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Ask HN: Please explain short selling?

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Re: Ask HN: Please explain short selling?

#81

Post by pbhjpbhj »

ewanmcteagle wrote: post #79
jamesseda wrote: post #60

Earlier quoted context omitted.

Moral equivalent is, If you knew a self employed guy needed to sell his boat to keep his mortgage current, and you bought similar boats and sold them below cost so the guy would go into foreclosure and then you bought his property.

This is not the same. Once a company has sold stock it does not gain money from the ups and downs of the market. If it made agreements contingent on its stock maintaining a particular value then it has chosen a separate risk. A company cannot go out of business because its stock price is low. It can be bought by others but this also does not drive it out of business.

>It can be bought by others but this also does not drive it out of business.

If the company is now worth $1 and owns anything of value then it's going to be bought and asset stripped. It may not actually be out of business when it gets run down by short sellers for their own profit but it's effect is going to be pretty much the same - unless there's suddenly a lack of greedy business prospectors :0)

I suspect that the company isn't really going to be able to raise new capital any longer either (or will find it very hard) but don't know enough to confirm that.

Re: Ask HN: Please explain short selling?

#84

Post by parkan »

fexl wrote: post #42
garethm wrote: post #17

Earlier quoted context omitted.

The increase in supply is not caused by the final net position. It's in what you see when you look at the market. Suppose there are 100k shares issued. Some traders decide to naked short 50k. Actual holders of the shares say, "Oh crap. Half the company is for sale - better dump my shares while I still can." So they put up a total of 75k for sale. Now 50k of the 75k of actual shares need to be purchased by the people…

These are great examples, and your point is well taken. The https://loom.cc/faq system avoids this sort of nonsense altogether. An asset type such as 2fcb2b81bb96bb51cec88edcb4b9a480 might represent a real underlying asset being traded, but only the true issuer of that asset could create new units of it. Anyone desiring to sell that asset short would have to create a brand new distinct asset type such as 6b17a53d425d…

fexl, loom looks very interesting, and the maintainer (you?) actually touches up on some specific market-based ideas I've been sort of idly kicking around in the FAQ (e.g. phone service contract exchanges). Is there a way to get an invite/sponsorship to play around with the system?

Re: Ask HN: Please explain short selling?

#85

Post by fexl »

parkan wrote: post #84
fexl wrote: post #42

Earlier quoted context omitted.

These are great examples, and your point is well taken. The https://loom.cc/faq system avoids this sort of nonsense altogether. An asset type such as 2fcb2b81bb96bb51cec88edcb4b9a480 might represent a real underlying asset being traded, but only the true issuer of that asset could create new units of it. Anyone desiring to sell that asset short would have to create a brand new distinct asset type such as 6b17a53d425d…

fexl, loom looks very interesting, and the maintainer (you?) actually touches up on some specific market-based ideas I've been sort of idly kicking around in the FAQ (e.g. phone service contract exchanges). Is there a way to get an invite/sponsorship to play around with the system?

Sure. I guess I could post it here, but maybe we could try hooking up at https://bonchat.org/9ff3842f90e90d5e with "katie tiny judd".

Or, more conventionally, visit the loom.cc web site and send an email from there (click Contact).

Re: Ask HN: Please explain short selling?

#86

Post by danielsoneg »

pbhjpbhj wrote: post #81
ewanmcteagle wrote: post #79

Earlier quoted context omitted.

This is not the same. Once a company has sold stock it does not gain money from the ups and downs of the market. If it made agreements contingent on its stock maintaining a particular value then it has chosen a separate risk. A company cannot go out of business because its stock price is low. It can be bought by others but this also does not drive it out of business.

>It can be bought by others but this also does not drive it out of business. If the company is now worth $1 and owns anything of value then it's going to be bought and asset stripped. It may not actually be out of business when it gets run down by short sellers for their own profit but it's effect is going to be pretty much the same - unless there's suddenly a lack of greedy business prospectors :0) I suspect that th…

Yeah, cost of capital is definitely a concern, for two reasons:

First, most companies fund new ventures via loans, etc., and the price of a company's stock and the company's overall valuation have a big impact on the terms a company can get on a loan - both how big a loan they can get and at what rate. Naked shorting materially worsens a company's ability to raise capital.

Second, most companies are operating on rolling credit lines - this is just a reality of doing business: Invoice Monday, get payment Wednesday, bills are due Tuesday. A company's stock dropping dramatically can cause these credit lines to be yanked, which can demolish otherwise solvent businesses.

Re: Ask HN: Please explain short selling?

#87

Post by lrm242 »

cynicalkane wrote: post #44
lrm242 wrote: post #36

Earlier quoted context omitted.

Ignoring liquidation and acquisition, because they are rarely the goal of a value investor... Dividends do repay investors, but the price always adjusts ex-dividend. A value investor is not happy owning a declining asset even if the dividend pays at regular intervals. They always look for capital appreciation and will, whenever they deem appropriate, convert unrealized gains into realized. You seem to be referring to…

A value investor would not have bought a broad market index in 1999, where the P/E-10 was, IIRC, somewhere around 40! I have to say I'm not particularly interested in discussing this with someone who thinks the classic value investing paradigm is comparable to buying and holding an index at the worst possible time.

Re-read the last sentence. You're not paying attention.

Re: Ask HN: Please explain short selling?

#88

Post by elecengin »

hga wrote: post #58
elecengin wrote: post #16

I think there are plenty of good descriptions of the basics of short selling here, but I wanted to help explain the "who are you borrowing from" aspect. When you trade, you must trade through a broker-dealer. A broker-dealer is authorized to trade on behalf of it's customers. A broker-dealer must uphold certain regulatory requirements put in place by the SEC, and policed by a variety of government and non-government…

Wikipedia matches my memory that the uptick rule was established in the '30s: http://en.wikipedia.org/wiki/Uptick_rule

Oops, you are absolutely right. I got confused. Rule 390 was much more obscure... It had to do to with selling NYSE listed stocks on ECNS and such.

It was under Regulation SHO that this got changed. Thanks for pointing that out!

Re: Ask HN: Please explain short selling?

#89

Post by steve19 »

fexl wrote: post #85
parkan wrote: post #84

Earlier quoted context omitted.

fexl, loom looks very interesting, and the maintainer (you?) actually touches up on some specific market-based ideas I've been sort of idly kicking around in the FAQ (e.g. phone service contract exchanges). Is there a way to get an invite/sponsorship to play around with the system?

Sure. I guess I could post it here, but maybe we could try hooking up at https://bonchat.org/9ff3842f90e90d5e with "katie tiny judd". Or, more conventionally, visit the loom.cc web site and send an email from there (click Contact).

Please post and invite. I am sure many of us would like to try it.

Re: Ask HN: Please explain short selling?

#90

Post by fexl »

steve19 wrote: post #89
fexl wrote: post #85

Earlier quoted context omitted.

Sure. I guess I could post it here, but maybe we could try hooking up at https://bonchat.org/9ff3842f90e90d5e with "katie tiny judd". Or, more conventionally, visit the loom.cc web site and send an email from there (click Contact).

Please post and invite. I am sure many of us would like to try it.

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