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Why isn't the ability to short sell enough to balance this incentive out? If twitter is severely overvalued there's a ton of money to be made informing the mar

Why isn't the ability to short sell enough to balance this incentive out? If twitter is severely overvalued there's a ton of money to be made informing the market of that fact.

deleted 8y ago
[deleted]
foota 8y ago
You'd have to be able to predict when the market will have an adjustment to do that.
- wdewind 8y ago
  Right, that's why the market is functioning well when it's rewarding you for bring that information to it earlier. That's what short selling does.
Godel_unicode 8y ago
TSLA has been heavily shorted for a long time. People are shorting a stock on a relatively short term timescale (typically) while speculating in Tesla is frequently believed to be longer term (again, typically). Given that many long term investors believe in dollar-cost averaging and explicitly refuse to try to forecast if the price will rise or fall over the short run, both groups can be right at the same time and aren't directly opposed viewpoints.
- wdewind 8y ago
  Sorry I don't really understand your point. Some people short sell on a "short" time line, but some people try and make large, long term plays via shorting. Ackman and Herbalife, being a canonical example.
  - daxorid 8y ago
    Exactly. Low margin rates and the fact that TSLA doesn't pay a dividend really help shorts maintain long-term positions, as well.
  - Godel_unicode 8y ago
    I said typically. There are always going to be counterexamples to any position in finance, the market is extremely complicated. My point was that investors with long positions in a stock frequently don't care very much about the amount of short interest in that stock. Ackman’s short of Herbalife wasn't a long term short so much as a long series of short term shorts (also this is not a very common occurrence or he wouldn't be so famous for doing it). The most common means of shorting a stock is to buy put option contracts. Those contracts have an expiration date by which you must cover the put. That date is seldom more than a few weeks in the future. Therefore, because of these short term contracts, most short interest is short term and assumes that a correction is imminent. At the same time that someone is speculating that a stock will go down soon, other people are investing long based on a thesis that over a long time frame the stock will go up. These long interests are often regularly investing smaller amounts into a stock as opposed to one large investment all at once. This practice, called dollar cost averaging, is frequently undertaken to avoid trying to short term time the market (under the belief that short term price predictions are often wrong). Taking these two strategies together, you can simultaneously have someone short a stock they expect to go down soon and someone else long a stock they expect to go up over 5-10+ years. Both can be right at the same time. You can then derive from this point that short interest is of limited to no concern to a long investor, which was my original point.
    - wdewind 8y ago
      A well functioning market contains the incentives to bring correct information to it. If Ackman was right about Herbalife then he stood to make billions. He wasn't, and the process that unfolded over 5 years was a Good Thing, both for The Market and Herbalife (he was actually right about some things, which they fixed). Herbalife is an excellent example of the market providing the right incentives and those incentives working out in the way we want them to. If Ackman had exited his position after the original corrections were made by Herbalife everyone would've won: he would've made money, long investors would have a stronger company, and Herbalife would be a real business. Instead he doubled down and so he lost, but everyone else still won. This sounds like a really high functioning market to me. If you think TSLA is bound for 0 there are ways you can make that bet today. The fact is no one thinks that, and so no one is trying to make that bet. Same with Twitter. > Taking these two strategies together, you can simultaneously have someone short a stock they expect to go down soon and someone else long a stock they expect to go up over 5-10+ years. Both can be right at the same time. You can then derive from this point that short interest is of limited to no concern to a long investor, which was my original point. Right, but this doesn't mean that the incentive to devalue companies that need devaluing doesn't exist. So as I said, I'm still not sure what you're arguing. Shorts seem to be doing what we want them to do. The market does not seem broken.

Why isn't the ability to short sell enough to balance this incentive out? If twitter is severely overvalued there's a ton of money to be made informing the market of that fact.

deleted 8y ago

[deleted]

foota 8y ago

You'd have to be able to predict when the market will have an adjustment to do that.

wdewind 8y ago
Right, that's why the market is functioning well when it's rewarding you for bring that information to it earlier. That's what short selling does.

Godel_unicode 8y ago

TSLA has been heavily shorted for a long time. People are shorting a stock on a relatively short term timescale (typically) while speculating in Tesla is frequently believed to be longer term (again, typically). Given that many long term investors believe in dollar-cost averaging and explicitly refuse to try to forecast if the price will rise or fall over the short run, both groups can be right at the same time and aren't directly opposed viewpoints.

wdewind 8y ago
Sorry I don't really understand your point. Some people short sell on a "short" time line, but some people try and make large, long term plays via shorting. Ackman and Herbalife, being a canonical example.
- daxorid 8y ago
  Exactly. Low margin rates and the fact that TSLA doesn't pay a dividend really help shorts maintain long-term positions, as well.
- Godel_unicode 8y ago
  I said typically. There are always going to be counterexamples to any position in finance, the market is extremely complicated. My point was that investors with long positions in a stock frequently don't care very much about the amount of short interest in that stock. Ackman’s short of Herbalife wasn't a long term short so much as a long series of short term shorts (also this is not a very common occurrence or he wouldn't be so famous for doing it). The most common means of shorting a stock is to buy put option contracts. Those contracts have an expiration date by which you must cover the put. That date is seldom more than a few weeks in the future. Therefore, because of these short term contracts, most short interest is short term and assumes that a correction is imminent. At the same time that someone is speculating that a stock will go down soon, other people are investing long based on a thesis that over a long time frame the stock will go up. These long interests are often regularly investing smaller amounts into a stock as opposed to one large investment all at once. This practice, called dollar cost averaging, is frequently undertaken to avoid trying to short term time the market (under the belief that short term price predictions are often wrong). Taking these two strategies together, you can simultaneously have someone short a stock they expect to go down soon and someone else long a stock they expect to go up over 5-10+ years. Both can be right at the same time. You can then derive from this point that short interest is of limited to no concern to a long investor, which was my original point.
  - wdewind 8y ago
    A well functioning market contains the incentives to bring correct information to it. If Ackman was right about Herbalife then he stood to make billions. He wasn't, and the process that unfolded over 5 years was a Good Thing, both for The Market and Herbalife (he was actually right about some things, which they fixed). Herbalife is an excellent example of the market providing the right incentives and those incentives working out in the way we want them to. If Ackman had exited his position after the original corrections were made by Herbalife everyone would've won: he would've made money, long investors would have a stronger company, and Herbalife would be a real business. Instead he doubled down and so he lost, but everyone else still won. This sounds like a really high functioning market to me. If you think TSLA is bound for 0 there are ways you can make that bet today. The fact is no one thinks that, and so no one is trying to make that bet. Same with Twitter. > Taking these two strategies together, you can simultaneously have someone short a stock they expect to go down soon and someone else long a stock they expect to go up over 5-10+ years. Both can be right at the same time. You can then derive from this point that short interest is of limited to no concern to a long investor, which was my original point. Right, but this doesn't mean that the incentive to devalue companies that need devaluing doesn't exist. So as I said, I'm still not sure what you're arguing. Shorts seem to be doing what we want them to do. The market does not seem broken.