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did you know that the compensation for some of these index managers is tied to the returns of the fund? so if lending shares out hurt the fund, they'd make less

did you know that the compensation for some of these index managers is tied to the returns of the fund? so if lending shares out hurt the fund, they'd make less money. what would be their motivation for harming their compensation?

bedobi 5y ago
That's a good question, ask them? If the borrow fee was enough to compensate the stock owners for the damage done by the short sellers, why would any short seller ever pay to borrow the stocks to sell them short?
- sigstoat 5y ago
  > That's a good question, ask them? you're making wild claims, and cannot offer a coherent theory that explains what you think is happening. not a good look. > If the borrow fee was enough to compensate the stock owners for the damage done by the short sellers, why would any short seller ever pay to borrow the stocks to sell them short? for the same reason that heaping piles of shares of stock trade hands every single day, at a price agreed upon by both parties.
  - bedobi 5y ago
    That stocks in retirement accounts are lent out to short sellers against a small fee is not a wild claim? It's ubiquitous and routine. And no, it's not at a price agreed upon by both parties. The owners of the stocks have zero say in any of it. Even if they did, most people aren't able to make an informed decision that allowing their stocks to be lent out to short sellers for a small fee is in their interest. (and, despite creative rhetoric to the contrary, there's no world in which doing so is in their best interest)
- webinvest 5y ago
  Philosophically, that’s a good point. My only rebuttal is that the stock market isn’t efficient. Options market predictions for future prices are oftentimes way off (like with AMD last year) and stocks will go up or down without change to a company’s fundamentals or without a new earnings report. If I could lend out any shares I own (and shares that I plan on owning for longer than the short seller will) for 1% interest per month to short sellers, I would! I certainly wouldn’t lend out any share for 2% per year or less. There’s a balance to be struck. This might only be 0-2 stocks in your portfolio at any given time. I also wouldn’t ever lend out dividend paying stocks (until the tax laws are updated) because the stock lender receives payment “in lieu of dividend”. It can’t ever be a qualified dividend so instead of paying 15% qualified dividends tax, you pay about 28% earned income tax on it instead. If I was not earning income for shares I was lending out, the optimal play is to never lend out shares for any reason because you’re right it’s a direct conflict of interest.
- chii 5y ago
  > damage done by the short sellers short selling (not naked short selling) doesn't "do damage". It is part of the set of actions in the market which reveals the "true" price of a share. Lending out shares for short sellers for a fee is just a fund's way of getting extra income from their assets. If the short seller turns out to be right (and the stock is over-valued), then at least they would've gained the lending fees. The fund's share position is still the same, and their losses (if any) is still the same.
mensetmanusman 5y ago
They are usually set up as ‘heads I win, tails you lose’ it seems…

bedobi 5y ago

That's a good question, ask them? If the borrow fee was enough to compensate the stock owners for the damage done by the short sellers, why would any short seller ever pay to borrow the stocks to sell them short?

sigstoat 5y ago
> That's a good question, ask them? you're making wild claims, and cannot offer a coherent theory that explains what you think is happening. not a good look. > If the borrow fee was enough to compensate the stock owners for the damage done by the short sellers, why would any short seller ever pay to borrow the stocks to sell them short? for the same reason that heaping piles of shares of stock trade hands every single day, at a price agreed upon by both parties.
- bedobi 5y ago
  That stocks in retirement accounts are lent out to short sellers against a small fee is not a wild claim? It's ubiquitous and routine. And no, it's not at a price agreed upon by both parties. The owners of the stocks have zero say in any of it. Even if they did, most people aren't able to make an informed decision that allowing their stocks to be lent out to short sellers for a small fee is in their interest. (and, despite creative rhetoric to the contrary, there's no world in which doing so is in their best interest)
webinvest 5y ago
Philosophically, that’s a good point. My only rebuttal is that the stock market isn’t efficient. Options market predictions for future prices are oftentimes way off (like with AMD last year) and stocks will go up or down without change to a company’s fundamentals or without a new earnings report. If I could lend out any shares I own (and shares that I plan on owning for longer than the short seller will) for 1% interest per month to short sellers, I would! I certainly wouldn’t lend out any share for 2% per year or less. There’s a balance to be struck. This might only be 0-2 stocks in your portfolio at any given time. I also wouldn’t ever lend out dividend paying stocks (until the tax laws are updated) because the stock lender receives payment “in lieu of dividend”. It can’t ever be a qualified dividend so instead of paying 15% qualified dividends tax, you pay about 28% earned income tax on it instead. If I was not earning income for shares I was lending out, the optimal play is to never lend out shares for any reason because you’re right it’s a direct conflict of interest.
chii 5y ago
> damage done by the short sellers short selling (not naked short selling) doesn't "do damage". It is part of the set of actions in the market which reveals the "true" price of a share. Lending out shares for short sellers for a fee is just a fund's way of getting extra income from their assets. If the short seller turns out to be right (and the stock is over-valued), then at least they would've gained the lending fees. The fund's share position is still the same, and their losses (if any) is still the same.

mensetmanusman 5y ago

They are usually set up as ‘heads I win, tails you lose’ it seems…