Short selling-UW prof quoted
Comments
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Bumpdiggity. Worth reading.
It didn't hit me as a compelling argument. My old company would have never seen a restatement or a qualified audit opinion. We never received comments from the SEC on our filings ( go Creepycoug!) and it's hard to say we were overvalued. We held hard assets ... timber, real estate, oil and gas and some forest products manufacturing. So, mostly commodities and easily valued assets for a reasonably straight-forward NAV. We paid a dividend that represented a % return against the stock price. All straight forward.
I was in Dallas one week on a panel and our stock exceeded its all-tim high by some crazy percentage. Can't remember, we were trading in the high 20s for a low and low 40s for a "good price" for a seller, and it hit $54 due to a short squeeze. My Chelan property was effectively funded that day because, fortunately, we were in an open trading window and I executed a bunch of options that had been only marginally in the money up till then.
That whole thing had nothing whatsoever to do with my company's value. Not a thing changed. I recall even thinking at that time that the relevant commodity pricing that affected us had been, and remained, relatively stable (and boring) throughout that year.
It's a good theory, but I don't think we need people making bets to show us that a company is over- or under-valued. The financial statements do that as long as they're not cooked. And if they are cooked, that's what the SEC is for; I'm not seeing the connection with a few skeptics assuming they're cooked placing bets and rescuing the rest of us from their malfeasance.
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Any competing thoughts?
It's a good article. Give it a read. -
@creepycoug Yep. Short selling is good for the market... more of that rather than less of it. What many do not realize is that the market is determined not just by supply and demand at the institutional and retail level, but in a significant manner by the cash flow and risk appetite of the actual market makers in the stock.
Briefly put, if there is an order imbalance and or a long term trajectory which is exuberant, market makers are obligated to be the other side of the market... in other words, for the profit and honor of capturing the spread associated with trading, market makers have the obligation to put up BUY AND SELL bids when no one else wants to, and in this case they wind up with net short position exposure that no one at the corporate level in the market makers organization wants to maintain.
Short sellers are the ones that help to balance the market at these moments because they are a willing seller when market makers do not necessarily want the risk of a short position on the books [amoung other positive attributes] and without them as a safety valve, market makers are limited in their flexibility to manage the bid ask spread while in the midst of market movement which places market makers private capital at undue risk.
The same thing happens in a declining market as you near the bottom or after a large decline has occurred... short sellers represent an important part of operating as the entity that wants to sell borrowed long stock to bargain hunters while stocks are on the way down so that market makers do not wind up with short positions that they do not desire at that moment. Careful what you hope for.
In short, short sellers simply improve market liquidity unless they effectively mount an effective enough of an attack to actually destroy the target company, which is the exact opposite of a short squeeze. -
we need both
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Is all that to say that, w/o them, we wouldn't have an ordered market and would otherwise have a market with massive volatility? Their role in this dynamic you describe as the market maker's helper keeps markets calm?DawgsCanDance said:@creepycoug Yep. Short selling is good for the market... more of that rather than less of it. What many do not realize is that the market is determined not just by supply and demand at the institutional and retail level, but in a significant manner by the cash flow and risk appetite of the actual market makers in the stock.
Briefly put, if there is an order imbalance and or a long term trajectory which is exuberant, market makers are obligated to be the other side of the market... in other words, for the profit and honor of capturing the spread associated with trading, market makers have the obligation to put up BUY AND SELL bids when no one else wants to, and in this case they wind up with net short position exposure that no one at the corporate level in the market makers organization wants to maintain.
Short sellers are the ones that help to balance the market at these moments because they are a willing seller when market makers do not necessarily want the risk of a short position on the books [amoung other positive attributes] and without them as a safety valve, market makers are limited in their flexibility to manage the bid ask spread while in the midst of market movement which places market makers private capital at undue risk.
The same thing happens in a declining market as you near the bottom or after a large decline has occurred... short sellers represent an important part of operating as the entity that wants to sell borrowed long stock to bargain hunters while stocks are on the way down so that market makers do not wind up with short positions that they do not desire at that moment. Careful what you hope for.
In short, short sellers simply improve market liquidity unless they effectively mount an effective enough of an attack to actually destroy the target company, which is the exact opposite of a short squeeze. -
Yes... the limitation for short selling now is the lack of availability of stock to be loaned on a massive scale.
The back story is that In order for a stock to be "lendable" according to the "rules", the stock needs to be held in a margin account. If the rules were changed to all stocks issued that are held in brokerage accounts were automatically classified as being marginable, the availability of stock to borrow and therefore be able to short without the fear of a short squeeze [until short sellers have sold the total number of outstanding shares] would materially improve the liquidity of the market.
This get into the question of how many angels dance on the head of a pin... changing the rules regarding the easy availability of shortable stock might materially change the "built in" inherent bias of the upward trajectory of the markets over time however so regulators prefer the "juiced ball" approach currently in place in support of upward movement. -
Post moar
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Great explanation.DawgsCanDance said:Yes... the limitation for short selling now is the lack of availability of stock to be loaned on a massive scale.
The back story is that In order for a stock to be "lendable" according to the "rules", the stock needs to be held in a margin account. If the rules were changed to all stocks issued that are held in brokerage accounts were automatically classified as being marginable, the availability of stock to borrow and therefore be able to short without the fear of a short squeeze [until short sellers have sold the total number of outstanding shares] would materially improve the liquidity of the market.
This get into the question of how many angels dance on the head of a pin... changing the rules regarding the easy availability of shortable stock might materially change the "built in" inherent bias of the upward trajectory of the markets over time however so regulators prefer the "juiced ball" approach currently in place in support of upward movement.
We joke around a lot, but this is the kind of top drawer insight you can’t get in the Tug.
@RaceBannon @DerekJohnson -
creepycoug said:
Great explanation.DawgsCanDance said:Yes... the limitation for short selling now is the lack of availability of stock to be loaned on a massive scale.
The back story is that In order for a stock to be "lendable" according to the "rules", the stock needs to be held in a margin account. If the rules were changed to all stocks issued that are held in brokerage accounts were automatically classified as being marginable, the availability of stock to borrow and therefore be able to short without the fear of a short squeeze [until short sellers have sold the total number of outstanding shares] would materially improve the liquidity of the market.
This get into the question of how many angels dance on the head of a pin... changing the rules regarding the easy availability of shortable stock might materially change the "built in" inherent bias of the upward trajectory of the markets over time however so regulators prefer the "juiced ball" approach currently in place in support of upward movement.
We joke around a lot, but this is the kind of top drawer insight you can’t get in the Tug.
@RaceBannon @DerekJohnson
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Business in the front, party in the back.creepycoug said:
Great explanation.DawgsCanDance said:Yes... the limitation for short selling now is the lack of availability of stock to be loaned on a massive scale.
The back story is that In order for a stock to be "lendable" according to the "rules", the stock needs to be held in a margin account. If the rules were changed to all stocks issued that are held in brokerage accounts were automatically classified as being marginable, the availability of stock to borrow and therefore be able to short without the fear of a short squeeze [until short sellers have sold the total number of outstanding shares] would materially improve the liquidity of the market.
This get into the question of how many angels dance on the head of a pin... changing the rules regarding the easy availability of shortable stock might materially change the "built in" inherent bias of the upward trajectory of the markets over time however so regulators prefer the "juiced ball" approach currently in place in support of upward movement.
We joke around a lot, but this is the kind of top drawer insight you can’t get in the Tug.
@RaceBannon @DerekJohnson -
Co-signdoogie said:Post moar
