14.S: Summary

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Congratulations ‒ You Have Finished Chapter 14 ‒ Buying on Margin and Selling Short

You have reached the end of chapter 14, Buying on Margin and Selling Short. In this chapter, you have:

Explored the differences between cash accounts and margin accounts
Examined the technique of buying on margin which entails borrowing money to buy securities, typically stocks
Discussed the use of buying on margin to magnify investment returns and the potential adverse results
Examined the technique of selling short, also known as shorting stocks
Discussed the use of shorting stocks to profit from falling prices and the potential significant adverse results
Explored the phenomenon known as a “short squeeze”

You should now be able to:

Explain the technique of buying on margin and its potential advantages and disadvantages
Calculate various profit and loss results from various buying on margin scenarios
Explain the technique of selling short, also known as shorting stocks, its potential advantages, and its significant potential pitfalls
Calculate various profit and loss results from various selling stocks short scenarios
Identify potential “short squeeze” situations and how a prudent, long-term investor can take advantage of such situations

More Congratulations! We Are Finished with Securities.

We have finished all our coverage of securities, financial investments that represent equity or debt or the legal right to acquire or sell an ownership interest. As we have said in the past, securities is the fancy word for stocks, bonds, mutual funds, short-term instruments, derivatives and other financial vehicles. We hope by now that you are accustomed and comfortable with the term securities. Personally, I have never liked the term securities since most people look at you oddly when you use it. They think you are talking about law enforcement or a private security company or administration of justice or something that has to do with reducing danger or threat.

In our next two chapters, we will continue discussing speculations as we first cover precious metal, art, and collectibles and then turn our attention to something that is on everyone’s mind these days, kleptocurrencies, ooop!, I mean, cryptocurrencies. We will then be ready to take a quick look at some other miscellaneous topics and some of the other investment alternatives such as real estate or starting a business. Most of us will never get involved with real estate as an investment or starting a business, the ultimate investment. But who knows? Maybe one of these will pique your interest and you will build a real estate empire or start the next Google or Tesla. As always, we wish you the best of luck and success in whatever endeavors you choose!