Short Selling
- Thread starter Harriet
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LaraOnline
Ideal_Rock
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Well I don''t know very much about it, not having traded in stocks, but I do know that it can have a stabilising effect on the overall price of shares, when a pressure, such as new information about a company, would otherwise cause a share price to shoot up or shoot down.
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i''m all for it....short selling is part of investment strategy. sometimes i do sell short.
strmrdr
Super_Ideal_Rock
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It puts volatility in the market that is not needed and harms long term investors.
It can also cause a downward trend to spiral out of control.
Shorts combined with Short term investing prevents companies from obtaining long term goals.
Many companies have been put out of business by trying to keep up with the short term at the expense of the long term.
It also puts American companies at a disadvantage against foreign companies who can think in the long term.
imho a double strategy is needed ban shorts and tax to death short term investments....
Eliminating shorts and going with a graduated capital gains tax with a 90% tax on gains less than 7days will solve the problem nicely.
Then drop it down to 50% up to 4 weeks 20% for 4 weeks to 10 years and 5% for 10+ years and 0% for 20+ years.
Make dividends tax free if rolled over into more stock, otherwise treat them as income.
Any company that does not pay dividends is stealing from the investors.
It can also cause a downward trend to spiral out of control.
Shorts combined with Short term investing prevents companies from obtaining long term goals.
Many companies have been put out of business by trying to keep up with the short term at the expense of the long term.
It also puts American companies at a disadvantage against foreign companies who can think in the long term.
imho a double strategy is needed ban shorts and tax to death short term investments....
Eliminating shorts and going with a graduated capital gains tax with a 90% tax on gains less than 7days will solve the problem nicely.
Then drop it down to 50% up to 4 weeks 20% for 4 weeks to 10 years and 5% for 10+ years and 0% for 20+ years.
Make dividends tax free if rolled over into more stock, otherwise treat them as income.
Any company that does not pay dividends is stealing from the investors.
diamondfan
Super_Ideal_Rock
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I think it is profiting of the troubles of others, maybe it helps with a correction over the long haul but it is like being a buzzard around a dying animal to me.
stone_seeker
Shiny_Rock
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For it 100%. I am against the folks who abuse the rules and manipulate stocks lower. The SEC has done a poor job of enforcing the short rules - including the uptick rule which created tremendous volatility when it was removed.
Days like today will occur without shorts in the market since people are wary of the prices since the game is now rigged and that will keep long funds from buying since they cant hedge positions with honest short sales.
It is needed but the funds who manipulate the media and conduct these bear raids by shorting stocks without borrowing the shares first should be prosecuted.
stone_seeker
Shiny_Rock
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Exactly. It allows for true pricing. By eliminating shorting, you might as well disallow selling stock before holding for one year minimum. Same difference.
Beacon
Ideal_Rock
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Short selling provides useful functions. For one thing, short sellers often have done a lot of research on the company they are shorting and they discover and root out fraud. Often a large outstanding short interest (this information is very easily available to the public) indicates that there may be a problem with the company, like that the books are cooked. It raises a red flag that long side investors can use to protect themselves.
Short selling can mitigate volatility, for example, buy acting as a counter force to extreme buying frenzies, such as in the tech bubble.
Short selling can be part of a normal effective investment strategy where you want to be neutral to the future actions of a stock price. For exmple, let's say you know you are going to be receiving stock in a company as part of a options exersize or inheritance but cannot execute the trade right away. So you short the stock as you know you will ultimately become long the stock and make delivery on your short sale.
The same thing applies to timing of sales. Say you want to secure the price of a stock you own, but you don't want to sell it in this tax year, you want to sell it next tax year. You go simultaneously long and short the equity and wait til the new year to deliver your long postion to cover the short. This conservative strategy is called, "shorting against the box." Itis frequently used for a variety of legitimate reasons.
I think people are very emotional right now and taking strong opinions and trying to make all kinds of things "illegal" that perhaps they do not fully understand.
Lastly I think we have noticed that the market can go down just fine even if short selling is disallowed. So making short selling "illegal" does not do much good really.
Short selling can mitigate volatility, for example, buy acting as a counter force to extreme buying frenzies, such as in the tech bubble.
Short selling can be part of a normal effective investment strategy where you want to be neutral to the future actions of a stock price. For exmple, let's say you know you are going to be receiving stock in a company as part of a options exersize or inheritance but cannot execute the trade right away. So you short the stock as you know you will ultimately become long the stock and make delivery on your short sale.
The same thing applies to timing of sales. Say you want to secure the price of a stock you own, but you don't want to sell it in this tax year, you want to sell it next tax year. You go simultaneously long and short the equity and wait til the new year to deliver your long postion to cover the short. This conservative strategy is called, "shorting against the box." Itis frequently used for a variety of legitimate reasons.
I think people are very emotional right now and taking strong opinions and trying to make all kinds of things "illegal" that perhaps they do not fully understand.
