In hindsight, we all know it was a good idea to short internet stocks in the first quarter of 2000. Shorting a stock involves selling it without owning it. You borrow shares from your broker. Eventually, you'll need to buy the shares to repay the loan. If the price drops before then, you are buying at a lower price than you sold at and you earn a profit. The idea of short selling is essentially the same as with any other trade. You want to buy low and sell high. With short selling, the selling comes first.
Short sellers can make a lot of money in bear markets, and many investors noticed the internet bubble seemed destined to end in a bear market. Super Bowl viewers in 2000 could tell the market was in a bubble when the sock puppet mascot of Pets.com appeared in a $2 million commercial. Pets.com…