Hi Ga Bard; Re: "Only in the market can you sell something that someone else owns to gain profit from it."
If I own an orchard, and I agree to sell my September apples in January, before they've started to grow, am I not selling something that doesn't (yet) exist?
And if I intend on buying an orchard, what's wrong with my selling the apples that will be harvested from it? In that case I am definitely selling something that doesn't yet exist and that I don't yet own.
If I own a company that picks up and recycles trash, what's wrong with selling the aluminum cans I collect before I actually pick them up? In that case, I would be selling something that I not only don't own, but, in fact, is currently owned by other people and that I cannot be certain that any one of which will actually be collected by me.
Suppose a company wants 100,000 computer boards. Why shouldn't I be able to write a contract with them to deliver them even if I haven't designed them yet? If both parties to the agreement understand the contract I see nothing wrong with it.
People who buy stocks on borrowed money are getting something that they haven't paid for. Isn't that just as "not a true supply and demand market" as people selling something that they don't own? I'd be willing to bet that the total number of shares that are owned on margin is well in excess of the total number of shares that have been borrowed and sold, at any given time.
If daytrader (and market maker) short selling were eliminated, the stock market would trade with spreads much wider than currently obtain, and the difference in prices would come straight out of the pockets of the individual investors.
If longer term short selling were eliminated the effect would be to accentuate the market highs and lows, thereby exacerbating the ruin of the long investors. Short sellers reduce the peaks by their artificial (and temporary) increase in the number of shares available. Similarly, short sellers (or at least successful short sellers) buy shares back at lows, reducing the number of available shares.
-- Carl |
