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Comment by kminehart | Hacker News Reader

Short selling is valuable. What's more valuable than putting your money where your mouth is?

The way I see it, every action you take in the stock market is a reflection of your beliefs; if you buy a stock, you believe, and are indicating, that the stock is undervalued. If you sell a stock, you believe that the stock is overvalued.

Short selling is a valuable way to indicate that you believe a stock is overvalued whenever you don't own the stock.

I understand why some may read about short selling and think it's profiting off of other's miseries, but they provide value in the market, and whether or not people are short selling the stock, if it's overvalued then it's overvalued.

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Right: in a world of similar market participants short selling is super valuable.

But what about when a market actor has enough wealth to massively short sell and enough media pull to be able to create a self-fulfilling prophecy about a company being in bad shape? (And enough pull with regulators to be let off the hook with the lightest of penalties?) This is when the market is no longer healthy nor free.

>if you buy a stock, you believe, and are indicating, that the stock is undervalued.

That's not true. You could believe that the company is stable and gives a good dividend each year. It could be valued perfectly well and you'd want to buy it because it would be precisely worth it to you. less than or equal, essentially, not simply less than.

>Short selling is a valuable way to indicate that you believe a stock is overvalued whenever you don't own the stock.

I don't think this is true, because the reporting on shorts isn't constant and because traditionally it's a far smaller community.

It's a valuable way to indicate that SOME people believe a stock is overvalued and seems to have been used as a replacement for independent research and valuation of a company.

Markets cannot find efficient prices without short selling.

Yep. Also, volatility would be way worse without short sellers, they’re usually the first ones to start buying when prices fall

I don't necessarily disagree with you. I suppose I should've added the caveat, "short selling with the express purpose to drive a company out of business/the market completely" - which is what it looked like the hedge funds were trying to do with GameStop.

Does short selling encourage a business to fail though?

Perhaps seeing a stock being heavily shorted would encourage others to sell their shares, but think that might be stretching it a little.

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