Why we don’t Short Sell

We Indians are a strange lot. World over we are famous for our culture, food, big grand weddings and our emotions. It is strange how famous we are the world over for wearing our heart on our sleeve. There is nothing wrong or right about this characteristic but understanding the limitations it creates is very important.

Short selling is a derivative contract which involves selling a stock without actually holding it with the anticipation that the price will go down. The investor thus makes profit which is equal to difference in the selling price and buying price. People short stocks when they are pessimistic about the future. Now here lies the dilemma for Indians. Most Indians are optimistic and do not wish badly for others, especially for personal gains. So even if there are strong signs of a stock moving down most would let the opportunity pass. On the other hand, if there was an opportunity to go long (exact opposite of shorting) people would be more willing. This may be due to a feeling of guilt that you have driven down the price.

It is strange how emotions cloud our judgments. The philosophy of taking decisions based on data, leaving emotions aside is a skill we need to develop. Money gets people a bit emotional, but discipline is the key to making consistent profits.