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Pastimes : Ask Mohan about the Market

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To: Tommaso who wrote (7436)	11/8/1997 1:37:00 PM
From: Mark Nelson	Read Replies (3) of 18056

<Plainly put, well-financed and diversified short sellers who simply pick the highest P/E recent issues and hold their short positions are going to make the killing of a lifetime.> Good post. It brings to mind something that I think others on this thread may relate to. I have been wrestling with an ethical conundrum re: profiting from the mis-fortunes of others with a short position when the market tanks. To begin with, this may be a flawed assumption. The profit one may derive from a short position is not "from" the loss of another's long position, it is merely concurrent. More importantly, I find myself wanting something to happen which others would call "bad". Is this wrong? A friend put it this way. Say you have a grocery store in Florida. If a hurricane threatens to strike, the town cleans out your shelves in panic. You make a profit, they get their supplies. No problem. However, what if, in anticipation of the storm, you bring in extra stock. Pure speculation with a risk. You find yourself hoping the storm will threaten to strike so that your stock will get sold. Is this a morally defensible position? Is this a valid metaphor? One other thought. The evaporation of capital gains in a crash is mitigated by the gains of those who are short. This is a preservation of wealth when the market is viewed as a closed system. I would go one step further to conclude that a short position equal to the long positions of the entire market would provide a net preservation of the entire capital gains (provided the short position was established "at the top"). So, in a moral context, this would be ok(?) Just a thought. Mark

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