(Reuters) – Chinese display-advertising provider Focus Media Holding Ltd (FMCN.O) said it received a bid from a consortium that includes its chief executive and private equity firm Carlyle Group that values the company at $3.49 billion.

Shortseller Muddy Waters, which has in the past alleged that Focus Media overstated its assets and overpaid for acquisitions, welcomed the offer, saying the firm was better off in private hands.

The offer of $27 per American depositary share represents a premium of 15.5 percent to Focus Media stock’s Friday close. Shares of the company rose 8 percent to $25.26 on Monday on the Nasdaq, but they were still well short of the bid price.

Shares of several Chinese companies have been hammered in the recent past after allegations of accounting scandals by shortsellers such as Muddy Waters and Citron Research.

“The markets are far better off if a few deep-pocketed investors own Focus Media instead of mutual funds and other public shareholders,” Muddy Waters’s Carson Block told Reuters.

Focus Media has repeatedly denied Muddy Waters’ accusations that the company overstated its assets and overpaid for acquisitions.

The offer for Focus Media is the latest in a string of management-led buyouts of U.S.-listed Chinese companies, as executives look to take advantage of big discounts to peers on the Hong Kong and Chinese stock markets.

Fushi Copperweld Inc (FSIN.O), China TransInfo Technology Corp (CTFO.O) and Winner Medical Group Inc (WWIN.O) have accepted go-private offers from their managements.

Shares of Focus Media, which operates flat-panel display screens in commercial buildings, trade at a multiple of 8.3 times their forward earnings. This is at a deep discount to the stock’s five-year historical average price-to-earnings multiple and the industry average, according to Thomson Reuters StarMine.

“Focus Media is under a lot of valuation pressure because of controversies surrounding the company,” T.H. Capital Research analyst Tian Hou told Reuters, adding that a successful deal will help other Chinese companies regain credibility among U.S. investors.

The Focus Media deal triggered a 7 percent jump in shares of New Oriental Education & Technology Group Inc (EDU.N), which Muddy Waters has accused of lying about its network and cash balances.

“We think the (Focus Media) stock has been undervalued trading at high single-digit PE when the earnings growth is expected to be above 20-25 percent,” Macquarie Securities analyst Jiong Shao told Reuters.

“Focus Media has a great business, generates tons of cash, pays dividend and buys back its shares.”

DEAL DETAILS

The consortium making the offer for Focus Media also includes CITIC Capital Partners, FountainVest Partners, CDH Investments and China Everbright Ltd.

The company’s board has formed a committee of independent directors to consider the offer.

CEO Jason Nanchun Jiang held about 18 percent of the company’s outstanding shares as of December 31, according to its annual report. He bought $11 million of the company’s ADSs in November.

The transaction will be financed with a combination of debt and equity capital.

The proposal letter dated August 12 said the consortium has been in discussions with Citigroup Global Markets Asia Ltd, Credit Suisse AG and DBS Bank Ltd about financing the debt portion.

The banks have indicated to certain of the consortium members that they are highly confident of their ability to fully underwrite the debt financing, the company said.

(Reporting by Sruthi Ramakrishnan in Bangalore, Additional reporting by Himank Sharma; Editing by Sriraj Kalluvila and Saumyadeb Chakrabarty)

(Reuters) – World stock markets eased on Monday after weak Japanese economic data added to the latest data showing a slowing global economy, while the euro rose as investors exited bearish bets against the common currency.

European shares posted their worst day in more than a week and U.S. stocks snuffed a six-day rally for the S&P 500 after Japan reported its gross domestic product expanded just 0.3 percent in the second quarter.

Japan’s growth was half the expected rate, raising doubts about the global economy while highlighting the impact of Europe’s debt crisis on world demand.

China’s output of refined copper dropped 6.8 percent in July from the previous month’s record high production, customs data showed on Monday. [ID:nL4E8J91HS] Chinese copper consumption is considered an economic bellwether.

Traders are looking for direction, with the S&P 500 hovering not far off its highest level in more than four years. Stocks’ recent gains have been driven by hopes for further central bank easing amid signs of global economic weakness.

