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.
@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.
@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.
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?
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.
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.
Great explanation.
We joke around a lot, but this is the kind of top drawer insight you can’t get in the Tug.
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.
Great explanation.
We joke around a lot, but this is the kind of top drawer insight you can’t get in the Tug.
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.
Great explanation.
We joke around a lot, but this is the kind of top drawer insight you can’t get in the Tug.
Maybe this is just four 10% stouts talking (found the % key on the sixth try...), but I still don't understand the necessity of short sellers. You buy a stock because you think a company will do well. That company doesn't do well, so you (and, presumably, everyone else) tries to sell. This increase in availability of stock makes the price shoot down. As it should, as this company isn't doing well. So what's the problem?
When the company is doing well, people want the stock, and so the price increases. When the company is doing poorly, everyone's trying to sell the stock, so the price decreases. Simple. Perfect.
My limited experience w/ short sellers is the same as the author. More often than not, they have thoroughly done their homework, and when they present their results, it doesn't take alot or reading to see there is trouble in paradise for the company they have targeted.
The research they do absolutely has a place in the market, less sure on overall value they bring to efficiency of market.
One thing I love about the Finance board is how many smart people we have and like the old adage "you learn much more with your mouth shut and ears open, I am going to defer to Dawgscandance.
Why I hope as time goes on we get more discussion on stock specific ideas and why/why not they may be buys/sells
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.
Great explanation.
We joke around a lot, but this is the kind of top drawer insight you can’t get in the Tug.
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.
Great explanation.
We joke around a lot, but this is the kind of top drawer insight you can’t get in the Tug.
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.
Great explanation.
We joke around a lot, but this is the kind of top drawer insight you can’t get in the Tug.
HHusky
Member Posts: 20,405
Comments
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.
@godawgst
@Tequilla
@HoustonHusky
@ntxduck
@doogie
@DawgsCanDance
Any competing thoughts?
It's a good article. Give it a read.
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.
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
When the company is doing well, people want the stock, and so the price increases. When the company is doing poorly, everyone's trying to sell the stock, so the price decreases. Simple. Perfect.
The research they do absolutely has a place in the market, less sure on overall value they bring to efficiency of market.
One thing I love about the Finance board is how many smart people we have and like the old adage "you learn much more with your mouth shut and ears open, I am going to defer to Dawgscandance.
Why I hope as time goes on we get more discussion on stock specific ideas and why/why not they may be buys/sells
Posters go to the Tug for political discussions or rants. Or discuss why its so great to be part of their cult (blue or red).
We go to the Husky Football Board for UW updates and Malarkey.
You have done an awesome job keeping this board focused (and kept the hate and malarkey away).
Today seems to be slipping a notch toward political hate and Malarkey.
Please to be refocusing the focus of those who are now unfocused.
Thank you.
I didn't know UW updates were a thing! Where do I find these? Links?
Can't tell if insult or compliment...