(click on image to enlarge)
Many people have an instinctive horror of short sellers. When markets are down the short sellers are ofter blamed. When a posted a jokey defense of short sellers from the Daily Show back in March, A Defense of Short Sellers, one of my faithful readers objected. Timbo motalized, "But if you short a stock, that can be a knife in its back. That can be the tipping point." It is a problem when anybody manipulates markets in any direction. This is why there are often special rules and disclosures for financial journalists and advisers. The problem is neither short selling and long buying, you can get regular reports on both activities through curiously the shorts report that the Globe and Mail's Report on Business publishes in hard copy is not available online. The problem is at the extremes. Pump and dump schemes can temporarily inflate stocks. And persuasive bears can talk down individual stocks for the bear's benefit. That is a manipulation however under normal conditions many companies like the attention of bulls who talk up hem up. Short sellers perform a reality service for many a company as it wanders nonchalantly off a cliff. Sometimes big dumb companies can exhibit the Wile E Coyote effect until short sellers point out the gaping chasm beneath their feet. At which point the stock falls to earth not through the "evil" designs of the short sellers but through the incompetence and bad luck of it own management.