Editing 2094: Short Selling
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==Explanation== | ==Explanation== | ||
− | {{ | + | {{incomplete|Created by a SHORT WITCH. Please mention here why this explanation isn't complete. Do NOT delete this tag too soon.}} |
− | + | {{w|Short (finance)|Shorting stocks}} (short selling stocks) is a stock market practice where 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. | |
− | + | Cueball asks Ponytail to explain shorting stocks. Ponytail starts out with a fairy tale story that falls apart almost before she even starts. | |
− | + | Her story appears to begin 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 witches 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. | |
− | + | Ponytail's version starts with a father (not Jack) selling a child he hasn't had yet to a witch. Like short selling, the father is selling something he doesn't own. But unlike short selling, the father is selling something that doesn't exist yet. The child is sold for five magic beans, and the father thinks he will make a profit as he believes the child will only be worth two beans/love once born. The debt comes due, but the value of the child is now 200 beans/love. This is actually closer to the concept of writing a call option. If the witch makes a call option on the child for five magic beans, she has the right, but not the obligation, to buy the child for five beans. If the child turns out to be worth less than that, she doesn't have to do anything, but if the child turns out to be worth more (like, say, 200 beans), she can buy the child for an extreme discount and sell it to some other person for 200 beans, making a profit of 195 beans. The father figures that the child will probably be worth less, so he willingly gives the witch the right to buy his firstborn for five beans, regardless of the child's actual market values. | |
− | The | + | The somewhat broken analogy breaks further when Ponytail says the father now is going to fight the witch instead of paying the witch with the child. There is no "fighting" if a short selling stock strategy fails. (Or if writing a call option fails) You simply lose money. |
− | + | Our now definitely broken analogy breaks down even further (if possible) by sending the kid up the beanstalk to fight the giant - a giant that Ponytail says represents high interest rates. Interest rates have nothing to do with shorting stocks. (Technically they can, but the short seller would have / should have calculated that when determining if their investment strategy would work.) | |
+ | Cueball comments that the analogy is rapidly losing its value to him. Ponytail fires back with the comment that he should have shorted her advice before asking for it, thus making a profit. The decreased helpfulness of her wisdom is analogous to the decreased value of a shorted stock price. | ||
+ | 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). | ||
==Transcript== | ==Transcript== | ||
+ | {{incomplete transcript|Do NOT delete this tag too soon.}} | ||
:[Cueball and Ponytail are walking together, talking.] | :[Cueball and Ponytail are walking together, talking.] | ||
:Cueball: I don't understand shorting stocks. | :Cueball: I don't understand shorting stocks. | ||
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[[Category:Comics featuring Cueball]] | [[Category:Comics featuring Cueball]] | ||
[[Category:Comics featuring Ponytail]] | [[Category:Comics featuring Ponytail]] | ||
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