Misconceptions about short selling
A few days ago, I saw in the newspaper that the famous short-selling agency Hindenburg Research announced that it would close its business. This news made me feel emotional and have this post.
Most investors have a bad impression of short-selling institutions, and the reasons are nothing more than that they are heinous, causing stock prices to fall and disrupting the market order; but in fact, these reasons are specious and follow the crowd, because most people actually have no idea about the short-selling professionals. Understanding is very limited.
Short sellers’ Contribution
Covering helps stock price rebound
When the market falls sharply, short-selling investors’ large-scale covering of short positions is actually very helpful in stabilizing stock prices.
Find the culprit
In the past, stock markets around the world have indeed relied on professional short-selling institutions to identify many problematic listed companies. Of course, after inspection, many companies were able to prove their innocence. However, there are indeed a large number of illegal companies, which are exposed due to investigations and research by professional short-selling institutions. Facts have proved that some of the listed companies exposed as illegal by short-selling institutions are indeed true.
Here are some examples:
- “Supermicro, a repeat offender of scandals, valuation is not justified and unsustanable, no worth for long-term holding“
- “What happened to those lottery-like stocks?“
Education to Investors
Not all listed companies are honestly run. In stock markets around the world, there are still a large number of listed companies that make profits by using fraud, illegal financial reports, stock price manipulation, falsified operating figures and other methods. Increase the company’s stock price.
It is difficult for ordinary investors to see through these tricks. For most of these black sheep, it is only through the relentless pursuit of professional short-selling institutions that the truth is revealed to the world.
I personally believe that this is the biggest contribution of short-selling institutions to the market.
Disadvantages for Short Sellers
Against the market
The stock market has a characteristic that in the long run, the stock market trend is upward. As long as they do not delist and can continue to operate, listed companies are almost all decent companies that can stand the test of time. In the long run, the stock prices of these companies will rise – this is very unfavorable for short sellers because they are going against the market.
Requires a lot of resources
For a successful short selling professional organization to accomplish a perfect and successful short selling, it needs to invest a huge amount of time, manpower, material resources, and time.
Short selling trade is not easy
Especially for retail investors, the reason for short selling is almost always just “I think the stock price of this company is too high”, without any strong and reliable factual support or research behind it. This is also the main reason why most retail investors lose everything. Because they only go long on stocks, never go short, and do not buy or sell derivative financial assets, the most stock market investors can lose is the capital they originally invested, and it is impossible for them to lose money.
Short selling requires extremely high trading skills, because the opportunity when short sellers can make huge profits is usually extremely short. If the opportunity is not grasped well, the opportunity will be missed if you are not careful, and it will never come back.
Unwelcome
All governments and stock exchanges do not welcome short sellers, especially when the stock market crashes, bear markets, or economic conditions are bad. Many countries will first impose short selling orders, the most common of which is the ” “Short limit order” – that is, short selling is prohibited below the flat price, in the hope that this artificial intervention can prevent the market from falling further.
Litigation
If it is a professional short-selling organization, every time it does short-selling in a high-profile manner, the media will report it extensively, which will then become a hot topic. The short-sold companies will immediately refute it in order to defend their stock prices. If the evidence presented by the short-selling institution is clear, it will usually attract the attention of market regulators, which will intervene to investigate whether it is true. In more serious cases, if a criminal offense is committed, even the judicial authorities will take the initiative to intervene in the investigation.
All of this will cause trouble for the short-selling institutions, and the endless lawsuits will definitely consume a lot of their energy.
Closing words
If it is really a pearl or a rose, its original value will not be diminished just because you are given another ugly name or so-called false accusation. But it is possible that at the time of the incident, it was labeled by the general public’s preconceived impression. This is human nature. , it is difficult to avoid, because most people will just follow the crowd, “everyone in the world can be killed” is the reason.
Throughout the hundreds of years of stock market history, there are many examples that prove that some stocks were indeed mistakenly killed or misjudged by short sellers, regardless of the original intentions of the short sellers. But this will not affect long-term investors’ investment in an excellent stock. If the company can prove that the short sellers were wrong with their performance, then the stock price will suddenly rise sharply.
Related articles
- “Pros and Cons of a short selling institutions“
- “Don’t borrow money, shorting, or derivative products“
- “Investment concept not worth trying at all“
- “How to react when holdings are shorted by famous institutions?“
- “Why shorting is extremely dangerous to retail investors?“
- “Supermicro, a repeat offender of scandals, valuation is not justified and unsustanable, no worth for long-term holding“
- “What happened to those lottery-like stocks?“
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