ARE SHORT SELLERS NECESSARY? Short selling is not like making a normal investment. When you make a normal investment, you by something, hoping it will be more desirable in the future. This type of investment-‘go long’ – seems to be about optimism and hope. With short selling, you look for something that you think is going to decline in value. Then you borrow sone shares in that thing. Next, you sell those shares to someone whois more optimistic, or less discerning, than you. If you’re right, and the shares plummet, you can buy them back for less than you sold them. If you’re wrong, and they treble in valua, you’re bust, because you still owe the shares to their original owner. Imagine if you go to a shop and see a big shelf of expensive handbags. Let’s say I look at these handbags for a while and come to believe they’renot worth anything like the price on the label. To me, they look like rubbish handbags. So I go to the owner of the store and ask him, for a small fee, to borrow these handbags for a week. Then I take the bags out of the store and sell them to a trader for a fraction less than the price on the label. He’s happy- he thinks he can make a profit. 6 days later I go to see him. I was right- the handbags were ribbish. He hasn’t sold a single one. So I make a deal-I’ll buy them back for half of what I sold them for. Now he’s happy to get rid of them.The next day, igo back to the store and return the bagsto the owner. He’s happy, but maybe a little suspicious. That’s shortselling. So what’s actually happened?I, the short seller, have spotted that somebody is charging a lot of money for hadbags that are rubbish. Next, I’ve found somebody who is prepared to sell any old rubbishas long as he thinks there’s something in if for him. Now, who are these short sellers? What sort of people are they likely to be? Well, they are people who see things that look good onn the surface but are actually rubbish. They are people,in other words, who see the difference between the appearance and the reality. They are the first to notice when something is a con. Short sellers, in fact, reveal the problem. It was short sellers, apparently, who made people realize that Enron was a rubbish product. No, the problem is not the short sellers. It’s the world of empty promises and false values that enables them to thrive. To ban them is to shoot the messenger.
Posted on: Wed, 11 Sep 2013 08:05:21 +0000