Janna Sampson, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois, said she was still cautious over the potential for Europe’s debt crisis to blindside the market. She said she would be closely monitoring data to see if improvement in the U.S. labor market would continue.

“I’m not sure we will get out of the summer without a pullback,” Sampson said.

The Dow Jones industrial average .DJI was down 37.59 points, or 0.28 percent, at 13,170.36. The Standard & Poor’s 500 Index .SPX was down 2.44 points, or 0.17 percent, at 1,403.43. The Nasdaq Composite Index .IXIC was down 1.92 points, or 0.06 percent, at 3,018.94.

In Europe, the FTSEurofirst 300 index .FTEU3 closed down 0.4 percent at 1,094.74 points – its biggest intraday fall since ending down 1.2 percent on August 2.

The euro rose against the dollar for the first time in four days as investors pared bearish bets, but doubts about the ability of the European Central Bank to rein in the region’s debt crisis kept pressure on the currency.

Still, sterling fell against the euro on expectations that UK data due this week will bolster the case for more monetary stimulus from the Bank of England to support a flagging economy.

The euro remained below a one-month high hit last week in thin trade.

“The euro is well below the highs of last week and today we are seeing some short-covering, but the move today is generally uninspired in a lackluster session,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

The euro was up 0.37 percent at $1.2335 and the U.S. dollar index .DXY was down 0.17 percent at 82.414.

Short-covering entails buying the euro to close bets that the currency would fall.

Many analysts expect the euro to tread water until September 12, when the German constitutional court is to deliver its verdict on the euro zone rescue fund and the fiscal pact for budget discipline.

Oil prices rose in choppy trade to hit a three-month peak on concerns about North Sea supply and Middle East tensions, but fears about slowing growth checked gains.

Brent pared gains and U.S. crude turned lower on the Japanese data and worries of slower global growth.

Brent crude was up $1.35 at $114.30 a barrel.

U.S. crude for September delivery settled at $92.73 a barrel, down 14 cents.

U.S. Treasuries yields dropped for a third day as some investors were drawn to higher yields caused by a dramatic sell-off earlier this month.

The benchmark 10-year U.S. Treasury note was up 2/32 in price to yield 1.6505 percent.

Copper fell for a fourth straight trading session as worries about global economic weakness dented the outlook for industrial metals demand.

(Additional reporting by Chuck Mikolajczak and Karen Brettell; Editing by Leslie Adler and Chizu Nomiyama)

(Reuters) – Apple Inc is claiming that more than a quarter of Samsung Electronics’ $30.4 billion in U.S. smartphone and tablet sales result from copying of the iPhone and iPad or infringe on other patents, a damages expert for the U.S. company said on Monday.

The Silicon Valley company is demanding up to $2.75 billion of damages from its Korean rival, which includes lost profits.

The Korean company sold more than 87 million mobile devices from mid-2010 to March 2012, according to documents displayed before the jury.

Accountant Terry Musika, citing Samsung records and testifying as an Apple expert witness, estimated that $8.16 billion in revenue, or 22.7 million of those total unit sales over that two-year period, came from products that infringed Apple patents, such as the first Galaxy S smartphone in July 2010.

Samsung earned roughly 35.5 percent gross profit margin on that revenue, between June 2010 through March 2012, Musika said.

“It’s not me sitting at a desk with a calculator,” Musika, a former KPMG and PriceWaterhouseCoopers accounting partner, told the court.

“There are literally hundreds of millions of calculations,” he said, adding that it took more than $1.75 million to employ a team of 20 programmers, accountants, statisticians and economists to work out damages over a plethora of gadgets.

Samsung is expected to cross examine Musika later today.

Apple’s legal battle with its fiercest business rival, which has transfixed the global mobile industry, moved into a technical damages-estimate phase this week. The trial, which began in late July, has seen a procession of executives, designers and patents experts testifying on behalf of the U.S. company. Closing arguments should begin next week.

