Is it true that people shorting a stock really have that much influence on it, other than maybe one or two days a months when options expire?
Complex question.
1. The "shorts" don't hurt a stocks price, the underlying company is the only one that can do that.
Shorts simply bring that companys problems to light.
2. Shorts can have a BIG influence on stock price on a stock that DESERVES to be brought down.
It's been my experience that shorts do MUCH more research on a stock than those that are long and then use that info to do all they can to drive the price down to a reasonable/fair valuation and of course scoop off some profit for themselves.
3. Longs blaming the shorts for hurting the stock price is ridiculous. This comes from folks that are looking for someone to blame for poor performance.
If the stock is the real deal no short is going to be able to affect price for long. The share price will eventually right itself.
Coincidently, the stock David U and I have mentioned the last couple days is a perfect example of unrealistic expectations by the LONGS clashing with the bright light of research by the shorts.
I discovered RACE using a stock screen that was searching for short candidates. I was looking for stock that had run up WAY to quickly and then formed candle formations indicating a top.
RACE stuck out like a sore thumb. I went short without even looking at what they did. When I dug a bit deeper, I saw other problems and about that time I alerted our esteemed colleague Mr. Lawrence.
David did some great fundamental research. Between the two of us we found that the company had ONE product, NO customers, NO market for the product, CRAPPY balance sheet that was bleeding red ink out of every pore, heavy debt load, fishy looking convertibles, etc., etc.
Looking at those fundamentals and a chart that spelled trouble, was it OUR fault that the stock tanked?
We both went short, with me doubling and quadrupling my position.
We voiced our concerns on the RACE thread and were soundly shouted down. David being more ......um...."diplomatic"<G> than I, fared better over there then I.
I chose to play "bad cop" to David's "good cop". A fun role, albeit a thankless one.<G>
That thread screamed bloody murder about how "the shorts were ruining the stock price".
BULL! The company with a faulty business plan, obsolete product and no customers is where the blame should be placed.
The shorts only pointed out that the emperor was naked as a jaybird.
Incidently, David and I went short from $20-24. Share price as of today is around $6.50.
Company STILL has no customers.
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