4 ms·
In the scenario of a company that is obviously not a going concern you can sell stock short to passive investors. The company will then fail and it’s stock will
by dan-robertson 6y ago
In the scenario of a company that is obviously not a going concern you can sell stock short to passive investors. The company will then fail and it’s stock will be worth 0. You get to keep the money. I guess the worry would be that the company could raise money by selling shares and use that to avoid becoming insolvent, but at some point a company is going insolvent faster than it can issue new stock.
- pedrocr 6y agoYou can't sell stock short specifically to passive investors. You have to sell it into the market. And since you're trying to sell only that stock and passive investors are buying the whole market your actual net counterparty is a set of some other active traders that hold the mirror position to yours, not the passive traders. The passives will always get the average of the market in that scenario and your above average returns have to come from someone else's below average returns.
- xyzelement 6y agoI just wrote to you the same thing the parent of your post did. You are missing the part of the scenario where "everyone" except the one player is passive. Both I and the poster broke down the mechanics step by step for you...
- pedrocr 6y agoYou didn't break down anything step by step. If you actually start with an 100% passive market and try having a single active investor in it nothing works. Funds can no longer buy and sell the basket of stocks they need. At that point they'd just trade among themselves and simply not trade with you. To actually be able to trade in the way you describe you'd need a 99.9% passive market where there are still some active traders you are trading with and together you are creating tracking error for the passives siphoning off their gains, which is what I described.