In a post on his blog, Carl Icahn came up with an argument in support of short selling that I hadn't heard before:
In simplest terms, choosing not to buy a stock because you don't like the company is like refusing to be friends with a drunk. But shorting a stock is like sending a drunk into rehab. Many of these companies, drunk with money and neglectful of risk, should have been sent to rehab a long time ago.
It's possible that aggressive short-selling accompanied by a public campaign of red flags might have pushed companies like Lehman Bros. and Bear Stearns to take a look at their risk management policies before it was too late: Certainly Lehman might have avoided its fate if it had listened to David Einhorn's warnings about leverage instead of dismissing him as irrelevant and buying back huge amounts of stock.
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Reader Comments (Page 1 of 1)
11-18-2008 @ 9:38AM
Jason said...
I totally agree with Icahn on this.
www.eeinvesting.com
11-18-2008 @ 5:14PM
Won Ming said...
...except that Dylan Ratigan wrote this as a guest blog for Carl...but it is an interesting idea.
11-18-2008 @ 11:05PM
horace manoor said...
shorting leads to rallying
1-07-2009 @ 12:09PM
Fernando said...
I wrote this in one post and will write it again here:
Short sellers do not hurt the market. In a matter of fact they help
the market to control the manipulation of bringing up a stock.
And is not short sellers who start a bear market, is insiders! get
it, is insiders! And do you know what an insider is?
People who know information about a corporation.
These insiders might have so much money, but they can't fight
conditions! When they see that the economy is shrinking, they start
selling.
And those so called bear raids is the public who had stock and
sold. They realize that they should have gotten out 10 points higher
ago, so when the rally comes, they sell fast so they can cut their
loses fast!
I suggest you read Reminiscences of A Stock Operator. You will read
how one of the best trader ever lived recount how people blamed him
for shorting so much the market, when it fact it was insiders that
where selling their own shares! He just read conditions and follow
the trend! It happened back then and its the same dilemma that is
happening right now. Like Jesse Livermore said, there is nothing new
in the market!
And one last thing. Short selling a stock is limited. You can short a
certain amount before you can't short no more. But buying stock is
endless. Buyer outnumbers short seller. But when is a bear market,
its a bear market, and you can't fight conditions.
Hence all those buyers who sell their stocks trigger a
faster drop then a short seller shorts.