311–320 of 403 posts
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It also bankrupts viable businesses, when there is more short speculation than long speculation.
No that's false. Short selling a stock doesn't reduce the business's assets (except for treasury stock) or increase it's liabilities. Even if theoretically short sellers drove the $GME share price to zero the GameStop business would still exist.
The author seems to be really upset about this, but I don't understand why. Nothing they are describing, if you ignore histrionic language like "counterfeiting", seems especially nefarious. Maybe I am misunderstanding. Basically, a short is when A borrows from B a share of corporation C with the promise to return a share of corporation C at a later time, plus some cash interest. A naked short is where instead B gives…
When I purchase a stock, I do it in the express belief that I will get a physical (though digitally stored) share of that company, and possibly one that gives me a voting right if the stock is marked as such. When a stock “fails to clear” this gives me a ton of problems such as slippage and volatility, and possibly a quite substantial loss. Same if you buy an apple, I'm sure you'd only do it in the belief that you wi…
This article is quite biased. There are a few problems with it: 1- The stock market should not kill a healthy company. Sure, it can affect its money raising capabilities (and maybe hiring) but it should not drive it out of business. 2- Naked Short-sellers still have to pay interest and dividend on their sold shares. This would create a certain equilibrium. If you nake-shorted a company at x2 its value, you suddenly d…
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There's a fallacy in your claims. Shorting affects the owners of the stock. But publicly traded companies don't normally own a large amount of their own stock. Their stock price doesn't have that direct an effect on their balance sheets. It affects their credit worthiness, but not in a mechanistic way. (Believe me, Gamestop isn't finding it easier to borrow just because its price has gone bonkers.)
That's also a key reason why market cap is relatively meaningless outside of the actual stock market. E.g. TSLA has a giant market cap for an automaker, but that has no real operational impact and has essentially no relation to their behavior and performance in their market.
This is obviously related to the stock price and has an operational impact.
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>Person A has 1 share of company Y. Person B borrows 1 share of company Y from person A, and then sells it into the market. This is called a short sale. But person B just sold their borrowed share. Now that share is owned by person C. What happens to Person A in this scenario?
At a later date, Person B returns a share to them. And B pays them for the privilege of borrowing the share in the first place. Person B thinks that it will cost less to buy that share in the future than the money they make from selling the share today, which is why they asked A to lend them the share in the first place. They plan to buy a cheaper share and give that back to A. A doesn’t care if they get back their o…
This is mostly nonsense. There is nothing wrong with there being more shares short than shares outstanding. It just seems problematic, until you think it through. Person A has 1 share of company Y. Person B borrows 1 share of company Y from person A, and then sells it into the market. This is called a short sale. But person B just sold their borrowed share. Now that share is owned by person C. Person C can now lend i…
It works the way lending in general works. “Fractional reserve banking” is a very specific, restricted mechanism of lending, and I'm not sure what the equivalent of “depository institutions” with centrally-mandated common “reserve requirements” based on their “deposit liabilities” are in shorting.
This is mostly nonsense. There is nothing wrong with there being more shares short than shares outstanding. It just seems problematic, until you think it through. Person A has 1 share of company Y. Person B borrows 1 share of company Y from person A, and then sells it into the market. This is called a short sale. But person B just sold their borrowed share. Now that share is owned by person C. Person C can now lend i…
At least there the shares move from one hand to another. Pure option/derivative contracts allow parties make bets on a stock without ever touching actual shares. That's the original dark market I fear is pushing these prices.
This is mostly nonsense. There is nothing wrong with there being more shares short than shares outstanding. It just seems problematic, until you think it through. Person A has 1 share of company Y. Person B borrows 1 share of company Y from person A, and then sells it into the market. This is called a short sale. But person B just sold their borrowed share. Now that share is owned by person C. Person C can now lend i…
What your describing still sounds incredibly dodgy. The price of anything is a result of its some intrinsic value and the volume of supply. So a precious stone is valuable because of its beauty, but also because it's rare. If someone mines a billion such stones, it won't affect their individual beauty, but it will certainly reduce the price someone is willing to pay for one. Now, you seem to be saying that short sell…
No, it's the result of supply and demand not supply and “intrinsic value”. Demand is driven by subjective value, not “intrinsic value” which is a nonsense concept that misunderstands fundamentally how value and human action relate.
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The demand for shares is the demand for its discounted future cash flows. No rational investor buys for any other reason.
Okay, for anyone who agrees with you on this the price of shares are predominantly decided by irrational investors. And in a market where price of shares are predominantly decided by irrational investors, none of your purported benefits apply.
[1]https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261.... [2]https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12369 [3]https://academic.oup.com/rfs/article-abstract/26/2/287/15819...
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> The price of anything is a result of its some intrinsic value and the volume of supply. No. The price of a stock is the value of its discounted cash flows. Shorting creates synthetic shares, that guarantee the new longs an exactly replicated stream of cash flows. This doesn’t make the original shares any less valuable, because they still have the same cash flows. Imagine someone conjured a new company, called Tesla…
You cannot reduce ownership of a stock to discounted cash flow. Owning shares (mostly) comes with shareholder rights like voting. To me it is pretty obvious selling more of those rights than exist is fraudulent.