2094: Short Selling - Revision history

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 Her story appears to be based on plot elements of multiple fairy tales. It begins by mixing up the story of {{w|Rapunzel|Rapunzel}} with {{w|Jack and the Beanstalk|Jack and the Beanstalk}}.
-In one version of {{w|Rapunzel|Rapunzel}} a Father breaks into a witch's garden to steal the Rapunzel plant for his pregnant wife. The Witch catches him and agrees to let him go and not punish him in exchange for the child.
+In one version of {{w|Rapunzel|Rapunzel}} a father breaks into a witch's garden to steal the Rapunzel plant for his pregnant wife. The Witch catches him and agrees to let him go and not punish him in exchange for the child.
 In one version of the "{{w|Jack and the Beanstalk|Jack and the Beanstalk}}" fairy tale story, Jack sells a cow for magic beans.  His mother, thinking the beans are fake, is angry with Jack.  Jack plants the beans and a magic beanstalk grows up into the clouds.  Jack climbs the beanstalk and explores the land above the clouds.  He finds the home of a cruel giant and proceeds to steal from the giant.  The giant discovers the theft and chases Jack back down the beanstalk.  Jack reaches the bottom of the beanstalk first and cuts the beanstalk down.  The giant falls to his death, and Jack uses his stolen wealth to take care of himself and his mother.
-The combination of the two stories is similar to the story from the musical "{{w|Into the Woods|Into the Woods}}," in which a Father sneaks into the Witch's garden to steal vegetables, then trades his soon to be born child for the vegetables, but also steals beans in the process.
+The combination of the two stories is similar to the story from the musical "{{w|Into the Woods|Into the Woods}}," in which a father sneaks into the Witch's garden to steal vegetables, then trades his soon to be born child for the vegetables, but also steals beans in the process.
 ==Transcript==

← Older revision		Revision as of 05:35, 10 March 2023
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	The combination of the two stories is similar to the story from the musical "{{w\|Into the Woods\|Into the Woods}}," in which a Father sneaks into the Witch's garden to steal vegetables, then trades his soon to be born child for the vegetables, but also steals beans in the process.		The combination of the two stories is similar to the story from the musical "{{w\|Into the Woods\|Into the Woods}}," in which a Father sneaks into the Witch's garden to steal vegetables, then trades his soon to be born child for the vegetables, but also steals beans in the process.

−	The title text is actually the most useful part of this comic when it comes to investment advice. It posits a reality in which there actually ''was'' a market for advice, and demonstrates how short-selling would work in such a ~~could~~. The witch (the broker) is offering the father (short seller) 20 magic beans now if the father/short seller buys all of the analogies (stocks) later. If the father believes he can buy the advice for less than 20 beans (because it becomes "less helpful by the minute"), that would seem like a winning trade. But then a risk is brought up: what if multiple witches/stock brokers make the same deal with multiple fathers/brokers? Since every father/seller now needs to buy the same analogies/stocks, a bidding war erupts and it's impossible to please all the witches. The "winner" pays a much higher price than expected, hence losing money on the deal, and the losers wind up either dead or enslaved (bankrupt). In the stock market the corresponding phenomenon is known as a {{w\|short squeeze}}, hence Cueball's comment. Ponytail's replies "that probably never happens", which is almost certainly intended as false reassurance. It certainly does happen in real life, and ignoring such risks is ~~the~~ mark of an unprepared investor.	+	The title text is actually the most useful part of this comic when it comes to investment advice. It posits a reality in which there actually ''was'' a market for advice, and demonstrates how short-selling would work in such a case. The witch (the broker) is offering the father (short seller) 20 magic beans now if the father/short seller buys all of the analogies (stocks) later. If the father believes he can buy the advice for less than 20 beans (because it becomes "less helpful by the minute"), that would seem like a winning trade. But then a risk is brought up: what if multiple witches/stock brokers make the same deal with multiple fathers/brokers? Since every father/seller now needs to buy the same analogies/stocks, a bidding war erupts and it's impossible to please all the witches. The "winner" pays a much higher price than expected, hence losing money on the deal, and the losers wind up either dead or enslaved (bankrupt). In the stock market the corresponding phenomenon is known as a {{w\|short squeeze}}, hence Cueball's comment. Ponytail's replies "that probably never happens", which is almost certainly intended as false reassurance. It certainly does happen in real life, and ignoring such risks is a mark of an unprepared investor.