The world’s most valuable technology company is accusing Samsung, now the leader in smartphones, of copying its iPhone and iPad. The Korean company denies that and says Apple infringes several of its wireless technology patents.

Musika also cited Samsung documents that identified the iPhone back in 2007, when the first of the revolutionary smartphones emerged, as one of four major factors defining mobile trends in the ensuing five years.

ANOTHER PEEK

The trial continues to offer glimpses behind Apple’s secretive operations, from its industrial design process to its product marketing machine.

On Monday, an Apple executive testified that the company had licensed prized design patents to Microsoft Corp but with an “anti-cloning agreement” to prevent copying of its iPhone and iPad.

Apple had reached out to Samsung in 2010, hoping to strike an agreement with its rival on patent licensing before their dispute hit the courts, patent licensing director Boris Teksler said.

Teksler testified that Apple offered a clutch of patents for licensing but, crucially, viewed patents related to what he called the “unique user experience” as a highly protected category.

Those included design patents at issue in the lawsuit, covering the look and feel of the iPhone and iPad. Teksler told jurors last week he could count “on one hand” the instances Apple has licensed those patents.

Negotiations between Apple and Samsung did not produce a licensing agreement, and Apple filed a lawsuit in federal court in San Jose, California, in April 2011.

Apple’s decision to license its design patents to Microsoft was consistent with its corporate strategy, Teksler said, because the agreement prohibited Microsoft from manufacturing copies.

“There was no right with respect to these design patents to build clones of any type,” Teksler said.

The case in U.S. District Court, Northern District of California, is Apple Inc v. Samsung Electronics Co Ltd et al, No. 11-1846.

(Reporting By Dan Levine and Edwin Chan; editing by Jeffrey Benkoe and Carol Bishopric)

(Reuters) – EBay Inc shares rose 3 percent on Monday, closing in on a multi-year high after data showed the world’s largest online marketplace had a strong sales month in July.

ChannelAdvisor, which helps merchants sell via eBay, Amazon.com and other websites, reported that client same-store sales on eBay jumped 28.2 percent in July from the same period last year.

Fixed-price sales on eBay surged a record 33.1 percent in July, compared with a year earlier, while auction-based sales dipped 1.1 percent, ChannelAdvisor added.

“We’re seeing name-brand, larger retailers do very well on eBay and eBay’s daily deal program continues to drive significant revenue for top-tier sellers,” Scot Wingo, chief executive of ChannelAdvisor, wrote in a blog on the firm’s website.

EBay, once a scrappy auction site for mom and pop sellers, is enticing some of the world’s largest retailers by arguing it can help them improve competition against e-commerce leader Amazon.com Inc.

EBay shares rose 3 percent to $45.29 in afternoon trading on Monday. The stock rose as high as $45.65 earlier in the day. In late July, eBay shares hit a multi-year high of $46.15.

(Reporting By Alistair Barr; editing by Andre Grenon)

NEW YORK (CNNMoney) — A recovery in new home construction appears to be underway, with significant increases in both housing starts and building permits last month, according to the Census Bureau.

Housing starts rose 6.9% in June to a 760,000 annual rate, the highest level in four years. That’s up an impressive 23.6% compared with a year earlier. Permits to build new homes fell slightly from revised May numbers to 755,000, but were up 19.3% compared with June 2011.

Demand for homes has been strong in many markets, according to Glenn Kelman, founder of discount broker Redfin.

“Homebuyers are like a herd of hungry goats right now, going from hillside to hillside looking for something to eat,” he said. “There’s not enough inventory to go around.”

He said many recent house hunters started out looking for existing homes in picture-perfect, move-in condition and were disappointed in what they found. Few of those homes are available because the owners are sitting on them.

“The owners are not willing to sell their homes at the current price levels,” said Kelman. And buyers have had to look to new construction to order the houses they want.

That has jump-started some long-delayed building projects, according to Dwight Johnston, chief economist at the California and Nevada Credit Union Leagues.

“Within a 20-mile radius of Claremont, [Calif.], there were three big developments that had been dormant for years and they started building on them again,” he said.

