Comments on: Three cheers for short-sellers http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: D. Hubb http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/comment-page-1/#comment-5426 Thu, 13 Aug 2009 05:27:22 +0000 http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/#comment-5426 GOOD NEWS!!! There is finally great new movie out about market manipulation, the SEC, and short selling called: “Stock Shock.” For those of us that want to understand some of the inner workings of the market, it is a must-see. Very easy to understand and entertaining. Amazon has it or stockshockmovie.com has a trailer.

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By: Dan http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/comment-page-1/#comment-5234 Mon, 10 Aug 2009 01:33:21 +0000 http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/#comment-5234 Obviously short sellers are only a positive force when they are correct in ferreting out companies that are not worthy of their market capitalizations.

When short sellers are wrong, they pull capital away from a company that should have it.

Thankfully there is a beautiful mechanism in the market to smite short sellers who are unjustified in their shorting activities, the squeeze! If major investors or the company itself understands that a collapsing stock price is not right, they can start buying up shares, or hold fast to the ones they have and watch the shorts get set aflame.

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By: Sunset Shazz http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/comment-page-1/#comment-5198 Sat, 08 Aug 2009 06:26:35 +0000 http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/#comment-5198 Nice post – one of your very best.

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By: Doc Merlin http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/comment-page-1/#comment-5192 Fri, 07 Aug 2009 22:46:53 +0000 http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/#comment-5192 I love short sellers!
I love short squeezes.

WOOT WOOT! lets here it for shorters!
Both cheaper stocks when they are correct and nice price rises when they are incorrect!
Shorters are a long speculator (LIKE ME!)’s best friend!

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By: jacobson http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/comment-page-1/#comment-5191 Fri, 07 Aug 2009 22:38:21 +0000 http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/#comment-5191 I only count 2 cheers

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By: carping demon http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/comment-page-1/#comment-5189 Fri, 07 Aug 2009 21:29:43 +0000 http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/#comment-5189 This is a joke, right?

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By: axg http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/comment-page-1/#comment-5181 Fri, 07 Aug 2009 20:25:01 +0000 http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/#comment-5181 You say if the short sellers have it “wrong”, the mispricing is still a benefit to uninformed investors. But investors are necessarily buyers and sellers both at one time or another, so what of the equal loss to uninformed investors who happen to decide this is the time they must trade out of the position? Second, do you not believe that markets and their price discovery role help society allocate capital well? If so, surely a “bad” price must have some adverse consequences with respect to this goal.

However, I just cannot find anywhere in the paper that talks about the “getting it wrong” case – can you maybe pinpoint the section you believe supports your view here? Or says anything at all about this case? Or perhaps this part of your analysis is your own contribution; if so I sincerely recommend you give it a bit more critical thought.

In general, this paper is talking about the effect of short sellers on and around the actual revelation of accounting fraud, and finds it weakly positive (in some respects, though not overwhelmingly so) *in this case*. This is very plausible and I suspect even some firm opponents of short sales might concede as much: here we are conditioning on the fact where there IS something seriously wrong (but not yet publicly known) about some company, and short selling provides an incentive for people to investigate and discover the problems (or – more questionably – act on insider information). It’s not a shock to find external benefits to short selling GIVEN the short sellers turn out to be right and company turns out to actually up to no good!

The authors’ introduction clearly say “these findings do not address whether short selling _in general_ is informed and beneficial” and so far as I can see they remain disciplined in restricting their conclusions just to the particular scenario under investigation. IMO you are stretching their results fallaciously far.

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By: James B. Shearer http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/comment-page-1/#comment-5179 Fri, 07 Aug 2009 20:03:57 +0000 http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/#comment-5179 This post makes no sense. Stock trading is basically zero-sum so the profits informed traders (whether short-sellers or insiders) make are at the expense of uninformed traders. Note if short-selling decreases the price each uninformed buyer will lose less but there will be more of them as naive buyers are attracted by the apparent bargain.

Short-selling can be justified as helping keep markets honest but it is not a benevolent activity.

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By: hedberg http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/comment-page-1/#comment-5178 Fri, 07 Aug 2009 19:55:59 +0000 http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/#comment-5178 It had long been my understanding that short-selling required that actual shares be “borrowed” in order for the short sale to occur. This could result in a margin call if some other claim occurred against the shares that had been sold short. But, within the last several years I have heard about regulators clamping down on “naked” short-sellers who somehow were able to sell shares that didn’t actually exist. At least, that’s my impression of what naked short-selling is. It seems to me that, whatever the effects of traditional short-selling, allowing people to sell shares that don’t exist has the ability to cause some significant negative externalities.

One other point about short-selling: it creates a demand for shares to be purchased to satisfy the borrowing. In other words, sooner or later, the short sellers are going to have to buy the stock. That’s why a large short position is sometimes considered a bullish indicator.

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By: KenG http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/comment-page-1/#comment-5175 Fri, 07 Aug 2009 18:52:28 +0000 http://blogs.reuters.com/felix-salmon/2009/08/07/three-cheers-for-short-sellers/#comment-5175 hedberg nailed it, the perpetual motion machine. that analogy aptly describes so many “financial engineering innovations”.

Short selling adds downward pressure on any stock, because it artificially inflates the number of shares for sale. The more shares that are available to purchase, the lower the price for those who want to purchase the shorted stock. How is that fair to the company whose stock is being shorted?

If all you care about is volatility, then there are lots of ways we can increase it without resorting to misinformed short sellers. Let’s get rid of restrictions on insider trading and spreading rumors about publicly traded stocks. Lots of people will make money, lots will lose, but more importantly, the brokerage firms will make money on the increased trading levels.

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