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 ==Explanation==
-{{w|Short (finance)|Shorting stocks}} (short selling stocks) is a stock market practice. If we think of normal investing where we buy into a stock as betting on the stock rising in value then shortselling is a corresponding betting on a stock to fall in value. This inverse procedure is accomplished by getting the stock on a loan or "front" basis to begin with, then selling the stock that isn't actually owned, so that when the stock loses value you're able to pay back a lower amount and keep the difference. We could say someone takes a risk because they believe that a certain stock's price is going to drop.  The risk-taker borrows stock from someone, and then sells the stock that they've just borrowed, keeping the money from the sale. They then owe that stock to the lender. But the risk-taker believes that they will be able to buy the same stock back on the stockmarket later on at a lower price, and then give it to the lender to replace what they borrowed.  If everything goes according to plan and the stock drops in price, the risk-taker will walk away with a profit.  Of course, if things don't go according to plan and the stock rises in price instead, the risk-taker winds up losing money, because they have to buy back the stock for more than they sold it.
+{{w|Short (finance)|Shorting stocks}} (short selling stocks) is a stock market practice, generally engaged in by those who expect a particular stock to fall in value. Essentially, rather than buying or selling a stock, one party sells a contract to deliver a stock within a certain period of time, at a price based on the current stock value. If the stock goes down in value, that person can then purchase stock to fulfill the contract at a lower price, thus making a profit. The risk is that, if the value of the stock goes up (possibly by large amounts), the seller then must pay that higher price to fulfill the contract.
-Cueball asks Ponytail to explain shorting stocks.  Ponytail starts out with a fairy tale story that falls apart almost before she even starts.
+Because short-selling is somewhat more convoluted than the simplest form of investing (which is to buy stocks and hope they go up in value), new investors don't always understand how it works. In this strip, Cueball asks Ponytail to explain shorting stocks.  Ponytail starts out with a fairy tale story that falls apart almost before she even starts.
-The process of short selling a stock functions similarly to the initial parts of the story. The major steps in normal shorting are described here alongside the analogous (sort of) parts of the story:
+The analogy begins with a somewhat common fairy tale trope of a childless person promising their firstborn child to a witch. This is vaguely similar to short-selling, in that a person is receiving payment in exchange for something they don't yet have, but isn't a really helpful comparison, for a number of reasons. Ponytail then posits that the person turns out to love their child, and value them far more than what they were paid. Once again, that's vaguely similar to short-selling a stock, and then having it go up in value, but is a very bizarre way to demonstrate the notion. In addition to being grotesque, placing a monetary value on your love for your child doesn't reflect how an actual market works (your child is likely worth more to you than to anyone else).
-:The investor finds a person willing to allow them to borrow stock S now. This is usually done through a broker. The investor then sells the stock they borrowed, adding $5 to their account. They plan on waiting until stock S is selling for $1, then buying it again. They will have made $4 in profit, and can return the stock they borrowed.
+The analogy then goes totally off the rails, telling Cueball that he needs to send his child "up the beanstalk to battle the giant", both of which are completely new elements in the story, and the only justification is that the giant somehow "represents interest rates". Even if that analogy could be justified, it's convoluted and non-intuitive enough that it's not remotely helpful in promoting understanding.
-:Stock S does not decrease in price, but increases dramatically to $200. The investor has promised to return the stock within a specific timeframe, and they must do this or they will be in violation of various laws and contracts. They can wait in the hopes that the value will drop again, but they will eventually have to buy the stock for the new price of $200. They will lose $195 on this transaction.
+Cueball comments that the analogy is rapidly losing its value to him.  Ponytail fires back with the comment that he should have "somehow" shorted her advice before asking for it. This is the essence of short-selling: if something loses value, then someone who shorted it would make a profit. Of course, there is no market for shorting advice, and the value that advice has to Cueball doesn't translate into actual market value. Ponytail seems to be simply mocking Cueball that there's nothing he can do about her advice being useless.
 Her story appears to be based on plot elements of multiple fairy tales. It begins by mixing up the story of {{w|Rapunzel|Rapunzel}} with {{w|Jack and the Beanstalk|Jack and the Beanstalk}}.
@@ Line 38: / Line 26: @@
 The combination of the two stories is similar to the story from the musical "{{w|Into the Woods|Into the Woods}}," in which a Father sneaks into the Witch's garden to steal vegetables, then trades his soon to be born child for the vegetables, but also steals beans in the process.
-The title text is actually the most useful part of this comic when it comes to investment advice.  The witch (the broker) is offering the father (short seller) 20 magic beans now if the father/short seller buys all of the analogies (stocks) later.  However, multiple witches/stock brokers trick multiple people into this strategy.  Since every father/seller now needs the same analogies/stocks, and multiple witches need the exact same complete set of analogies, a bidding war erupts and it's impossible to please all the witches.  The "winner" pays a much higher price than expected (limiting how much of a win it really is).  And the losers wind up either dead or enslaved (bankrupt). In the stock market the corresponding phenomenon is known as a {{w|short squeeze}}, hence Cueball's comment. However, if the witches implement this strategy by discussing among themselves to orchestrate the phenomenon, it would be in violation of various trading regulations, and brokers rarely have a reason to hope for their clients to go bankrupt.
+The title text is actually the most useful part of this comic when it comes to investment advice. It posits a reality in which there actually ''was'' a market for advice, and demonstrates how short-selling would work in such a could. The witch (the broker) is offering the father (short seller) 20 magic beans now if the father/short seller buys all of the analogies (stocks) later. If the father believes he can buy the advice for less than 20 beans (because it becomes "less helpful by the minute"), that would seem like a winning trade. But then a risk is brought up: what if multiple witches/stock brokers make the same deal with multiple fathers/brokers?  Since every father/seller now needs to buy the same analogies/stocks, a bidding war erupts and it's impossible to please all the witches.  The "winner" pays a much higher price than expected, hence losing money on the deal, and the losers wind up either dead or enslaved (bankrupt). In the stock market the corresponding phenomenon is known as a {{w|short squeeze}}, hence Cueball's comment. Ponytail's replies "that probably never happens", which is almost certainly intended as false reassurance. It certainly does happen in real life, and ignoring such risks is the mark of an unprepared investor.
 ==Transcript==