In the world of investing these two terms are thrown around all the time. Have you ever heard the saying, “the higher the risk, the higher the return”? This might seem counter intuitive. If risk means losing, how can it yield higher returns? Let me explain.
There’s always that one top in the shop that people either really HATE or really LOVE. There’s no in between. Or foods, like Marmite, that people either really love or really hate. Well a risky investment is like that. It might flop dismally (and you could lose everything) or it might just take off and be the most successful investment. Less risky investments are proven to work and be reliable, but you don’t (always) make a lot of money. But with every investment one makes, there is risk (whether big or small).
There is no formula one can follow to extinguish risk and guarantee reward. At the end of the day, you need to be able to sleep at night once you’ve made an investment.
Everyone meet Matteo. Matteo is a creative who works in advertising agency. This laid back guy chuckled a little when I asked him what the terms: “going long” and “going short” meant in the investment sphere. His answer was not too bad - he knew it had something to do with the selling and buying of shares - NOT bad at all.
Going Long (or the Long Position) means that you buy a stock or security expecting it to increase in value. Straight forward right?
Short selling or going short allows you to make profit by anticipating a decrease in value of a certain stock or security. HUH?? So how does this work? SIMPLE: you borrow a stock, sell the stock and then buy the stock back to return it to the lender. So if you sold the -borrowed- stock for R 100 and bought it back for R 60, you make R 40. The stock was never yours to begin with so you made money from something that was never yours