A separate release from the National Association of Home Builders (NAHB) reported that builder confidence is at its highest level in five years.

“Builder confidence increased by solid margins in every region of the country in July as views of current sales conditions, prospects for future sales and traffic of prospective buyers all improved,” said Barry Rutenberg, NAHB’s chairman and a home builder from Gainesville, Fla.

That optimism had a lot to do with recent home price increases, said NAHB’s chief economist, David Crowe.

Home prices rose in April for the first time in seven months, according to the S&P/Case-Shiller home price index.

“Once home price increases start to kick in, buyers lose their fear of buying,” said Crowe.

With home building numbers on the rise and prices solidifying, the housing market should start contributing to national economic growth for the first time since 2007, according to Stuart Hoffman, chief economist for PNC Financial.

“The contribution will be even larger next year as home building continues to increase, foreclosures work their way off the market, and prices see more consistent gains,” he said.

He expects the housing market will lead economic expansion over the next two years.

One potential problem: mortgage defaults are on the rise again.Foreclosure filings rose 9% in the three months ended June 30.

Many of the foreclosed homes that come on to the market were built during the housing boom, and have many of the bells and whistles modern homebuyers want, although they’re not always in the best condition.

If many of the homes just coming into the foreclosure process now go on to be repossessed by lenders and put back on the market, the competition could hurt sales of new homes.

NEW YORK (CNNMoney) — Near-record low natural gas prices have hurt the industry, but a technology that can turn cheap gas into more profitable diesel could keep demand high and mitigate the impact of falling costs.

A gallon of diesel costs just over $4 a gallon, off the record high of $4.85 hit in 2008. Yet natural gas is around $2.30 per million British thermal units, nearly one-seventh its record of over $15 per million Btu reached in 2008.

“The abundance and affordability of natural gas in the United States provides opportunities to use the fuel in new ways that can enhance our nation’s energy diversity and offer environmental and economic benefits,” said Kelly op de Weegh, a spokeswoman for Royal Dutch Shell (RDSA).

Shell is currently considering building such a plant along the U.S. Gulf Coast.

Last September, South African energy firm Sasoil (SSL) said it is considering a similar plant on the Louisiana coast.

But both companies will need to weigh their options carefully.

Gas-to-liquids plants, as they are known in the industry, cost billions to build. And they need access to cheap natural gas, not only for the 4 or 5 years it takes to construct the facility, but over the 20 or 30 year timeframe the plants would operate.

“The one cause of concern is the economics of the industry,” Leslie Palti-Guzman, a natural gas analyst at Eurasia Group, wrote in a recent note. The high cost to build a plant, combined with the need for natural gas to stay cheap, could constrain the growth of this emerging fuel source, she said.

The U.S. Energy Information Agency says that with oil at $100 a barrel, natural gas needs to be priced below $6 per million British thermal units for the process to be economic.

But the price swings in this industry are huge. For example, natural gas has swung from over $15 per million Btu to around $2 now. Oil prices are another big variable — they were in the $30-a-barrel range as recently as 2009.

“How the economics will work is a key driver and one we will continue to evaluate,” said Shell’s op de Weegh.

The technology is quite similar to making liquid fuels out of coal — a process developed nearly 100 years ago and used heavily by oil-strapped Germany in W.W. II and, later, by South Africa. But it’s only recently been applied to natural gas, which results in a fuel that’s cleaner than if it’s made out of coal.

In a very basic description of the process, natural gas, oxygen and water are fed into a reactor, which uses heat, pressure and catalysts to make a wax. The wax can then be upgraded to diesel, jet fuel and a variety of other refined products.

An apology to most American motorists: The process cannot easily produce gasoline.

But the diesel production might help lower prices for truckers and others that use the fuel.

And finding a use for the country’s rising natural gas production is essential to avoid a steep slowdown in the natural gas drilling industry, which has generated thousand of well-paying jobs over the last few years.

To be sure, the impact on the price of diesel or natural gas is expected to be modest.

