1) Small-cap stocks, as compared to towering large-cap Dow stocks, are called "shorts." Buy these shares and you're "shorting."

2) The sale of securities that are not owned by the seller in anticipation of profiting from a price decline of those shares.

3) Any security in which the shareholder sells out his position in less than 30 days from date of purchase.

4) A trading account where, by pre-arrangement, your broker automatically sells shares after a short two or three point rise or loss.

The correct answer is 2) The sale of securities that are not owned by the seller in anticipation of profiting from a price decline of those shares.

The standard investor buys stocks and hopes to profit when they rise. In shorting, (also known as selling a stock short, or taking a short position) the short-seller profits when the targeted stock's price falls.

How's this possible? Well, think of shorting this way: the normal order of trading stocks is reversed: you sell first, then buy. You still want to be able to buy something cheaper than you sell it. So you hope that the price will go down, after you establish your *selling* price.

An investor who sells stock short borrows shares from a brokerage house and sells them to a buyer. Proceeds from the sale go into the shorter's account. He must eventually buy those shares back (cover) and return them to the lender. The short-seller believes the stock price is going to drop. When it does drop, he replaces the borrowed shares with those bought at a lower price, and pockets the difference as profit.

Shorting, like shark fishing, is not for the faint of heart. The danger is the so-called unlimited upside risk: you have to be able to buy back the shares that you intitially borrowed and sold. Whether the price is higher or lower, you're going to need to buy back the shares at some point in time.

Lily ran to the video monitor, punched in the guardhouse at the bottom of the drive, and saw a brace of motorcycles hurtling over the heavy wrought iron spikes atop the massive gate.

The monitor flickered and went dark.

The Motley Fool uses this information for in-house use ONLY.
It will not be sold, rented, given out, bent, folded, spindled, or mutilated.

© Copyright 1995-2000, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. The Motley Fool is a registered trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us