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January 1, 2003

The Crazy World of Short Selling

By Source: The StreetSmart Guide to Short Selling by Tom Taulli (McGraw-Hill, 2002)

Short selling has been a mystery for many investors and traders.

Perhaps that's one reason why the general public thinks it is basically immoral. After all, short sellers are making money from disaster, right?

Here's a look back at some of the interesting stories of short selling:

* Napoleon outlawed short selling because he believed it hampered his ability to finance his empire building. (He termed the practice "treason").

* In the late 1880s, the president of American Steel and Wire Company, John Gates, would cut back production and lay-off people and then short the stock.

* Jesse Livermore shorted Union Pacific Railroad several months before the San Francisco earthquake of 1907.

* Bernard Baruch, who advised several US presidents, made his fortune by short selling. He even wrote a book defending the practice - but did not disclose to the public that he was the author.

* Albert Wiggin, the CEO of Chase National Bank, shorted his company stock before the crash of 1929. He netted $4 million on the trade and the bank reimbursed him for the taxes.

Source: The StreetSmart Guide to Short Selling by Tom Taulli

(McGraw-Hill, 2002)