Halt short selling for a while.. Opinions?
Q: I agree 100% with dirtbag...wolfpacks of short sellers are attacking stocks, driving them down. Thousands of short sellers are attacking the index funds. The short sellig hedge funds are attackng too. It is out of control.
A:
Short selling is an important market function, without it we wouldn't
know the true market value of stocks. Every trading market in history
has eventually set up and maintained short selling as part of a
healthy functioning market. You make a couple of common errors. First,
you give the hedge funds too much credit, they've lost money just l
everyone else, just because they have the ability to short sell
doesn't mean they timed it right at first. As recent history shows
many of them made some very bad plays. Two, you're scapegoating short
selling without any rational evidence. If short selling were the
problem then gold and realted stocks wouldn't be so bullish, seeing
that you can still short the shit out of those investments and bank
stocks wouldn't still be tanking, seeing that short selling has been
banned and yet the prices still aren't able to sustain anything but
downward momentum over any timeline longer than a week.
The real problem with banning short selling is the smallest investors
get hurt. They look at a stock where no short selling is allowed and
think they are getting a bargain, but that's an illusion which
eventually bites them in the ass. If short selling had been allowed on
bank stocks, for instance and the prices had gone where they really
should be, which is perhaps down under $1, would the small investors
still have thought they were getting a bargain, or would they have
stayed out because the more realistic price showed the companies are
on the verge of bankruptcy, which as it turns out is far closer to the
truth?
Why don't hedge funds and big money get caught this way? Because they
won't invest on the bull side unless they know the true market price
of an equity, which means they are, smartly, not putting money in
financial equities. They don't need to conspire, they just need to be
educated enough to know it's a bad idea to make an invesment in which
you don't know the actual market value of the investment.
And by the same token banning short selling hurts the recovery of an
equity as well for the same reason, since the big money will not enter
a market that they cannot establish true market price, they will not
enter a market that should be in recovery because they can't be sure
the recovery is real, if no one is allowed to bet against those
equities. So they keep their big money, which drives bull movements,
in other areas of the market instead of in equities and markets that
are actually recovering and could use the infusion of big cash because
if no one is allowed to play against that market..
Would you have been so quick to put huge amount on BAC if the price
was under $1 as it should have been if short selling was allowed? Or
would you have thought twice? Or would you have jumped in with both
feet again but at an even better price? Those are mostly rhetorical
questions designed to make a point, there is no right or wrong answer.