I can't help but have zero sympathy for short sellers, and others to try to game the market. It doesn't seem like anything positive comes from shorting a stock other than someone getting rich.
I really don't understand the moral outrage directed at people shorting a stock. Personally, I reserve my opprobrium for stuff like getting people to pre-pay thousands of dollars for features that keep getting pushed back year after year, or shipping software in a twilight zone of autonomy that works fine 99.9% of the time and accelerates into a wall at 90mph the rest of the time.
And "gaming the market"? As in announcing an inexistent bid to take the company public?
But YMMV.
Of course there is. Shorting is immoral, it's legalized gambling, and the shorters are hoping the worst for the economy so they can profit off of other people's misery. Regular stock purchasing (not options mind you) is buying into a company, after researching it and understanding its workings with the hope of gaining value.
Another important difference is that regular trading transfers risk from one party to another, the overall risk in the market stays the same. Shorting however, creates risk for the sake of gambling, and exposes at least 3 parties to the stock instead of one. This is dangerous and immoral. It's quite telling that shorting was banned during the 2008 crisis, however, people don't learn and they reallowed it.
The laws of supply and demand don’t require short selling to reach equilibrium.
No, it doesn't. Real estate is a great example of a market where you can't short sell, and is also a great example of a market with absolutely horrible price discovery.
You don’t even need access to credit default swaps. REITs are publicly traded and can be shorted as easily as any stock.
If you are talking about price discovery of individual properties—-that stems more from the fact that property is generally illiquid and not fungible. Not from the fact that I can’t take a directional bet on the value of your specific house.
I've never seen this thought put in this way, I'm glad you said it, thank you.
Short sellers probide a valuable service to all investors, can you elaborate as to why you think they "game the system"?
Shorting a company means you'll benefit from value of the company going down. In normal circumstances, I can understand that it can have a positive effect on the market as some sort of scrutiny over the companies.
But in a post-truth world, it means some people have the power to short the stock, and then actively try to undermine it by running fake news; effectively becoming a barrier for the companies to create more value, which is in everyone's interest (employees, shareholders, investors, etc) except for those who short.
This results in an unoptimal distribution of resources, except for the people who took a long position, and then cashed out at the top.
Nothing stops a company from creating value just because people are shorting its stock. Musk's complaints about shorters aren't because shorters are bad for Tesla- it's because they are bad for him, as he dips heavily into debt (backed by the value of TSLA shares), to finance his lifestyle.
I think in the Tesla case people were annoyed at the latter, lots of stuff about Tesla’s success being impossible, model3 will never ship, etc. etc. - all of it total bullshit.
The same can be said about longs. Longs are bad when their holders try to manipulate the public market to save their position, by cheerleading the company's performance.
Shorting (exactly as with gambling) creates risk with the hope of gaining money, without any corresponding value being created. Not only that, shorting exposes three parties to the risk of a stock or asset (the shorter, the original owner, and the new owner). When engaging in regular stock buying and selling, there is exactly a single owner at a given point in time, and the risk is transferred accordingly with only one party being exposed to it at a time. Why is the former dangerous? Because it can easily trigger chaos in the economy when many people are exposed to the risk of an asset, when none of them truly own it (not dissimilar to what happened in 2008, selling debt for debt triggers this sort of chaos as well).
Not to mention that shorters profit off the misery of others (exactly the same as interest bearing loans, another parasitic and immoral practice). Shorters wish for the collapse of the stock price. This is unnatural and destructive.
This is a good article I came across that discusses some problems with shorting: https://practicalislamicfinance.com/2020/02/17/short-selling...