Read the Beforeitsnews.com story here. Advertise at Before It's News here.
Profile image
By Freedom Bunker
Contributor profile | More stories
Story Views
Now:
Last hour:
Last 24 hours:
Total:

Short-Sellers Are Public Benefactors

% of readers think this story is Fact. Add your two cents.


Elon Musk’s Tesla Motors, whose stock has jumped nearly 50% in the past four months, has drawn the attention of short-sellers who think it is overpriced, and are selling stock they do not yet own, to gain if the market price falls. Musk has attacked it, reflecting the fact that, as Holman Jenkins put it, “short-selling is…widely unpopular with everyone who has a stake in seeing stock prices go up.”

Short-sellers are no different from doctors who profit from our illnesses or locksmiths who benefit from crime.

Illustrations are readily at hand. The first legislation offered by Joe Biden’s Senate replacement, Edward Kaufman of Delaware (headquarters to many corporations), would have restricted short sales, after “a lobbying campaign by financial institutions and other companies, which have experienced sharp declines in their stock prices, and their allies in Congress,” according to the New York Times. Not long after, the SEC introduced proposals to permanently restrict short-selling, which, at various times, has also been banned in countries including England, France, and Japan.

However, attacks on short-selling portraying practitioners as heartless opportunists, solely benefiting themselves from bad outcomes are misguided. They are no different from doctors who profit from our illnesses, teachers who benefit from our ignorance, or locksmiths who benefit from crime. Further, negative beliefs about something do not make those beliefs reality. In fact, short-selling provides added incentives to discover valuable information, which is often the scarcest commodity in a world of uncertainty and change.

In fact, negative information is just as valuable for making the best use of scarce resources as positive information. When research leads investors to negative conclusions, short-selling allows them to profit when they correctly anticipate the market’s response when that information is more widely known. It also allows non-owners to profit from the earlier discovery of negative information. In both cases, the result is others making fewer mistakes from relying on less-accurate prices. And short-selling cannot depress prices long if underlying circumstances do not warrant it.

In fact, short-sellers are often the most effective market policemen. They often uncover fraud, questionable accounting and management misbehavior that regulators fail to detect or prevent.

That is why target firms often assault short-sellers. Some have run attack ad campaigns just before declaring bankruptcy, or sued short-sellers for expressing negative opinions, just before serious fraud was uncovered. The New York Stock Exchange’s opinion, a decade ago, was that “short-sale price restrictions…serve only to interfere with the mechanisms of an efficient market.” Perhaps most telling, however, was a 2004 NBER study which revealed that targets often had something to hide, because “firms taking anti-shorting actions have in the subsequent year very low abnormal returns.”

Short-selling is also common in business. Farmers selling in futures markets when they plant do the same thing. So do homebuilders and others producing to order. As the New York State Commission on Speculation noted over a century ago, “Contracts and agreements to sell, and deliver in the future, property which one does not possess at the time of the contract, are common in all kinds of business.” There is no reason why such a commonly accepted business practice is harmful in the stock market.

Stop blaming short-sellers for discovering adverse information while ignoring the substantial gains of improved social coordination.

Short sellers are also criticized whenever they are wrong. But holding them to a standard of correct expectations is an impossible standard. No one has perfect foresight. People who buy stock are not always correct that it will go up thereafter. And if they were, those who sold the stock were wrong in their judgments. Applying such a standard of perfection to short sellers, but no one else, is not a serious idea.

Short-sellers receive widespread but undeserved condemnation. Opposition cannot stand careful scrutiny, beyond objecting to having one’s wealth reduced when negative information is revealed (showing that they were overly optimistic in their judgements), and frequently comes from those whose abuses or regulatory failings short-sellers uncover. We need to stop blaming them for discovering adverse information they did not cause, while ignoring the substantial gains of improved social coordination from the more accurate information they can reveal.


Source: http://freedombunker.com/2017/04/29/short-sellers-are-public-benefactors/


Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world.

Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.

"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

Please Help Support BeforeitsNews by trying our Natural Health Products below!


Order by Phone at 888-809-8385 or online at https://mitocopper.com M - F 9am to 5pm EST

Order by Phone at 866-388-7003 or online at https://www.herbanomic.com M - F 9am to 5pm EST

Order by Phone at 866-388-7003 or online at https://www.herbanomics.com M - F 9am to 5pm EST


Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!

HNEX HydroNano EXtracellular Water - Improve immune system health and reduce inflammation.

Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.

MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)

Oxy Powder - Natural Colon Cleanser!  Cleans out toxic buildup with oxygen!

Nascent Iodine - Promotes detoxification, mental focus and thyroid health.

Smart Meter Cover -  Reduces Smart Meter radiation by 96%! (See Video).

Report abuse

    Comments

    Your Comments
    Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

    MOST RECENT
    Load more ...

    SignUp

    Login

    Newsletter

    Email this story
    Email this story

    If you really want to ban this commenter, please write down the reason:

    If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.