Eurasia Group lists just over 400,000 barrels a day of production capacity at both proposed and operating gas-to-liquids plants worldwide. EIA says at least 1 million barrels a day would be needed to significantly impact prices.

Still, any boost in demand would be welcome for U.S. natural gas producers.

Plus, there’s always the chance the technology will improve as more plants get built, lowering costs and leading to bigger production amounts.

“This is a nascent technology, and breakthroughs can always happen,” said Palti-Guzman. “There’s room to grow.”

NEW YORK (CNNMoney) — Mortgage borrowing got cheaper again this week, as rates on 30-year and 15-year fixed-rate loans fell to record lows.

The 30-year mortgage dropped to 3.53% from 3.56% last week, Freddie Mac said in its weekly report. The 30-year fixed rate has matched or hit new lows for 12 of the past 13 weeks. Twelve months ago, the 30-year fixed rate stood at 4.52%.

Meanwhile, the 15-year fixed rate fell to 2.83% from 2.86% last week, Freddie Mac said. A year ago, it was 3.66%.

The consistently low rates are having a positive impact on the still-recovering housing market, according to Federal Reserve chairman Ben Bernanke.

“In part because of historically low mortgage rates, both new and existing home sales have been gradually trending upward,” he said in testimony before Congress on Tuesday.

First-time homebuyers and others who want to minimize their monthly payments usually choose 30-year fixed-rate mortgages. Those who take out a $200,000 loan at the current rate would have payments of $901 a month and would pay less than $125,000 in interest over the life of the loan.

For some trade-up buyers and many homeowners looking to refinance their loans, the 15-year fixed-rate mortgage is the more popular choice. The higher payments enable borrowers to pay the loan off quicker and minimize the total interest paid.

At the current rate, a borrower financing $200,000 with a 15-year mortgage would pay $1,365 a month and spend a total of just under $46,000 in interest.

Rates have been in a steady, slow decline all year, going above 4% for the 30-year only once, back in March. Otherwise, the weekly average rate has moved between 3.53% and 3.99%.

According to Keith Gumbinger of HSH.com, a mortgage information company, that kind of stability helps homebuyers plan, execute and complete their transactions.

“Knowing that the mortgage rate you will get at the end of the buying transaction will be the same or even better than when you started can provide a potential homebuyer a strong boost of confidence, making it easier to want to start the process in the first place,” he said.

The flip side is that loans are often hard to get. Since the mortgage meltdown began in 2007, banks have moved from very liberal to very strict lending standards. Now, they closely scrutinize employment records, income and other debt, which can disqualify many borrowers.

In 2009, with default rates soaring, mortgage giants Fannie Mae and Freddie Mac hiked minimum credit scores for conventional loans to 620 from 580, presenting another potential hurdle.

Banks are also more careful about the value of the property backing the mortgage.

About 20% to 25% of home sales in contract don’t close because the homes fail to appraise at the value needed to obtain a mortgage or because of inspection problems, according to Lawrence Yun, chief economist for the National Association of Realtors.

“The appraisal issue is very frustrating,” he said.

Many of those sales eventually complete but may require buyers to come up with extra cash or sellers to drop their prices to reflect the conservative appraisal values.

While the world gears up for the London Olympics, humanoid robots are preparing to compete in their own Olympics.

But rather than gold medals, these robots will be fighting for gobs of money: $2 million, to be precise.

The first ever “Robotics Challenge” from the Pentagon’s military research arm DARPA (short for the Defense Advanced Research Projects Agency) is due to launch in October, and like the Olympics it will be a global competition. DARPA is encouraging participation from individuals and groups including universities and businesses large or small.

By extending the competition beyond the traditional robotics developer community, the event will hopefully showcase innovative and far more effective robots that can take the U.S. well beyond its current capabilities.

Winning teams will demonstrate robotic capabilities of the future that could someday support the Defense Department’s humanitarian mission: disaster relief, providing aid to victims and running evacuation operations.

So in what sort of events will these humanoid robots compete?

