Chapter 31: Preparations Before Short Selling

A sudden influx of a large number of outstanding shares into the market for sale would cause significant consequences, which everyone is well aware of. Regardless of whether profits are gained or not, just the sight of this scene by other retail investors or financial institutions may trigger panic and lead to further selling.

Of course, financial institutions have a significant advantage compared to retail investors. At least, when it comes to simple short selling operations, they can definitely see through it and may even be willing to participate.

Speaking of borrowing stocks, many people may have questions. Why would Julian or other financial institutions, who already hold high-priced stocks, be willing to lend stocks to Carter to lower their own stock value and profit from it?

The reason why short selling operations exist is because these operations can also be profitable for them. When borrowing stocks, it's definitely not for free; Carter still has to pay interest. Besides, when Carter shorts the stock of the Victorra Manufacturing Company, will Victorra intervene to support the market?

Perhaps they will forcibly buy back the stocks Carter sold to maintain trading balance and keep the stock price within a reasonable range. This is just one possibility. Moreover, even if Victorra doesn't intervene, when the stock price drops to a certain extent, will other retail investors, especially knowledgeable financial institutions, step in to buy?

Regardless of who intervenes, the price won't continuously plummet. If action is taken quickly, or if one is too aggressive, Carter might end up losing money instead of making it. After all, in the stock market, there have been instances where stocks rebounded even higher than their original prices. In this case, whether those who lent the stocks make a profit or incur a loss is hard to say. Furthermore, even if the stock price drops, the dividends remain the same! As long as the shares remain unchanged, the overall impact is minimal.

There are many adept long traders in the stock market, as well as many skilled short sellers. Which publicly traded company hasn't been targeted by someone? But generally, if you engage in minor actions, it's fine; after all, market laws are in place, and others can't interfere with the normal operation of the market. But if you go too far all at once, isn't that a bit excessive?!

Julian originally wanted to advise Carter to "leave a way out for yourself and we'll meet again in the future," but after some thought, he kept this to himself. Young people, they dare to think and act, swift and decisive, it's quite normal.

They don't understand what balance means or what moderation is. All they know is "it's either you die or I perish." In the brief moment of wavering between offending Victorra or Carter, Julian clarified his goal.

"I'll go make some calls to arrange the stock lending, and after the market opens, the transfer will be completed. However, there's one thing I need to tell you beforehand: to ensure the interests of the lenders, the proceeds from the stock trading will be temporarily held by me, and will be distributed after the matter is resolved."

Lending out stocks for sale means not having to spend a single penny upfront. And after making a profit, you can use the earned money to buy back low-priced stocks and return them, leaving you with your own profit. It's like going to a wholesale market and telling the boss, "Hey, boss, lend me some goods. I'll sell them and make money, then buy the same goods back for you." If the boss believes you, there's something fishy!

So, brokerage firms act as guarantors between Carter and the lenders. They have verified Carter's assets and understand that even if these stocks lose value, Carter has enough money to buy back high-priced stocks for repayment. Therefore, they are willing to help him borrow stocks. Seeing the face of the brokerage firm, the lenders are also willing to lend stocks. For safety reasons, the proceeds will be temporarily held by the intermediary, which is the third-party guarantee transaction in securities trading.

Just like Taobao in the future, where merchants and customers don't trust each other, hence the need for an intermediary. The money is held by Taobao first. After receiving the goods and confirming that everything is correct, the money will be delivered.

"Also, I don't recommend you sell all at once. Selling in batches can maximize profits, and remember, always know when to stop. Don't be greedy. Greediness leads to risks of getting trapped."

Before leaving, Julian reminded Carter with some concern. Although Carter said he would mainly handle this short selling operation, Julian noticed Carter's strong desire for control since their conversation yesterday. Operation is one thing, but in the end, Julian decided he wouldn't do it himself.

"Alright, I got it. I'll make sure to set a target for myself."

"That's the best!"

After the discussion, Julian went to coordinate resources. Carter stayed in Julian's office to continue reviewing the information of the remaining companies on the list.

Almost all the companies on this list are suitable targets for short selling. Short selling itself is a speculative and short-term operation. After all, neither investors nor the companies involved want to see the stock price of their invested companies plummeting. After a short period of decline, there will certainly be a reaction.

From this, it's not hard to see that Julian truly heard what Carter said about not staying in New York for long yesterday.

Now Carter is increasingly satisfied with Julian. He can think what clients think, do what clients need urgently. This kind of person wouldn't fail! But is he really just a stockbroker for a small brokerage firm?

Carter was thinking about Julian when the main character returned, pushing the door open and making an "ok" gesture to Carter:

"The company is all set. After the market opens, the transfer can be made to your account. Shall I contact other companies now? Do you have your eyes on Central Instrument?"

The New York Stock Exchange, or the entire US stock market, operates under a T+2 trading system. This means that after buying stocks, funds will be settled within three working days. Only after settlement, holding the traded stocks for two full days, can they be sold. So, Carter definitely can't act on the plan for Victorra today.

But to gather 700,000 shares within one day will greatly facilitate Carter's future operations. At the same time, it also demonstrates Julian's ability. Not every stockbroker has the ability to raise a large amount of resources in such a short time. Often, even if you have the money, it's not enough!

And borrowing stocks doesn't require Carter to front any money. Can he just wait for these few days? Julian believed that Carter definitely wouldn't be satisfied with just one transaction. Immediately, he asked.

As Julian expected, Carter wouldn't be content with just one transaction, "And this company, this one, and this one. Currently, I think these three are the most suitable targets. I'm not optimistic about the industries they're in."