Part 6/7:
Moreover, shorting involves betting against the overall long-term growth trends of the market. Historically, the U.S. stock market has delivered an average annual return of 6% to 7%. By shorting, you are essentially wagering that certain companies or sectors will underperform compared to this general trajectory.
Lastly, it’s crucial to note that if you are shorting stocks, you are liable for any dividends paid while the shares are loaned.
The Purpose and Conclusion
Despite the high risks and complexities of shorting stocks, it does serve a vital purpose in the financial ecosystem. Short-sellers can help expose fraudulent practices and protect against market irrationality, acting as a counterbalance to unreasonably high stock valuations.