investments include selling short
Transcript, 2 minutes 45 seconds, for use during week of Dec.
Description: Penny, Susan, and Ira discuss short sales and
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Susan: My friends have been talking about alternative investments. Can
you help us understand what alternative investments are and whether
a fit for Ira or me?
Penny: There are many investments besides
stocks, bonds, and mutual funds. Many
of these alternative investments are for advanced investors or
for people who hire investment advisors. And, many investors
build large portfolios and never venture into these “alternative” investments.
What sorts of investments are we talking about?
investments can include short sales, real estate, and funds that
use derivatives, among others.
Ira: I wouldn’t call either
Susan or myself advanced investors. Do
we really need to know about alternative investments?
worthwhile to have a basic understanding. You may hear
people talking about them or someone may urge you to invest and
want to know what they are and why they may not be the choice
Susan: That makes sense. What, exactly, do we need
Penny: As I mentioned there are different types. Let’s
start with short sales.
Ira: Is that what I have heard referred
to as ‘selling
Penny: Yes. Short sales are sales of a stock
with the expectation that it will decrease in value. The
investor borrows the stock from a broker to deliver to the buyer. The
investor assumes that he or she will be able to buy the stock
back later at a lower price in order to return the borrowed shares
to the broker.
Susan: So the investor makes money when
the price of a stock goes down rather than up.
Penny: Yes, but
If, instead of decreasing in value, the stock rises, then the
investor loses money. And in short sales, there’s
no upper limit to what an investor could lose.
Ira: So, even
though there are advantages, selling short has big risks?
Penny: Yes. There’s also something called hedging,
or a covered short, which occurs when an investor actually owns
the stock they are selling short. In
the case of hedging, an investor is trying to hold onto any gains
without selling the underlying security.
Susan: Thank you, Penny. This
Penny: You’re welcome. And remember, for
more information visit the ISU Extension website at extension.iastate.edu
and look for ‘Invest