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Short sellers are good for markets
- carbocation 8y agoThis article is not readable even in incognito mode, where it claims that I've read my share of articles this month. Tried the 'web' option which also had no effect.
- warent 8y agoa) Try a different network b) Get a subscription to The Economist
- icedchai 8y agoIt's probably simpler and cheaper to just clear all your cookies for economist.com and any subdomains.
- carbocation 8y agoCookies are not preserved in incognito mode; this suggestion does not work.
- deleted 8y ago[deleted]
- icedchai 8y agoNote that it is possible for sites to detect incognito mode... https://gist.github.com/jherax/a81c8c132d09cc354a0e2cb911841ff1 https://gist.github.com/jherax/a81c8c132d09cc354a0e2cb911841... (You are correct though: my suggestion still doesn't work, for other reasons!)
- stephengillie 8y agoWhy should a a highly-paid engineer spend a few dollars, when they can spend the time-equivalent of dozens of dollars to not pay?
- dmortin 8y agoI'd pay some tiny amount for a single article, but I don't want a full subscription if I don't read the Economist otherwise. Also, I don't want dozens of subscriptions for different sites. I'd like a system when some tiny amount would be deducted automatically from my account every time I read an article on different sites.
- Cyphase 8y ago> I'd like a system when some tiny amount would be deducted automatically from my account every time I read an article on different sites. Figure out how to make that work in the market and you can be a _very_ highly-paid engineer.
- stephengillie 8y agoThis sounds like the same situation as the music industry, bundling in an album 12 songs you don't want, along with the 2 you do want. Or newspapers, where you pay for the 4 sections you won't read, along with the 2 you do read. Or streaming services, paying for the thousands of shows you won't watch, along with the dozen you do watch.
- godelmachine 8y agoWe need someone to post a paywall-bypass link. I don’t have the means or the knowledge to find such a link.
- JamieF1 8y agoHere you go: https://outline.com/https://www.economist.com/finance-and-economics/2018/10/13/short-sellers-are-good-for-markets https://outline.com/https://www.economist.com/finance-and-ec...
- fgonzag 8y agoand you definitely have a right to read their content without paying. That being said, though I agree the economist is allowed to charge whatever it wants for us to read their articles, I don't think their pay walled articles should be allowed in HN, as only a minor portion of the reader base would be able to access the content legally.
- wgjordan 8y agoNote the FAQ [1] explicitly says comments like this asking how to read a paywalled article are ok: > Are paywalls ok? > It's ok to post stories from sites with paywalls that have workarounds. > In comments, it's ok to ask how to read an article and to help other users do so. But please don't post complaints about paywalls. Those are off topic. [1] https://news.ycombinator.com/newsfaq.html https://news.ycombinator.com/newsfaq.html
- anon_cow1111 8y agoArchive seems to work https://web.archive.org/web/20181013150132/https://www.economist.com/finance-and-economics/2018/10/13/short-sellers-are-good-for-markets https://web.archive.org/web/20181013150132/https://www.econo...
- carbocation 8y agoThis looked great, but the page turns all white after it loads the javascript. The link from JamieF1 is the only one that works for me so far: https://news.ycombinator.com/item?id=18208660 https://news.ycombinator.com/item?id=18208660
- diminish 8y agoSo far I have read in various articles why monopolies, competition, rational actors, irrational actors (for overcoming crisis), long term investors, and short term sellers are good for the markets. Are there any actors which are bad for the market?
- lixtra 8y agoCheaters are bad for the market. I.e. insider trading, because it destroys trust in the market.
- logicchains 8y agoInsider trading isn't necessarily bad for _the market_; it brings more information to the market faster, so prices more accurately reflect all factors. Compare for instance a hedge fund using satellite imagery to notice that a refinery has much less oil and trading on this information vs some exec at the oil refinery trading on that information. The former is completely accepted, because of the information it brings to the market, but its effect on the market is the same as that of the latter. The big problem with insider information is that it generally represents a breach of fiduciary duty; essentially someone is improperly disclosing a corporate secret. See https://en.wikipedia.org/wiki/Insider_trading#Arguments_for_legalizing https://en.wikipedia.org/wiki/Insider_trading#Arguments_for_.... Even Nobel prize winning economist Milton Friedman argued that insider trading should be legal.
- sonnyblarney 8y agoInsider trading is definitely bad for the market because there would be no outside investing ever if insider trading was the mode that information came about. Execs have not only access to 'current oil' stores, but basically everything about the company. It'd be crazy to invest in a company where execs can do as they please, it would be utterly gamified and suppressive to the entire market.
