Short sellers are unpatriotic?

[traderx]

Profit, Patriotism and Bear Raiders

In normal times, manageable bears or bulls, short sellers may legitimately view a stock as overvalued. Shorts can sober overpriced securities. Shorts can make assets more liquid, easier to sell and purchase. They serve as insurance against gambling on the upturn. And certainly, speculation must allow for both ups and downs.

But a host of major Wall Street banks, from Citigroup Inc. to Morgan Stanley, argue that short-selling has not simply made money in this economic crisis but contributed to it by driving down stocks to destroy companies. Some short-sellers therefore are exacerbating the same company's decline they have gambled on. "The shorts certainly seem to accentuate any kind of weakness" in a company, said Bob Pavlik, chief market strategist of New York 's Banyan Partners LLC. "The shorts have been acting if not like an organized group, a sort of wolf pack."

Goodness, what is next? A call to prohibit selling stock because the economy is in the tank? The best defense against short selling is for a company to make profits! Run their business like.......well, a business. Don't loan money to people who have no business buying a house. Geez Louise.

If you viewed this graph a couple of weeks ago, it had already turned over. Is it a crime, or unpatriotic, to short a stock or ETF headed down? Or just good business?

 

[Miss Kitty]

I have had this short selling explained to me multiple times and I still can't retain how it works. traderxman, give it a shot for me, please!

 

[traderx]

I have had this short selling explained to me multiple times and I still can't retain how it works. traderxman, give it a shot for me, please!

When you sell short, your broker "borrows" shares from other investors hence you sell shares you don't actually own. You exit the trade by buying shares to offset the borrowed shares. Short selling is a bet that the price of a stock will go down. Make sense?

 

[LuciferSam]

I have had this short selling explained to me multiple times and I still can't retain how it works. traderxman, give it a shot for me, please!

You borrow X amount of shares from your broker and immediately sell them and get a pile of cash. At this point you still owe X amount of shares to your broker. He's going to want them back. In order to get them back to the broker you're going to have to buy them. Well you're hoping to buy back the shares at a lower price than what you just sold the borrowed shares so you can make a profit. So you're hoping the share price goes down. If the share price goes up, you're going to have to buy the shares back at a higher price than what you just sold them for and you lose money. There is no limit to how much money you can lose shorting a stock. Short selling is not investing, it's just another form of day trading.

 

[Bob]

Profit, Patriotism and Bear Raiders



Goodness, what is next? A call to prohibit selling stock because the economy is in the tank? The best defense against short selling is for a company to make profits! Run their business like.......well, a business. Don't loan money to people who have no business buying a house. Geez Louise.

If you viewed this graph a couple of weeks ago, it had already turned over. Is it a crime, or unpatriotic, to short a stock or ETF headed down? Or just good business?

ask your uncle gecko if destroying companies is "good".

 

[traderx]

You borrow X amount of shares from your broker and immediately sell them and get a pile of cash. At this point you still owe X amount of shares to your broker. He's going to want them back. In order to get them back to the broker you're going to have to buy them. Well you're hoping to buy back the shares at a lower price than what you just sold the borrowed shares so you can make a profit. So you're hoping the share price goes down. If the share price goes up, you're going to have to buy the shares back at a higher price than what you just sold them for and you lose money. There is no limit to how much money you can lose shorting a stock. Short selling is not investing, it's just another form of day trading.

You can argue whether shorting is investing but not that it is day trading. One can day trade and short stocks but most shorting is done for hedge purposes. And my guess is that most shorts are held longer than a day.

Do you believe that shorting should be prohibited? Do you believe that shorting in this recession is unpartriotic?

 

[dgsevier]

never confuse "trading" (short term strategies) with "investing" (long haul)

 

[LuciferSam]

You can argue whether shorting is investing but not that it is day trading. One can day trade and short stocks but most shorting is done for hedge purposes. And my guess is that most shorts are held longer than a day.

Do you believe that shorting should be prohibited? Do you believe that shorting in this recession is unpartriotic?

The only reason I think it's daytrading is because I think you would absolutely have to watch your shorts each and every day. You would be a fool to short a stock and just sit back and forget about it. Whereas if you were diversified [long] and had a long time horizon you could get away with a buy and hold approach. At least you'd have an idea about how much you would lose.

I don't think it should be prohibited. I don't know if shorting actually causes a stock price to drop so I can't say if it's unpatriotic. I think the shorts get burned often enough so it all works out.

 

[Mango]

ask your uncle gecko if destroying companies is "good".

:funn:You crack me up with your way with words.

You can argue whether shorting is investing but not that it is day trading. One can day trade and short stocks but most shorting is done for hedge purposes. And my guess is that most shorts are held longer than a day.

Do you believe that shorting should be prohibited? Do you believe that shorting in this recession is unpartriotic?

Unpatriotic, No. I think that is a stretch. It's the naked shorts, the obvious hedgies banding together and driving prices down, lowering liquidity, and a blind eye by the SEC that is unpatriotic. If you don't think so, Madoff would in all likelihood still be in his 7M dollar condo instead of a 10x10 cell.

 

[traderx]

Unpatriotic, No. I think that is a stretch. It's the naked shorts, the obvious hedgies banding together and driving prices down, lowering liquidity, and a blind eye by the SEC that is unpatriotic. If you don't think so, Madoff would in all likelihood still be in his 7M dollar condo instead of a 10x10 cell.

The SEC has to be the worst regulatory agency in existence. I know they mean well but every rule they implement seems to produce opposite results of what they intended. Laszo Birinyi has made a career of tracking SEC results.

Naked shorts should be banned and the uptick rule should be reestablished IMHO. As for hedge funds "banding together" or running in "wolf packs" I believe it is more a function of what they do than collusion.