The Challenge aims to develop robots that can accomplish complex tasks in dangerous yet realistic built-up human environments — the rubble of a war-torn city, for example. They must battle through a range of such disaster scenarios before earning the robo-Olympic gold:

Some robots will be challenged to drive a utility vehicle like an ATV and to master its controls, from the ignition and brakes through to steering.

Others may walk on uneven ground and navigate debris in their path, or clear an obstruction from a doorway and open it.

The robots of the future should also be able to break through a concrete wall to locate and then fix a leaking pipe.

Fine motor skills will also be tested, such as possibly removing and then replacing a small pump and climbing a ladder followed by successfully getting across a catwalk.

Another competition: Boarding and taking the driver’s seat of an open-frame utility vehicle before driving to a specified location and navigate a 350-foot hallway littered with debris.

Not only will competitors will be expected to demonstrate their ability to use equipment, vehicles and hand tools commonly found in human environments, DARPA would like to see robots that demonstrate adaptability. Can they react on the spot to a complicated new tool?

Adaptability is important, because the complexity of any upcoming disaster cannot be entirely anticipated.

In order to achieve these results, progress will need to be made in robotic strength, endurance and dexterity. Advances will also need to be made so that operators who are not experts can control them, and to let robots continue to work effectively in spite of low bandwidth or disrupted communications.

To encourage all of this innovation, DARPA will support qualifying teams by offering robotic heads, arms, legs and torsos and even a virtual test-bed simulator.

The DARPA Robotics Challenge welcomes both robotics hardware and software development teams.  Two types of proposals will be considered for development ranging from one to five years: small projects involving one or more investigators and large projects that include multi-disciplinary teams.

Advances in physical protection or productivity could be useful to the Defense Department — particularly advances that are made in robots that can naturally interact and collaborate with humans.

Basic robots are already found in industry, education, healthcare, emergency response and defense.

Some have already proven their utility supporting U.S. forces by defusing improvised explosive devices (IEDs) in war zones. And during the Fukishmima nuclear disaster in Japan, robots played a vital role supporting the mission.

Part of DARPA’s goal is to expand such use in humanitarian operations, particularly where there is a threat to the lives of human first responders due to biological, chemical or radiological attacks.

In such high-risk situations, state of the art robots could replace humans entirely, reducing risk and saving lives.

DARPA’s Robotic Challenge supports President Barack Obama’s National Robotics Initiative as well, a program launched in June 2011.

Its purpose is to accelerate the development of next-generation robotics that can work cooperatively with people and to encourage the use of these capabilities. A number of federal government agencies are involved, including the National Science Foundation (NSF), the National Aeronautics and Space Administration (NASA) and the National Institutes of Health (NIH).

So if you’ve been tinkering with Rosie the robot in your garage, or assembling a working Wall-E, now is the time to unleash it on the world. Go for the $2 million prize — and go for the gold.

(Reuters) – Years of rummaging through back-alley electronics stores will pay off later this year for a South Korean artist when he fulfills his dream of launching a homemade, basement-built satellite into space.

“Making a satellite is no more difficult than making a cellphone,” said Song Hojun, 34, who said he built the $500 OpenSat to show people they could achieve their dreams.

“I believe that not just a satellite, but anything can be made with the help of the Internet and social platforms. I chose a satellite to show that symbolically.”

There’s a long history of do-it-yourself satellites being launched by universities and scientific groups around the world, as well as amateur radio clubs, but Song said his is the first truly personal satellite designed and financed by an individual.

An engineering student at university, Song regularly incorporated technology into his art pieces. In a work called Apple he used light bulbs that would “ripen” — change color from green to red when people take photos of it with flashes.

After working as an intern at a private satellite company, he came up with the idea for his “Open Satellite Initiative,” which in turn led him to contact space professionals from Slovenia to Paris.

“I’m just an individual, not someone working for big universities, corporations or armies, so they open up to me and easily give out information,” said Song.

The bespectacled Song spent nearly six years combing through academic papers, shopping online at sites that specialize in components that can be used for space projects, and rummaging through electronic stores hidden in the back alleys of Seoul.

