The Risks of Short Sales

In the following video, Fool contributor Matt Thalman discusses a few risks in shorting a stock. One is that while the upside potential of shorting a stock is capped at a 100% gain, the downside potential is unlimited -- the complete opposite from buying a stock outright.

Another risk is that when you short a stock, you're essentially saying management doesn't know what it's doing. But if you're shorting Hewlett-Packard and Dell based on declining PC sales, and the companies' management teams deliver on their goals of diversifying their businesses and becoming less reliant on PC sales, your gamble may not pay off.

See more in the following video.

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The article The Risks of Short Sales originally appeared on Fool.com.

Fool contributor Matt Thalman owns shares of Facebook. Follow Matt on Twitter: @mthalman5513. The Motley Fool recommends and owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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