- tormeh 8y ago
- tryptophan 8y agoSomething that the article did not mention: Short sellers reduce volatility and lead to smaller drops. Why? Because having shorters guarantees that you will have a buyer for a stock that is falling. To exit a short trade you need to purchase shares. This helps prevent stocks from falling too low out of panic or undervaluation, benefiting people who are long the stock.
- anilshanbhag 8y agoThis is not true. Highly shorted stocks are some of the most volatile ones. Anyone can buy a stock that is falling, most stocks have little short interest (<10%) meaning volume when stock going up or down is most people buying or selling down their long position.
- Nokinside 8y ago> Highly shorted stocks are some of the most volatile ones. I'm not convinced by this argument. * Is the volatility caused by short selling or does volatility attract short sellers? * Is it possible that short selling is actually reducing the volatility of very volatile stock? Australia banned short selling after financial crisis. The result was increased volatility in stocks, less trade and larger spreads.
- tim333 8y agoAlso if you look at the price graph for Tesla it's been kind of flat for the last 5 years with the price around $200-300 give or take.
- wdn 8y agoThis is true. You can verify this yourself by owning a high growth, non-shortable, thinly traded stock (less than 200,000 shares traded a day). On a bad news release (such as earning) or just a bad sell off day such as Wednesday, you will how bad the slippage is on your protected stopped. For example, you own XYZ and it was at $25 at the close on Friday. There was a bad release over the weekend and the price is going to be opened at $21 on Monday morning. You have your protected stop at $20. You would think you would get out at $20 give or take 10 cents for slippage. But when your received your filled report, you see it was filled at $17. What happened is there is 0 buyer and everyone just want to get out. If there were short shorters, they would come in at market open to book some profits by buying back the share they have shorted.
- cheez 8y agoJust remember that many people shorted Netflix early to their detriment.
- stephengillie 8y agoShorting a stock is like renting a car for a year - then selling the car, and still paying rent. At the end of the year, you buy an identical car for a lot less, and give it back to the car rental company. Cars are fungible in this example.
- mkagenius 8y ago> Shorting a stock is like renting a car for a year only if stock goes down. Stocks moves up too, in that case the analogy doesnt work.
- stephengillie 8y agoThe analogy still works - you would just extend the car rental. And yes, sometimes short sellers do lose money on this transaction.
- mkagenius 8y agoI always thought that the price of a car always go down.
- stephengillie 8y agoNot always, but you're right it's uncommon for cars to appreciate in value. And yes it does stretch the analogy pretty thin.
- Nokinside 8y agoI understand why Musk don't like short sellers. They diminish his leverage. Musk has heavily leveraged his TSLA holdings. 40% of his Tesla shares were collateral for loans as of year-end 2017. TSLA is down 19% from that point. Leveraging holdings of heavily leveraged company is typical Musk high-risk gamble. Aiming for the stars even in finance using leverage as a rocket fuel. Musk is probably using this leverage to fund his other businesses. If TSLA tanks he may receive margin call and must sell part of his SpaceX stock to compensate. edit: TSLA total debt to total equity ratio is 286.29 for the "Musk-Tesla Inc." that ratio is almost double.
- stephengillie 8y ago> By seeking out overvalued assets, short-sellers help rein in animal spirits and prevent bubbles from forming. Suddenly this article takes an unexpectedly spiritual turn. What are these "animal spirits" and how do they influence markets? It's reminiscent of the Animal Spirit Guide that helped Chakotay in Star Trek Voyager[0] [0] http://memory-alpha.wikia.com/wiki/The_Cloud_(episode) http://memory-alpha.wikia.com/wiki/The_Cloud_(episode)
- pg_bot 8y agoIt is a phrase popularized by the most famous economist of the 20th century, John Maynard Keynes. https://en.wikipedia.org/wiki/Animal_spirits_(Keynes) https://en.wikipedia.org/wiki/Animal_spirits_(Keynes)
- aaavl2821 8y agoThis article doesn't mention this, but short selling is a fundamental piece upon which many other financial instruments are built, because it allows hedging If you take away short selling, you take away many other healthy components of functioning markets. You won't have functioning options markets for example, because market makers can't hedge their positions I'd actually like to see more short selling. Especially in small biotech companies. It is either impossible or expensive to short these shares, so no one does it. Valuations can therefore be sustainably too high -- it's as if these stocks live in a world of lower gravity Having an active short market would also enable all kinds of interesting options trading strategies, and I think smart math-minded people would have a field day
- tim333 8y agoNothing against shorting but you can write puts and calls without being needing short selling. Calls are naturally written by people holding a stock who don't mind selling some and puts by people with cash who don't mind buying some stock.