He ran a small electronics business to support himself, but the bulk of his funds came from his parents.

The cubical OpenSat weighs 1 kg (2.2 lbs) and measures 10 cubic centimeters. It will transmit information about the working status of its battery, the temperature and rotation speed of the satellite’s solar panel.

Radio operators will be able to communicate with the satellite. If all goes well, it will repeat a message in Morse code using its LED lights at a set time and location.

The components cost only 500,000 won ($440). But the cost for launching it hit 120 million won after Song signed a contract with NovaNano, a French technology company, which acted as a broker to arrange the launch, including submitting paperwork and finding a rocket.

The satellite will be launched from the Baikonur Cosmodrome in Kazakhstan in December with another satellite.

Song has been invited to talk at international universities and organizations including MIT Media Lab and CalArts, both in the United States, and the Royal College of Art in London.

“The reason why technology or science is talked about is not because it is an absolute truth, but rather because it generates interesting stories,” he said. ($1 = 1146.9500 Korean won)

If you think a stock is on its way down, short selling may be a useful tool. However, you should be aware of the risks associated with this style of trading.

What exactly is short-selling?
According to Joe Jennings, investment director for PNC Wealth Management in Baltimore, “To short a stock is to sell a security that is not owned by the seller. Shorting is a strategy used to take advantage of an anticipated decline in the stock price.”

An investor may borrow shares of stock from a broker and sell them on the open market, creating a short position.  At a future date, the investor must re-purchase the shares and return them to the broker, thus closing out the short position, says Jennings. Ideally, the investor would repurchase the shares at a price that is lower than the original purchase price, earning a profit.

Jeffery Born a professor at Northeastern University’s College of Business, provides the following example: “If I strongly believed that Facebook is currently over-valued at (approximately) $31.50 per share, I could act on that belief and sell the shares short. If Facebook subsequently declined in price, say to $28 per share, I could buy the shares (and they would be delivered to the individual that the broker borrowed them from) and I would make a profit of $3.50 for each share I sold short, less the transaction cost to sell (short) and then buy (back).”

Can any type of stock be sold short?
“Theoretically, yes. But logistically, no,” says Yahoo! finance correspondent Matt Nesto. While it might be easy to short any widely traded stock in the S&P 500, it becomes challenging to find a brokerage firm willing to accept a short trade for an illiquid or thinly traded stock, says Nesto.

Is there a time frame associated with short selling?
Although in theory there is no time limit that accompanies shorting shares of a stock, the lender could conceivably call the shares at will.  Additionally, given the interest expense associated with borrowing shares, maintaining a short position for an extended period of time may become costly, says Jennings.

If you take a gamble, know the risks.
First, Jennings points out that the long term trend of the stock market is to move higher.  Not only does shorting a stock involve betting against the fortunes of that company, but also betting against the long term trend of the market in general.

Second, shorting can be expensive. “Typically, the investor shorting a stock must pay interest on the borrowed shares; additionally, the investor is required to pay any dividends to the lender that are earned during the time the stock is shorted,” Jennings reveals.

Third, your potential losses are unlimited since you are betting on a stock going down. By contrast, if you went long on a stock, your losses are limited to the amount you lose if the stock goes to zero (plus any additional expenses).

According to Nesto, “The practical risks of shorting are as vast and vague as those that surround any investing.” There are lots of events that move the price of a stock higher or lower, including rumors that may not even be true.

So why sell short?
Jennings says there are two main reasons for shorting a stock: speculation and hedging.  An extremely risky tactic, speculation involves establishing a short position in an attempt to earn a profit. Hedging is employed to mitigate risk and concerns, establishing a short position in a security to offset a long position within a portfolio.

Likewise, Nesto agrees that many short sales are used as a tool to manage different portfolio risks. “Oftentimes investors will be long and short the same stock as a way to protect a big gain without having to sell. This type of hedging strategy is usually done with put and call options, but the general idea of long and short still applies,” he affirms.