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If you short a stock, you profit when that company does poorly; since Tesla is one of the most shorted stocks out there, we have many people trying to spread FU

by NickM 8y ago

If you short a stock, you profit when that company does poorly; since Tesla is one of the most shorted stocks out there, we have many people trying to spread FUD via blog posts/tweets/etc in hopes that they can drive the stock price down. (Or in some cases even going to extremes like fraudulently submitting reports to the NHTSA claiming design flaws and problems with Tesla cars.) This has the side effect of damaging public perception of Tesla.

NickM 8y ago
I don't know why I'm getting downvoted. The parent post asked why short sellers harm companies, and I gave a legitimate answer, and that answer is also exactly one of the reasons Musk cited for wanting to take Tesla private. Maybe folks are skeptical about the fraudulent NHTSA complaints? If so, here's a source: https://electrek.co/2016/06/13/tesla-fale-complaints-suspension-nhtsa-keef-wivaneff/ https://electrek.co/2016/06/13/tesla-fale-complaints-suspens...
- AnthonyMouse 8y ago
  It's because you're answering the wrong question. It isn't how short sellers overtly try to lower the stock price, it's how they inherently lower it just by shorting the stock. The answer is that a short sale is borrowing a share and then selling it, which increases the number of shares available for sale and by supply and demand reduces the price (until the short seller eventually buys back the stock to return it to the person they borrowed it from). In the meantime, which can be as long as the short seller is willing to pay interest, the stock trades lower because the extra share is on the market. It's essentially the same principle as the way banks lending money to people causes inflation because it increases the money supply and so lowers the value of the dollar. Seeing a lot of existing shorts also tends to spook buyers, which also lowers the price, though it also attracts buyers hoping for a "short squeeze" that raises the price when the short sellers eventually have to buy back the stock.
  - NickM 8y ago
    Your answer is correct too, but the question originally asked was "what would he have gained from destroying the shorts? I understand that shorts are effectively a bet that the stock will go down but do they actually damage the company in any way?" The answer is yes, short sellers do damage the company for a variety of reasons, some reasons relating directly to stuff like stock price, and other reasons being more indirect like the one I cited. I saw that other answers had already explained how shorts lower the stock price, but nobody had pointed out the other ways in which they "damage the company", as the original post put it.
    - AnthonyMouse 8y ago
      I guess we're just interpreting the question differently.
lsh123 8y ago
I don’t think Musk needs any help in driving Tesla stock down ;)

by NickM 8y ago

NickM 8y ago

I don't know why I'm getting downvoted. The parent post asked why short sellers harm companies, and I gave a legitimate answer, and that answer is also exactly one of the reasons Musk cited for wanting to take Tesla private. Maybe folks are skeptical about the fraudulent NHTSA complaints? If so, here's a source: https://electrek.co/2016/06/13/tesla-fale-complaints-suspension-nhtsa-keef-wivaneff/ https://electrek.co/2016/06/13/tesla-fale-complaints-suspens...

AnthonyMouse 8y ago
It's because you're answering the wrong question. It isn't how short sellers overtly try to lower the stock price, it's how they inherently lower it just by shorting the stock. The answer is that a short sale is borrowing a share and then selling it, which increases the number of shares available for sale and by supply and demand reduces the price (until the short seller eventually buys back the stock to return it to the person they borrowed it from). In the meantime, which can be as long as the short seller is willing to pay interest, the stock trades lower because the extra share is on the market. It's essentially the same principle as the way banks lending money to people causes inflation because it increases the money supply and so lowers the value of the dollar. Seeing a lot of existing shorts also tends to spook buyers, which also lowers the price, though it also attracts buyers hoping for a "short squeeze" that raises the price when the short sellers eventually have to buy back the stock.
- NickM 8y ago
  Your answer is correct too, but the question originally asked was "what would he have gained from destroying the shorts? I understand that shorts are effectively a bet that the stock will go down but do they actually damage the company in any way?" The answer is yes, short sellers do damage the company for a variety of reasons, some reasons relating directly to stuff like stock price, and other reasons being more indirect like the one I cited. I saw that other answers had already explained how shorts lower the stock price, but nobody had pointed out the other ways in which they "damage the company", as the original post put it.
  - AnthonyMouse 8y ago
    I guess we're just interpreting the question differently.

lsh123 8y ago

I don’t think Musk needs any help in driving Tesla stock down ;)