Short sellers are good for markets • Hacker News Board

Re: Short sellers are good for markets

#21

Post by gonehome » Sat, Oct 13, 2018, 4:57 PM UTC

diminish wrote: post #10

So far I have read in various articles why monopolies, competition, rational actors, irrational actors (for overcoming crisis), long term investors, and short term sellers are good for the markets. Are there any actors which are bad for the market?

People running pump and dump schemes, fraud, ponzi schemes, most ICOs, things the SEC exists to stop.

Shorts are good for price correction, but bad when they start trying to manipulate things in order to get a price correction (shorting a company and then killing the CEO for an extreme example).

Re: Short sellers are good for markets

#22

Post by wgjordan » Sat, Oct 13, 2018, 4:59 PM UTC

godelmachine wrote: post #4

carbocation wrote: post #2

This article is not readable even in incognito mode, where it claims that I've read my share of articles this month. Tried the 'web' option which also had no effect.

We need someone to post a paywall-bypass link. I don’t have the means or the knowledge to find such a link.

Note the FAQ [1] explicitly says comments like this asking how to read a paywalled article are ok:

> Are paywalls ok?

> It's ok to post stories from sites with paywalls that have workarounds.

> In comments, it's ok to ask how to read an article and to help other users do so. But please don't post complaints about paywalls. Those are off topic.

[1] https://news.ycombinator.com/newsfaq.html

Re: Short sellers are good for markets

#23

Post by wgerard » Sat, Oct 13, 2018, 4:59 PM UTC

diminish wrote: post #10

So far I have read in various articles why monopolies, competition, rational actors, irrational actors (for overcoming crisis), long term investors, and short term sellers are good for the markets. Are there any actors which are bad for the market?

> Are there any actors which are bad for the market?

I mean, this is a somewhat flippant answer, but anyone engaged in massive fraud: P&Ds, Madoffs, Enrons, etc.

Re: Short sellers are good for markets

#24

Post by Nokinside » Sat, Oct 13, 2018, 5:01 PM UTC

I understand why Musk don't like short sellers. They diminish his leverage.

Musk has heavily leveraged his TSLA holdings. 40% of his Tesla shares were collateral for loans as of year-end 2017. TSLA is down 19% from that point.

Leveraging holdings of heavily leveraged company is typical Musk high-risk gamble. Aiming for the stars even in finance using leverage as a rocket fuel. Musk is probably using this leverage to fund his other businesses. If TSLA tanks he may receive margin call and must sell part of his SpaceX stock to compensate.

edit: TSLA total debt to total equity ratio is 286.29 for the "Musk-Tesla Inc." that ratio is almost double.

Re: Short sellers are good for markets

#25

Post by stephengillie » Sat, Oct 13, 2018, 5:03 PM UTC

> By seeking out overvalued assets, short-sellers help rein in animal spirits and prevent bubbles from forming.

Suddenly this article takes an unexpectedly spiritual turn. What are these "animal spirits" and how do they influence markets? It's reminiscent of the Animal Spirit Guide that helped Chakotay in Star Trek Voyager[0]

[0] http://memory-alpha.wikia.com/wiki/The_Cloud_(episode)

Re: Short sellers are good for markets

#26

Post by tormeh » Sat, Oct 13, 2018, 5:06 PM UTC

sonnyblarney wrote: post #19

logicchains wrote: post #16

Earlier quoted context omitted.

Insider trading isn't necessarily bad for _the market_; it brings more information to the market faster, so prices more accurately reflect all factors. Compare for instance a hedge fund using satellite imagery to notice that a refinery has much less oil and trading on this information vs some exec at the oil refinery trading on that information. The former is completely accepted, because of the information it brings…

Insider trading is definitely bad for the market because there would be no outside investing ever if insider trading was the mode that information came about. Execs have not only access to 'current oil' stores, but basically everything about the company. It'd be crazy to invest in a company where execs can do as they please, it would be utterly gamified and suppressive to the entire market.

With insider trading, the knowledge of insider traders would be priced in. If you're trying to just buy the market you'd get the same (maybe better?) returns. You'd only lose from insider trading if you were trying to outsmart the market, in which case you'd be at a disadvantage.

Re: Short sellers are good for markets

#27

Post by anilshanbhag » Sat, Oct 13, 2018, 5:08 PM UTC

tryptophan wrote: post #13

Something that the article did not mention: Short sellers reduce volatility and lead to smaller drops. Why? Because having shorters guarantees that you will have a buyer for a stock that is falling. To exit a short trade you need to purchase shares. This helps prevent stocks from falling too low out of panic or undervaluation, benefiting people who are long the stock.

This is not true. Highly shorted stocks are some of the most volatile ones. Anyone can buy a stock that is falling, most stocks have little short interest (<10%) meaning volume when stock going up or down is most people buying or selling down their long position.

Re: Short sellers are good for markets

#28

Post by simonh » Sat, Oct 13, 2018, 5:12 PM UTC

logicchains wrote: post #16

lixtra wrote: post #12

Earlier quoted context omitted.

Cheaters are bad for the market. I.e. insider trading, because it destroys trust in the market.

Insider trading isn't necessarily bad for _the market_; it brings more information to the market faster, so prices more accurately reflect all factors. Compare for instance a hedge fund using satellite imagery to notice that a refinery has much less oil and trading on this information vs some exec at the oil refinery trading on that information. The former is completely accepted, because of the information it brings…

I think this view is very naive because it doesn't take into account the perverse incentives legalising insider trading could create.

Insiders often also have power over the behaviour of a company, so for example a corporate leader might short his company's stock and then take actions to ruin the business. Or they might release plans for some action that would be seen negatively in the market, depress the stock price, buy, and then change the plans to ones that will attract investors and pocket the difference when the price goes back up. This doesn't improve market information, in fact it's disinformation because those selling on the first announcement were deceived, but how could you prove it?

Maybe they would get caught, maybe not, but legalising insider trading creates an incentive for these sorts of behaviour that would not exist otherwise.

Re: Short sellers are good for markets

#29

Post by aaavl2821 » Sat, Oct 13, 2018, 5:12 PM UTC

This article doesn't mention this, but short selling is a fundamental piece upon which many other financial instruments are built, because it allows hedging

If you take away short selling, you take away many other healthy components of functioning markets. You won't have functioning options markets for example, because market makers can't hedge their positions

I'd actually like to see more short selling. Especially in small biotech companies. It is either impossible or expensive to short these shares, so no one does it. Valuations can therefore be sustainably too high -- it's as if these stocks live in a world of lower gravity

Having an active short market would also enable all kinds of interesting options trading strategies, and I think smart math-minded people would have a field day

Re: Short sellers are good for markets

#30

Post by Gitnumb » Sat, Oct 13, 2018, 5:13 PM UTC

Short sellers are incentivized to create false rumors and sabotage a a company's reputation. That's not really good.