5 ms·

Specifics of this case aside, it must feel great to hold short positions, where you are hoping others fail...

hendzen 9y ago
Short sellers, villainized though they may be, provide a valuable service to the market and society as a whole. It’s a good thing that people are incentivized to spot companies that are financially overstretched (or worse) - it keeps companies honest and penalizes bad actors. See the story of Valeant for a good example.
Erlich_Bachman 9y ago
If hypothetically their position is that the thing that will fail is bad (based on a bad technology, bad management, bad presuppositions, etc.) - then what's so bad about shorting it? They are hoping that the bad thing will fail so that more resources (money, news, workers, scientists, mind-space of the public) will go to other projects that better deserve it? If they can make some money at the same time - then why not? Is the same as going long (investing in) some other projects that they predict will succeed. (Not saying Tesla is a "bad" company, the comment was about shorting.)
- caconym_ 9y ago
  If you're shorting something then you're incentivized to spread negative sentiment about it, possibly in bad faith. Of course, you could say the converse thing about standard investments, but in the former case you risk otherwise viable ventures being sunk by profit-seeking bad faith actors. In the latter case, maybe some naive and irresponsible investors will lose their money. The latter seems much more acceptable to me than the former.
  - Erlich_Bachman 9y ago
    If they spread good news about a bad company (ie, spreading sentiment in bad faith, as you called it), after acquiring a long position for that company - it means they are pushing resources into that company. Those resources are not endless. There is only a limited amount of capital flowing out there. If the capital goes to a bad company, it means that a good company somewhere did not get the capital that they would have otherwise gotten. It's just as bad. The issue here is spreading sentiment in bad faith. If someone is doing it, they are affecting the market and enterprises in it, in a bad way. The good guys make less (and go out of business sometimes), and the bad guys make more money and get more attention, stealing it from the ones who truly deserve it. The downside is not that some naive investors lose money. The downside is that a better project will not get the money it really needs, and instead that money will go to a worse project with better false marketing - thus slowing down the overall progress. Whether this happens while going long or short positions - doesn't make much difference.
    - caconym_ 9y ago
      It's a relatively compelling argument, but I'm not convinced that the reality is as "zero-summy" as you're suggesting for a few reasons (off the top of my head): a) I'm not convinced that it's as difficult/expensive to spread FUD as it is to spread whatever the opposite of FUD is. b) I'm not convinced that different classes of investors respond in the same ways to FUD and whatever the opposite of FUD is. c) I'm not convinced that different classes of investors have the same access to tools that allow them to "buy long" and "sell short". This may be on the way to changing, but currently even e.g. Robinhood does not support short selling. I say "not convinced" because I honestly don't think I have the answer to this, but if the answers to the above questions go a certain way that I think is fairly plausible, it seems that the net effects would include a disproportionate burden on disruptive/innovative ventures that are especially vulnerable to FUD, and an increase in wealth inequality as capital flows to more sophisticated investors. Neither of those things are great.

Short sellers, villainized though they may be, provide a valuable service to the market and society as a whole. It’s a good thing that people are incentivized to spot companies that are financially overstretched (or worse) - it keeps companies honest and penalizes bad actors. See the story of Valeant for a good example.

Erlich_Bachman 9y ago

If hypothetically their position is that the thing that will fail is bad (based on a bad technology, bad management, bad presuppositions, etc.) - then what's so bad about shorting it? They are hoping that the bad thing will fail so that more resources (money, news, workers, scientists, mind-space of the public) will go to other projects that better deserve it? If they can make some money at the same time - then why not? Is the same as going long (investing in) some other projects that they predict will succeed. (Not saying Tesla is a "bad" company, the comment was about shorting.)

caconym_ 9y ago
If you're shorting something then you're incentivized to spread negative sentiment about it, possibly in bad faith. Of course, you could say the converse thing about standard investments, but in the former case you risk otherwise viable ventures being sunk by profit-seeking bad faith actors. In the latter case, maybe some naive and irresponsible investors will lose their money. The latter seems much more acceptable to me than the former.
- Erlich_Bachman 9y ago
  If they spread good news about a bad company (ie, spreading sentiment in bad faith, as you called it), after acquiring a long position for that company - it means they are pushing resources into that company. Those resources are not endless. There is only a limited amount of capital flowing out there. If the capital goes to a bad company, it means that a good company somewhere did not get the capital that they would have otherwise gotten. It's just as bad. The issue here is spreading sentiment in bad faith. If someone is doing it, they are affecting the market and enterprises in it, in a bad way. The good guys make less (and go out of business sometimes), and the bad guys make more money and get more attention, stealing it from the ones who truly deserve it. The downside is not that some naive investors lose money. The downside is that a better project will not get the money it really needs, and instead that money will go to a worse project with better false marketing - thus slowing down the overall progress. Whether this happens while going long or short positions - doesn't make much difference.
  - caconym_ 9y ago
    It's a relatively compelling argument, but I'm not convinced that the reality is as "zero-summy" as you're suggesting for a few reasons (off the top of my head): a) I'm not convinced that it's as difficult/expensive to spread FUD as it is to spread whatever the opposite of FUD is. b) I'm not convinced that different classes of investors respond in the same ways to FUD and whatever the opposite of FUD is. c) I'm not convinced that different classes of investors have the same access to tools that allow them to "buy long" and "sell short". This may be on the way to changing, but currently even e.g. Robinhood does not support short selling. I say "not convinced" because I honestly don't think I have the answer to this, but if the answers to the above questions go a certain way that I think is fairly plausible, it seems that the net effects would include a disproportionate burden on disruptive/innovative ventures that are especially vulnerable to FUD, and an increase in wealth inequality as capital flows to more sophisticated investors. Neither of those things are great.