4 ms·
Such an outcome is clearly possible. It is unclear whether or not it is efficient. This situation has shorts identify a probably-failing company and set the st
by ISL 6y ago
Such an outcome is clearly possible. It is unclear whether or not it is efficient.
This situation has shorts identify a probably-failing company and set the stage for traders to (possibly) detonate a GameStop/Hertz cash-bomb. It yields a transfer of cash from "greater-fools" to a probably-failing company.
As a value-investor, it seems to me that occasionally raining cash upon failing companies seems like a strategy with a below-average probability of long-term success. Extracting that cash from unsophisticated investors seems to risk moral hazard -- the school of hard knocks is expensive and bruising.
Someone, somewhere, should be able to profit from blunting these explosions. Why aren't options prices increasing to make this effect unlikely? Surely there are options-traders who are incurring losses as they expand their hedges.
- ummonk 6y agoSo one could argue that short interest is actually inefficient since it soaks up capital that would have gone into equity raises by a struggling company. I.e. that in a traditional market short sellers function as a sort of reverse pump and dump, preventing an otherwise viable business from raising short term capital and forcing it into bankruptcy and shuttering. Arguably, by injecting large amounts of cash into a handful of such companies, WSBers are not only saving those companies, but helping save others by puttinf predatory shorters out of business.
- ISL 6y agoUnderstood and agreed, at least in part. In the best case, short-sellers are the jackals/vultures that cull the weak and free up capital for new ventures. To the extent that shorts engage in reverse pump-and-dump, that is likely, too, to be inefficient. It is my expectation that in the long term, both nefarious shorts and WSBers will lose to those working to create real value. It is simply unfortunate and perhaps unnecessary that the war between the chaos monkeys involves collateral damage. Such an environment adds reasons for successful companies to stay privately-traded, which is probably a net-negative for humanity.
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