Hi Robert Warren; Re "The main thing I have against shorting is its such a waste of capital. All that capital that builds nothing, invents nothing. Instead is used to place a bet that a stock will go down."
The sole purpose of the stock market isn't to allow the country's losers to legally play "pyramid" with each other. It also isn't a casino where the laws are designed to improve the odds for the "bets" made by small time investors. Deciding on how the country's capital is invested is an important part of the stock market and the (long term) short sellers and hedge funds contribute to that information.
Short sellers eventually have to buy back shares, and that prevents stocks from going as low as they otherwise would. Maybe the next time you buy stock you'll be buying it from a short seller. If that's the case, then you may have gotten a better (i.e. lower) price because of his offering shares to you. Conversely, the next time you sell stock, there's a chance that a short seller will be buying shares from you to cover. In that case, you may have gotten a better (i.e. higher) price because of that short seller.
The market is entirely voluntary. If you don't want to have your shares lent out to short sellers, don't leave them in a margin account.
Daytraders and market makers who sell short provide narrower spreads than would exist in their absence. Eliminating these (short term) shorts will mean that the market makers and daytraders will no longer be able to provide two sided quotes without carrying shares. Since carrying shares around takes a lot of money and risk, you will find that the spreads will become very wide and a lot of market makers will cease offering shares at all in a lot of stocks.
Every now and then you see this in operation in the stock market. It typically happens when good news shows up on a small cap stock with low float. Daytraders can't find shares to borrow and market makers don't want to risk losing money. Consequently the stock flies up, but with huge spreads and incredible volatility.
In the absence of daytrader and market maker shorting, all stocks would have increased volatility and much wider spreads.
Re: "Its capital that is used to steal capital from the investors that invested in building something, inventing something." This is BS. Investors just want to make money.
Re: "Short selling as it is now can double the float of any company."
Short selling can (theoretically) increase the total float of a company by an unlimited amount. Shares that are borrowed and sold short can be borrowed again and sold short again. The reason that total floats are never increased by this much is because such a situation would be rather dangerous for the short sellers, not because it is impossible.
The total number of shares sold short is a small percentage of the total market, and I doubt it has increased much since the market started sliding. The decline in equities prices has nothing to do with short selling. It has everything to do with a bubble market where prices were way, way, way too high in comparison to the historical ratios.
If you've lost money in the market it's because you bought too high, not because short sellers drove your stock prices down.
-- Carl |
