Dave,
I wouldn't normally post about the topic, but it seems to me from reading the posts here that many people dislike Anthony because he openly admits to shorting, and loudly proclaims his reasons for doing so on the threads.
Most folks don't understand shorting or the psychology of shorters. They are the anti-matter to the longs matter; that is, the exact opposites, the antithesis of a long. They don't look for good stocks with good growth potential (other than to avoid them). They look for stocks with failing fundamentals; companies whose fundamentals cannot support the lofty valuations assigned by an inefficient market.
Shorting serves a purpose, and there is a valid reason for shorts to exist. When a company releases disappointing news or something along those lines, short term investors, momentum investors and the so-called "weak hands" bail on the stock at any price. The stock goes into a price free fall until it gets cheap enough that someone (with tremendous intestinal fortitude IMO) buys from those looking to sell. You'll see this buying action referred to in fundamental analysis as the projected low price, and in technical analysis as a line or level of support. If the stock price plummets though this support line, support is said to be broken, and a new level of support is projected.
In many instances, this line of support is in reality shorts covering their positions (as well as long investors doing some bottom fishing). If the shorts aren't there to cover, believe me, the stock in question can and will plummet much further, no ifs, ands or buts about it.
This brings us to the question as to whether or not shorting can affect the price of the stock. Shorters do far better due diligence on a stock than any longs I've ever known. So if self-declared shorters are on a stock where you're long, you'd best look at the DD they're presenting very carefully. I wouldn't say that shorts are correct 100% of the time, but most certainly the percentages run very high, say in the high 80s or low 90s, to nearly 100% accuracy on the BB stocks.
When a shorter takes his/her position, they have temporarily "inflated" the float. If enough shares are shorted, all of the buyers are taken out of the market (in other words, everyone who wants shares has shares, regardless of the source). So the stock stays in limbo, neither rising (no buyers) nor falling (no sellers). If the stock in question is a NASDAQ or an OTC-BB stock, the market makers may play some games with the bid and ask prices, and may widen or narrow the spread in an effort to entice trading. Remember that if no one is buying and no one is selling, the MM isn't earning any money.
So the question becomes, who breaks ranks first, the longs by selling or the shorts by covering? The answer is, of course, almost always the longs sell first. Why? In the case of short term traders and mo-mo traders, their money is tied up in a stock that isn't moving, and that's not profitable, so they move on to another play somewhere else. As the price falls, the "weak-hands" are the next to abandon ship, and the price drops further. The last to sell are those who realize too late that the shorts were correct in their DD, and they finally sell, leaving only the diehards still in the stock, whining that the shorts took their money. At this point the shorts cover, removing the temporary shares in the float, and look for the next company with poor fundamentals. That's how the game is played.
Of course, the shorts didn't really take their money. That's sort of an optical illusion. Yes, the longs that didn't sell at the highs now have a stock with a reduced valuation, but the longs didn't lose any money. They lost valuation. The people who actually lost money were those who bought the shorted shares from the shorts, and then subsequently abandoned the stock when the price fell, the so called buy-high, sell-low, do-no-DD investors.
I don't use shorting as an investing technique in my portfolios, nor do I play options. I am a long term, buy-and-hold type of investor. I don't get upset when I see people shorting a stock where I'm long. I'm usually looking at a 5 or 10 year horizon on my stocks, so I don't care about short term volatility. I don't care that someone has shorted my stock. I know that a shorter isn't going to be short my stock for 5 or 10 years. I don't play BB stocks, so I'm generally in higher quality stocks where the long term averages and long term growth rates work in my favor. The only folks who get upset with shorters are those that are mo-mo traders, or short term traders or "weak-hands" or those folks who consistently invest in poor quality stocks such as those found on the BB.
And that's how I see it...
KJC |
