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Could you provide an example where this was the case? I'm not familiar with any companies with a sound business model that were hurt by shorts.

by bb2018 8y ago

AnthonyMouse 8y ago
Choose any company that was shorted and nearly succeeded but didn't. Are you questioning the mechanism by which it operates? If you raise borrowing costs for a company it hurts them and the ones already at the margin may fold.
- freddie_mercury 8y ago
  So you can't provide a single example of a company whose downfall was due to shorts? If it was that common, seems like it would have been easy for you to just list a few dozen examples instead of handwave it away.
  - AnthonyMouse 8y ago
    > So you can't provide a single example of a company whose downfall was due to shorts? How is someone supposed to prove that in a specific case? It would be the case for a company that failed by a specific margin whose total borrowing costs were increased by more than that margin. Which requires speculating what their share price would have been in the alternative, calculating the resulting effect on their contemporary borrowing cost (which data is available where?), then evaluating their entire business to determine how much additional capital they would have needed to survive. It would take hours to calculate and be subject to unlimited debate about the reasons and margins by which they failed. But if you really want an example based on pure speculation, Kodak. They made their share of mistakes but if it had been easier for them to raise funding to compete in digital markets once they changed course they might not have ended in bankruptcy. And I still haven't heard any argument as to the flaw in the general principle.
    - bb2018 8y ago
      The flaw to that argument (from my perspective) is that if a company wants more capital they can find lenders, issue bonds, or even issue new shares. If Kodak has a real way to pivot they could have raised money. Instead, it is pretty clear their business was dying and they had no way to compete against larger tech companies who could provide a better product with cheaper costs to consumers.
      - AnthonyMouse 8y ago
        > The flaw to that argument (from my perspective) is that if a company wants more capital they can find lenders, issue bonds, or even issue new shares. Well yes, but that's the problem. If you issue new shares when your share price is lower, you get less money and it may not be enough. You can't just sell an unlimited number of shares, each one dilutes the others and at some point no one will buy them. And all the other lenders rely on your ability to issue new shares to pay them back if it comes down to that, so they won't lend to you if your share price is too low, or will demand interest rates you can't afford. > Instead, it is pretty clear their business was dying and they had no way to compete against larger tech companies who could provide a better product with cheaper costs to consumers. They could have at least been GoPro if not the company supplying the cameras in half the phones on the market.
        bb2018 8y ago
        Agree to disagree! Maybe no one will buy them because the business plan is crap!
        turtlecloud 8y ago
        The shorts are symptom, not the cause. Kodak was a hot mess. Even raising a ton of money couldn’t have saved them from their incompetence. If they didn’t have the vision to see digital cameras, what makes u think they could dig themselves out of the hole they were in?
    - freddie_mercury 8y ago
      > How is someone supposed to prove that in a specific case? As one example: they could show a specific company that violated its margin constraints as a result of short selling pressure, which resulted in an unplanned margin sell, that forced it to sell assets at firesale prices, that triggered a liquidity spiral resulting in material harm. You could see this in a financial institution with a weak balance sheet that is forced to unwind long/illiquid positions. (This is why the SEC banned short-selling of financial institutions during the GFC; the ban lasted about three weeks before it expired.) Another mechanism would be short selling triggering a bank run, as debtholders & counterparties see a falling share price and think that signals a weakening balance sheet. It may take hours to calculate but it seems like the kind of thing that academics, journalists, and aggrieved CEOs would have already done the legwork on. A few hours to publish an academic paper or write an article for Bloomberg isn't much investment, after all. I'm not aware of any even theoretical models about how short-selling hurts non-financial institutions in material ways. Most corporations are primarily debt financed, not equity financed, aren't they? The historical debt-to-equity ratio of the S&P 500 is 1.7, I think.
- gbacon 8y ago
  Please humor us with three examples where this actually occurred.

Could you provide an example where this was the case? I'm not familiar with any companies with a sound business model that were hurt by shorts.

by bb2018 8y ago

Could you provide an example where this was the case? I'm not familiar with any companies with a sound business model that were hurt by shorts.

AnthonyMouse 8y ago

Choose any company that was shorted and nearly succeeded but didn't. Are you questioning the mechanism by which it operates? If you raise borrowing costs for a company it hurts them and the ones already at the margin may fold.

freddie_mercury 8y ago
So you can't provide a single example of a company whose downfall was due to shorts? If it was that common, seems like it would have been easy for you to just list a few dozen examples instead of handwave it away.
- AnthonyMouse 8y ago
  > So you can't provide a single example of a company whose downfall was due to shorts? How is someone supposed to prove that in a specific case? It would be the case for a company that failed by a specific margin whose total borrowing costs were increased by more than that margin. Which requires speculating what their share price would have been in the alternative, calculating the resulting effect on their contemporary borrowing cost (which data is available where?), then evaluating their entire business to determine how much additional capital they would have needed to survive. It would take hours to calculate and be subject to unlimited debate about the reasons and margins by which they failed. But if you really want an example based on pure speculation, Kodak. They made their share of mistakes but if it had been easier for them to raise funding to compete in digital markets once they changed course they might not have ended in bankruptcy. And I still haven't heard any argument as to the flaw in the general principle.
  - bb2018 8y ago
    The flaw to that argument (from my perspective) is that if a company wants more capital they can find lenders, issue bonds, or even issue new shares. If Kodak has a real way to pivot they could have raised money. Instead, it is pretty clear their business was dying and they had no way to compete against larger tech companies who could provide a better product with cheaper costs to consumers.
    - AnthonyMouse 8y ago
      > The flaw to that argument (from my perspective) is that if a company wants more capital they can find lenders, issue bonds, or even issue new shares. Well yes, but that's the problem. If you issue new shares when your share price is lower, you get less money and it may not be enough. You can't just sell an unlimited number of shares, each one dilutes the others and at some point no one will buy them. And all the other lenders rely on your ability to issue new shares to pay them back if it comes down to that, so they won't lend to you if your share price is too low, or will demand interest rates you can't afford. > Instead, it is pretty clear their business was dying and they had no way to compete against larger tech companies who could provide a better product with cheaper costs to consumers. They could have at least been GoPro if not the company supplying the cameras in half the phones on the market.
      - bb2018 8y ago
        Agree to disagree! Maybe no one will buy them because the business plan is crap!
      - turtlecloud 8y ago
        The shorts are symptom, not the cause. Kodak was a hot mess. Even raising a ton of money couldn’t have saved them from their incompetence. If they didn’t have the vision to see digital cameras, what makes u think they could dig themselves out of the hole they were in?
  - freddie_mercury 8y ago
    > How is someone supposed to prove that in a specific case? As one example: they could show a specific company that violated its margin constraints as a result of short selling pressure, which resulted in an unplanned margin sell, that forced it to sell assets at firesale prices, that triggered a liquidity spiral resulting in material harm. You could see this in a financial institution with a weak balance sheet that is forced to unwind long/illiquid positions. (This is why the SEC banned short-selling of financial institutions during the GFC; the ban lasted about three weeks before it expired.) Another mechanism would be short selling triggering a bank run, as debtholders & counterparties see a falling share price and think that signals a weakening balance sheet. It may take hours to calculate but it seems like the kind of thing that academics, journalists, and aggrieved CEOs would have already done the legwork on. A few hours to publish an academic paper or write an article for Bloomberg isn't much investment, after all. I'm not aware of any even theoretical models about how short-selling hurts non-financial institutions in material ways. Most corporations are primarily debt financed, not equity financed, aren't they? The historical debt-to-equity ratio of the S&P 500 is 1.7, I think.
gbacon 8y ago
Please humor us with three examples where this actually occurred.