- JumpCrisscross 8y ago> you can write puts and calls without being needing short selling Put-call parity [1] makes option markets work. It lets anyone to manufacture a put from a call and a short, or a call from a put and a long. This ability to spin up options on demand is critical to options market making. (Source: former options market maker.) Take away shorting and you vastly increase the risk of correcting option mispricing. Given how fundamental options are to other instruments, e.g. convertible debt, this would directly decrease funding options (and increase funding costs) to companies. [1] https://en.m.wikipedia.org/wiki/Put–call_parity https://en.m.wikipedia.org/wiki/Put–call_parity
- nemo44x 8y agoShorting a stock doesn't include the time element of options not to mention the relative lack of liquidity in derivatives as opposed to the equity. Saying that, for most amateurs I'd recommend selling puts than shorting since shorting has unlimited downside risk. Sometimes shorting against the box makes sense if you have the asset in another account and can't sell it there. You could short it in your primary account and then move the shares over which make take a few days locking in a sell price. When the shares arrive in your primary account it covers the short position.
- Gitnumb 8y agoShort sellers are incentivized to create false rumors and sabotage a a company's reputation. That's not really good.
- AznHisoka 8y agoBy your logic, people who are long are incentivized to create false rumors to pump up a company’s reputation.
- romed 8y agoIn practice, it is far, far more common for bad actors to run the pump and dump than to short and issue fake news. The latter is rare enough that we don't have a word for it. The former is common enough to be called "pump and dump". There's a good reason why shorting is not a common scam technique: your gains are capped at 100% and your risk is unlimited. On the long side, it's the opposite. A pump-and-dump has unlimited upside and the you can only lose 100%.
- codewell 8y agoThe short version is called short and distort. I'd like to see stats on which is more common.
- romed 8y agoI was an investment professional from 2001 to 2009 and I never heard anyone say "short and distort". https://books.google.com/ngrams/graph?content=%22pump+and+dump%22%2C%22short+and+distort%22&year_start=1800&year_end=2000&corpus=15&smoothing=3&share=&direct_url=t1%3B%2C%22%20pump%20and%20dump%20%22%3B%2Cc0 https://books.google.com/ngrams/graph?content=%22pump+and+du... "Ngram not found: short and distort"
- codewell 8y agoPerhaps it's a newer term. Now "short and distort" is around, for instance prominently as section 3 in the wikipedia article on "pump and dump" [0], and investopedia [1] also describe it. [0] https://en.wikipedia.org/wiki/Pump_and_dump https://en.wikipedia.org/wiki/Pump_and_dump [1] https://www.investopedia.com/terms/s/shortanddistort.asp https://www.investopedia.com/terms/s/shortanddistort.asp
- lordnacho 8y agoWhat's good for markets is for there to be a variety of opinions about a stock. Long term opinions, short term opinions, positive opinions, negative opinions. Absolute values (TSLA is worth $500), relative values (TSLA should be worth more than GM). What would be bad would be for us to censure certain expressions, so that we only hear certain ideas.
- JesseLivermore 8y agoOne reason I prefer trading indexes rather than individual stocks kind of for this reason. The market for the Dow is much healthier because there is more diversified participation. Individual stocks always seem to make me more nervous.
- cjbenedikt 8y agohttps://alphaarchitect.com/2017/12/18/academic-research-insight-industry-herding-short-sellers-signals-conditions-changing/ https://alphaarchitect.com/2017/12/18/academic-research-insi...
- andrewtbham 8y agoThis article does not address the core issue with today's short sellers. They target companies that are dependent on financing and use fear uncertainty and doubt to ruin the company's reputation. They corrupt journalists, analysts, regulators, law enforcement, and ratings agencies... They work with known criminals and recruit saboteurs. Details in this link https://teslamotorsclub.com/tmc/threads/elon-musk-vs-short-sellers.118431/ https://teslamotorsclub.com/tmc/threads/elon-musk-vs-short-s...
- xiphias2 8y agoThe real problem is not short sellers: it's borrowing people's stocks for shorting without their knowledge. When you think you own a stock, you don't own it, as the ownerahip lies with the custody institution (unless you have a stock certificate).
- pimmen 8y agoShort selling is vital. Everyone can say that the emperor is naked, so such allegations can be made without anyone noticing. When someone however dares to bet a large sum of money that emperor is naked people will pay more close attention and reflect. Fair, efficient markets require investors with a rational mindset. Short sellers can give people a wake up call.
- joshsyn 8y agoIs short selling banned in australia?
- rstuart4133 8y agoShort selling is fine. https://www.bwts.com.au/index.cfm/resources/ask-colin/569-why-is-it-not-possible-to-sell-short-on-the-australian-stock-mar/ https://www.bwts.com.au/index.cfm/resources/ask-colin/569-wh... Naked short selling is banned in Australia, as it should be everywhere.
- internet555 8y agoElon musk maf