Types

• There are two types of stock transactions. An investor can either go long (buy a given stock) to open his position or he can go short (sell a given stock) to open his position. When a stock is sold before it is purchased, it is known as a short sale. Short sellers sell the stock in anticipation of a decrease in the stock price, hoping to buy the stock back later at a lower price. When an investor goes long a stock, it means he has purchased the stock to open the position and is hoping to sell it for a higher price later. The important thing to remember is that everyone wants to buy low and sell high, they just don't necessarily do it in that order.
  
  

Time Frame

• Investors go long stocks for many different durations. Day traders may go long for just a few minutes, hoping to capture a small upward move in the stock and do it several times per day. An investor involved in retirement planning may buy a stock and hang on to it for forty or fifty years, hoping to be able to retire on the appreciation in the stock price. While a short sale transaction might be more time sensitive due to the margin requirements, a long stock transaction can be bought and held indefinitely.
  
  

Considerations

• Some of the considerations that go into a long stock purchase would be the overall investment objective and the amount of time available to reach that objective. A young person may be interested in buying small cap stocks because of their explosive growth potential. However, their higher downside risk might make them less appropriate for someone on the verge of retirement. Older investors might be better served going long income producing stocks like utilities and other high-dividend stocks.
  
  

Misconceptions

• Many investors believe that any stock will appreciate in value if given enough time. While this may be true on a broad market basis, and is therefore a strong argument for mutual fund investing, it is not true in every individual stock's case. Some of the stocks with the most compelling stories have gone to zero and left their investors with nothing--hence the expression, "Long and Wrong."
  
  

Expert Insight

• Going with long stocks is the lowest risk method of playing the market in individual stocks. That does not mean, however, that it is low risk. Adding leverage to a portfolio by buying stocks on margin can be a good way to increase gains, but it also adds a much higher degree of risk. Finally, going short to open a position is probably the riskiest way to play the market, and exposes the investor to an unlimited downside. Short selling, therefore, should only be attempted by seasoned investors.