Lastly I think we have noticed that the market can go down just fine even if short selling is disallowed. So making short selling "illegal" does not do much good really.
strmrdr
Super_Ideal_Rock
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I very strongly disagree with that.
True pricing is only met when someone who owns shares wants to sell them and someone who doesn''t own them wants to buy them.
Someone who wants to make a quick buck at the expense of others has no place in that system.
Beacon
Ideal_Rock
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I agree with stoneseeker. The more "opinions" you have in the market, the more potentially accurate is the stock price.
Short sellers clearly have an opinion. Sometimes their opinion reflects a point of view that is correct but not currently reflected in the stock price.
I have seen this about a jillion times in the markets.
Naked short selling is not a good policy, no. But normal short selling only represents an opinion by an investor that an equity is overpriced. Very many times this is quite true. Why should this be outlawed?
Short sellers clearly have an opinion. Sometimes their opinion reflects a point of view that is correct but not currently reflected in the stock price.
I have seen this about a jillion times in the markets.
Naked short selling is not a good policy, no. But normal short selling only represents an opinion by an investor that an equity is overpriced. Very many times this is quite true. Why should this be outlawed?
stone_seeker
Shiny_Rock
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its my understanding that shorting against the box was no longer useful for deferring taxes (not dodging storm!).
But shorting does help in achieving perfect pricing since the market price should be the weighted average of all people willing to buy and sell at various prices. Eventually those find equilibrium. Unfortunately, as the market for buying financial stocks dried up - not due to fundamentals but purely because of fear - shorts took advantage and were able to drive stock prices lower in a short period of time. But, in a free market, buyers who thought those lower prices were unfair, should have been able to buy cheaply. It just turns out that these banks were indeed not worth much from an equity standpoint.
Shorting gets a bad rap since it seems un-american to profit at the demise of others but in 90% of the cases, shorting serves a very useful function.
But shorting does help in achieving perfect pricing since the market price should be the weighted average of all people willing to buy and sell at various prices. Eventually those find equilibrium. Unfortunately, as the market for buying financial stocks dried up - not due to fundamentals but purely because of fear - shorts took advantage and were able to drive stock prices lower in a short period of time. But, in a free market, buyers who thought those lower prices were unfair, should have been able to buy cheaply. It just turns out that these banks were indeed not worth much from an equity standpoint.
Shorting gets a bad rap since it seems un-american to profit at the demise of others but in 90% of the cases, shorting serves a very useful function.
Beacon
Ideal_Rock
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Yes, stoneseeker I think you are right. The IRS has a ''constructive sale" law. But I think there are still some little ways you can use it. Harriet might know the best on this one!
It''s been an age since I have used it, but I have in the past.
It''s been an age since I have used it, but I have in the past.
strmrdr
Super_Ideal_Rock
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The average American does not do that they invest in funds and in a 401k.
It is a very small percentage that play stocks directly. (owning a handful of shares in one or 2 companies over a long period doesn''t count as playing stocks directly)
The majority that do are the rich plus some crooks.
NewEnglandLady
Ideal_Rock
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I''m certainly not rich and use short selling as part of my trading stategy--shorting a couple of stocks was the smartest thing I did in the past 4 weeks, I wish I''d shorted everything.
I''m obviously all for it.
stone_seeker
Shiny_Rock
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unfortunately there are too many funds who can only buy some stock if they can short the same amount of some other (neutral funds). So by abolishing shorting, funds wont be able to buy the stronger companies thus affecting demand and negatively impacting your long term investments.
Plus folks who short have to buy those shares back so if a good company does well, short interest will create future demand.
I think what you have an issue with is those that are abusing the rules and that should be the case with people who abuse rules in both directions - buying and shorting. Maybe McCain was right and the SEC chairman should be fired. This was his jurisdiction.
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since when does shorting stocks a guarantee profit?
stone_seeker
Shiny_Rock
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If you are referring to tradergirl''s post, I agree completely that the post was out of line and I can guarantee that she made no money shorting stocks. Laughing at the losses of others is despicable and shows a clear lack of class. The people that I know who short stocks arent gloating and are doing it as part of a mixed portfolio. There are plenty of folks who own a lot of stocks for the long term who also bought SDS which is an ETF that shorts the S&P index. It elminates some of the market risk so at least some piece of their portfolio can make money while other pieces decline in value.
NewEnglandLady
Ideal_Rock
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Haha, so it''s bad karma if we lose money shorting, but not bad karma if we lose money going long?Date: 9/30/2008 9:35:33 AM
Author: strmrdr
karma stinks don''t it?Date: 9/30/2008 2:17:53 AM
Author: Dancing Fire
since when does shorting stocks a guarantee profit?i been caught a few times with my pants down when i was on the short side
Beacon
Ideal_Rock
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If you believe karma affects your investment returns, you better stay out of the markets. A stock doesn''t know or care if you are long or short it, whether you make money or lose it or whether you are a nice person or a fool.
Short term price insanity aggregates into long term rationality.
Short term price insanity aggregates into long term rationality.
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